Omar Aktouf, Miloud Chennoufi, and W. David Holford
5.1 Introduction
What accounts for the phenomenal success of Porter’s work? Assessing the contributions of Porter’s Five Forces framework presented in Competitive Strat-egy (Porter 1980a), Brandenburger (2002) suggests that two factors account for the longevity and extent of Porter’s influence. First, Porter’s thinking ‘gives a clear image of the essential activity of business. It depicts the whole vertical chain of economic activity running from suppliers (owners of resources) through businesses and on to customers. It highlights the central role of business in creating value but also emphasizes how businesses are interdepen-dent with their suppliers and customers’ (Brandenburger 2002: 58). Branden-burger adds that in contrast to canonical economic models, which assume atomized producers and consumers, Porter’s model is more realistic in that it focuses on the reality of largefirms that dominate many industries; that is, on situations of monopoly or oligopoly. Second, the very limited number of generic strategies that Porter advocates (low-cost leadership, product differen-tiation, and market specialization) is another element of clarity that attracts the attention of decision-makers, consultants, and academics to his work.
But clarity and accessibility is unlikely to guarantee the wide diffusion of a given work on management. Much of what is written about strategy is quite clear and accessible, yet little results in the success achieved by Porter. Porter frames matters differently, he claims, in terms of making a contribution to science and of scientific rigor. With regard to Competitive Strategy, he main-tained in an interview which was quite revealing of the ins and outs of his
thought:‘. . . there was an opportunity to bring industrial organization think-ing into the study of strategy, and vice versa’ (Argyres and McGahan 2002b:
43).1 As such, he was the first author to bring together two disciplines – industrial organization economics and strategic management– in order to provide a better discussion of the strategic choices made byfirms. He went on to explain why this discussion also had to rid itself of neoclassical economic thought:‘ . . . ceteris parabus assumptions don’t work. Managers must consider everything. I concluded that we needed frameworks rather than models’
(Argyres and McGahan 2002b: 43). Lastly, with regard to scientific rigor, he added:‘We also needed a more disciplined way to think about strategy. We needed a more rigorous approach, a systematic way to look at industries and wherefirms stood in their industries’ (Argyres and McGahan 2002b: 43–4).
In this chapter we attempt to show that while Porter’s work is the basis of a systematic approach to strategy, it in no way guarantees the scientific rigor he claims, and furthermore does not assure the achievement of a lasting, defensi-ble, and non-easily imitable competitive advantage. In addition, we try to shed further light as to why his work has been attractive for so long to a significant proportion of western managers, consultants, and academics. We discuss each of his two early pivotal works– Competitive Strategy (Porter 1980a) and Competi-tive Advantage (Porter 1985a)– in order to draw out their foundations, to reveal how their purported scientific rigor is non-demonstrable, and to point out the epistemological and methodological insufficiencies which seriously under-mine Porter’s claims to scientific rigor. We also visit another school of thought, namely the resource-based view (RBV) of thefirm, which not only highlights practical and operational weaknesses in Porter’s proposed frameworks but also serves to reinforce our view of the epistemological and methodological insuffi-ciencies found in Porter’s work. Our own arguments concerning the real rea-sons for the success enjoyed by Porter’s work are twofold. At the ideological level his work legitimizes the current state of relations of force within and betweenfirms operating in advanced capitalism. The legitimizing power of his thought makes it an ideal wellspring from which dominant incumbents can draw arguments and reasons of a scientific nature to justify their domination.
At the operational level his work offers ease of comprehension, relative ease of implementation, and subsequent gratification from initial operational suc-cesses. However, in our view, operational successes derived from his frame-works are very often neither long-lasting nor easily defendable.
5.2 Doctrine of positioning and legitimating domination
In contrast to those researchers who preceded him in the field of strategic management, Porter is an advocate of the strategic positioning of afirm in a Competition, Competitive Advantage, and Clusters
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given industry (Porter 1979a, 1980a). At the time, this approach was novel in that previous strategic management researchers largely devoted their attention either to the elaboration of strategies or to strategic planning (Mintzberg et al.
