Michael Porter Asks, and Answers: Why Do Good Managers Set Bad Strategies? (Knowledge@Wharton)

Some excerpts ...

Errors in corporate strategy are often self-inflicted, and a singular focus on shareholder value is the "Bermuda Triangle" of strategy, according to Michael E. Porter, director of Harvard's Institute for Strategy and Competitiveness.

Porter stressed that managers get into trouble when they attempt to compete head-on with other companies. No one wins that kind of struggle, he said.

Managers who think there is one best company and one best set of processes set themselves up for destructive competition. "The worst error is to compete with your competition on the same things," Porter said. "That only leads to escalation, which leads to lower prices or higher costs unless the competitor is inept." Companies should strive to be unique, he added. Managers should be asking, "How can you deliver a unique value to meet an important set of needs for an important set of customers?"

"Strategy has to do with what will make you unique," Porter noted. Companies also make the mistake of confusing strategy with an action, such as a merger or outsourcing. "Is that a strategy? No. It doesn't tell what unique position you will occupy."

"We have had this horrendous decade where people thought the goal of a company is shareholder value. Shareholder value is a result. Shareholder value comes from creating superior economic performance."

Managers often tend to let incremental improvements in operations crowd out the larger strategy of building a unique business that will retain its competitive advantage, Porter noted. To bypass this problem, managers must keep the competitive strategy in mind at all times. "Every day, every meeting, every decision, has to be clear.... Is this an operational best practice or is this something that's improving on my strategic distinction?"

Strategy is challenged every day, and only a strong leader can remain on course when confronted with well-intentioned ideas that would deviate from the company's strategy.