1998). The notion of competitive advantage, which would come to occupy a central place in Porter’s work, was absent and barely mentioned in the field.
According to Porter, strategic positioning derived from an exhaustive anal-ysis of a certain number of factors which he baptized as‘the five competitive forces’: competitive rivalry, bargaining power of suppliers, bargaining power of buyers, threat of new entrants, and threat of substitutes. Thesefive forces, which, in Porter’s words, ‘emerged as an encompassing way to look at an industry’ (Argyres and McGahan 2002b: 44), are supposed to be the most relevant and most significant indicators for any firm seeking to penetrate the industry which suits it best.
Logically, it is argued, the analysis of these indicators leads to a firm’s strategic positioning in an industry in which
there is little competition;
there are suppliers and buyers with weak negotiating power;
there are high entry barriers; and
there are few substitute products.
Under these circumstances, Porter claims that afirm can maximize profits, as he says:‘I decided that fundamental to any theory of positioning had to be superior profitability’ (Argyres and McGahan 2002b: 44). It should also be noted that Porter seeks to situate his theory in a normative perspective, something which he takes pains to stress:‘My work aims not to be descriptive but normative. What principles explain successful strategies? I believe strongly that managers can apply these principles prospectively, and that most do’ (Argyres and McGahan 2002b: 45). Up to this point, firms are a kind of black box in Porter’s work, inasmuch as he chose to situate his analysis at the mesoeconomic level; that is, the industry level. The criticisms of this choice led him, in Competitive Advantage, to integrate the microeconomic level into his framework via the notion of the Value Chain. We return to this point in the following section. For the moment, we discuss two major issues in the framework of strategic positioning– one epistemological in nature, and the other dealing with the framework’s normative dimension.
Firstly, how does Porter justify his epistemological decision to set the level of analysis at the industry level? As we have learned from the science of com-plexity, the choice of the organizational level at which to analyze determines the scope of the results of the analysis. Why is the analysis of competitive forces at the industry level more relevant in strategy? In canonical manage-ment terms, why should the strategist’s interest be focused on the firm’s The strategic management framework
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environment and only on the environment? To be sure, there was a real need in thefield of strategic management to go beyond then-existing models, such as the BCG portfolio model or models based on an analysis of the advantages and disadvantages of individualfirms, which limit themselves to the micro-economic level. However, this does not justify the epistemological choice made by Porter, who does not develop his argument about the choice any further. The question remains, and leads one to believe that there is a certain arbitrariness to this choice.
Moreover, one wonders what logic and which criteria underlie Porter’s identification of the number and nature of competitive forces. The only argument invoked by Porter is that when he began his research he took his inspiration from industrial organization economics, which discussed phe-nomena such as monopsony (a situation in which there is only one customer for afirm’s product). He also acknowledges that the notion of substitution already existed in economic thought. But he maintains that it was necessary to go further by imagining a series of factors integrated within the same kind of framework for analyzing industries. In the same interview quoted above, however, he presents two different arguments about the identification, the nature, and the number of these factors. On the one hand, he argues that
‘these dimensions . . . have to be intuitively grounded’ (Argyres and McGahan 2002b: 46). A little further on, on the other hand, he corrects himself and claims that:‘I didn’t come to the conclusion that there were five forces until I’d looked at hundreds of industries’ (Argyres and McGahan 2002b: 46).
Intuition and case studies are not mutually exclusive; they can even be complementary, with case studies confirming or invalidating the intuition.
But this is not the problem. The real problem is that Porter displays positivism in spite of his use of case studies as a means for inferring his framework.2 According to Popperian rigid positivism (Popper 1972), verification by one or several empirical experiences does not support the truthfulness of a proposi-tion. Instead, a proposition is true for only so long as any example does not contradict it; that is, until it has been falsified. With respect to the competitive forces in Porter’s framework of strategic positioning, it is not difficult to imagine a good number of industries in which other competitive forces are much more determinant than those identified by Porter: government in the arms and pharmaceutical industries; non-governmental organizations in the hydrocarbon industry, and so on. This points to the extreme fragility of the universality of Porter’s Five Forces framework. Although the framework is presented as deriving from an heuristic approach consisting of induction, the basis of this induction is rather limited.
Furthermore, Porter’s assertion of the framework’s generality and scientific rigor creates an issue within thosefirms implementing it. According to Ha-bermas’s communicative ethics (1990), the morality of a given utterance Competition, Competitive Advantage, and Clusters
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depends on the dialogical exchange, consisting of a claim to validity by a speaker, objections to this claim by other speakers, and arguments by the speaker in response to these objections, all of which occur within the system of a space of free speech. There is a problem with Porter’s framework here as his stance of generality presents the number and nature of competitive forces and the result of the ensuing analysis of industries as scientific truths. It is in this sense that Porter’s framework can be a formidable instrument of domina-tion against non-experts. When the framework is used by expert analysts and their constituents– senior management within a given business – there are no possible grounds of legitimacy for non-experts’ questioning the framework’s components and results. This element appears as an unacknowledged foun-dation running throughout Porter’s thinking.
Continuing in an epistemological vein, Porter’s thinking is characterized by environmental determinism, in that he glosses over an enactment phenome-non which has for some time been viewed as central in the analysis of the environment in management studies (Morgan 1997). The process of enact-ment is the process through which we proactively shape and structure our realities in an unconscious manner. Morgan states:‘Although we often see ourselves as living in a reality with objective characteristics, life actually demands much more of us than this. It requires that we take an active role in bringing our realities into being through various interpretive schemes, even though these realities may then have a habit of imposing themselves on us as
“the way things are”’ (Morgan 1997: 141). This phenomenon appears to produce at least as many projections (from the point of view and the interest of those conducting the analysis) about the characteristics of the environment under study as those which are really ‘measured’ or ‘observed’. This is in addition to the inevitable changes brought about by any ‘sector study’, in any environment, when the study gives rise to strategies and the implemen-tation of decisions that are likely to have an impact on the environment. In this event it is no longer the environment that determines corporate strategy, but the reverse.
Over forty years ago this position was seriously discussed, illustrated, and confirmed by Galbraith (1967) with concrete, edifying examples. In particular, he showed how the (strategic) planning of certain General Motors and Ford car models (his analysis focused on the Mustang, for which six years elapsed between the design phase and the marketing phase) contributed to determin-ing– in defiance of all the so-called market laws – internal and external salaries as well as the price of products such as rubber, iron, coal, steel, and so on, for a number of years. This analysis demonstrates how the policies of large corpora-tions to a large extent ‘manufacture’ domestic and international environ-ments and completely distort the play of competition.
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Secondly, the normative and prescriptive capacity of Porter’s Five Forces framework is limited in its application and has ideological implications. For Porter’s recommendations with regard to industry analysis to be normative and prescriptive, they have to permit an ex-ante identification of the indus-tries which best suit afirm seeking to position itself. As we have seen, this industry must display competitive forces that are favorable to thefirm. Is the ex-ante identification always possible? It is possible, but only in particular cases and given certain conditions. Positioning afirm in an industry through the analysis of competitive forces can occur in the case of an entrepreneurial situation in which thefirm or its division does not yet exist. Here the decision to enter the industry hinges on the existence of favorable conditions for the firm to be able to exercise its domination. However, such favorable conditions for a new entrant would not exist unless firms already operating in the industry had never considered the possibilities offered by the industry. Then under what circumstances would pre-existingfirms in an industry have never considered its possibilities? There can only be one explanation of this: it is when these pre-existingfirms have not received the services of experts and consultants trained in Porter’s industry analysis. This impasse brings us again to the true logical outcome of this framework: handing over the lion’s share of power to experts and analysts.
The framework’s limitation becomes clearer when a pre-existing firm employs it to analyze the industry in which it is situated. In the event of a firm already operating in a given industry, Porter’s framework will lead it either to exit (inasmuch as the competitive forces are unfavorable) or to remain in the industry (inasmuch as the competitive forces are favorable).
But the analysis will never enable thefirm to know how to change its situation if it is precarious. As such, the normative and prescriptive capacity of Porter’s Five Forces framework is limited. On the other hand, the framework will enable the ex-ante justification of a monopoly or oligopoly situation, since the analysis of the competitive forces will show that it is quite normal for a firm or firms to have a monopoly or oligopoly in an industry in which they have positioned themselves, as a function of competitive forces. It is for this reason that Porter’s framework should be viewed as having the potential for legitimizing the domination by the most powerful companies with the help of a seemingly learned discourse.
5.3 Competitive Advantage and the expert’s apology
Of all the inadequacies identified in Competitive Strategy, Porter is open partic-ularly, if not exclusively, to a single criticism: determining the positioning of a firm in a given industry without inquiring into the firm’s fit (in terms of its Competition, Competitive Advantage, and Clusters
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capacities, its resources, its abilities, and so on), resulting infirms entering industries which do not suit them at all. Porter felt obliged to turn to the microeconomic aspects of his doctrine, which resulted in the publication of Competitive Advantage. Competitive Advantage seeks to understand the nature of the specific, unique value that the firm produces to the benefit of different groups of consumers. It is for this reason that the firm ‘needs to develop a unique set of skills that other organizations don’t have’ (Argyres and McGahan 2002b: 47). These abilities are supposed to be incorporated into thefirm’s activities, but attaining them requires a detailed analysis of these very activities, which Porter groups under another fundamental notion of his thinking– the Value Chain.
Atfirst glance, Porter appears to have given a coherent response to the flaw in his earlier work. This at least is what is claimed by the mainstream literature in the field of strategic management. However, a closer examination of his discourse about competitive advantage, the Value Chain, and generic strate-gies reveals several tensions, which, as was the case with Competitive Strategy, bring seriously into question the scientific worth of his theory.
Porter’s definition of competitive advantage is problematic, in that it is ambiguous, tautological, or marred by a serious ontological confusion. Porter writes that‘competitive advantage grows fundamentally out of the value a firm is able to create for its buyers that exceeds the firm’s cost of creating it’
(Porter 1985a: 3). As Klein (2001) notes, this in no way defines competitive advantage, unless, one might be tempted to suggest, one agrees to lump competitive advantage with value. In this case, and even if we ignore the problems engendered by this confusion, and bearing in mind that the ques-tion of value has divided theorists for decades, competitive advantage loses its relevance as a central notion in strategic thinking. Therein lies the ambiguity of this definition. Moreover, when Porter claims that ‘competitive advantage is at the heart of afirm’s performance in competitive markets’ (Porter 1985a:
XV), not only is the issue of the definition of competitive advantage glossed over, but Porter’s claim is clearly tautological.
In addition, as Klein (2001) points out, defining something exclusively in terms of its consequences logically means that the consequences are known ex-ante and must have emerged prior to the thing itself– something which is a logical impossibility, especially when the reasoning is empirical in nature, as is the case with Porter. In other words, competitive advantage is defined as the source (or cause) of afirm’s competitive performance, but this definition does not tell what makes such a source: the source of a firm’s competitive performance is not defined, other than being called a ‘competitive advantage’, and thus remains ambiguous. In this light, Porter’s claim that his theory is normative is devoid of meaning. It is for this reason that we feel justified in pointing to a profound contradiction pervading the entirety of the Porterian approach. His initial
In addition, as Klein (2001) points out, defining something exclusively in terms of its consequences logically means that the consequences are known ex-ante and must have emerged prior to the thing itself– something which is a logical impossibility, especially when the reasoning is empirical in nature, as is the case with Porter. In other words, competitive advantage is defined as the source (or cause) of afirm’s competitive performance, but this definition does not tell what makes such a source: the source of a firm’s competitive performance is not defined, other than being called a ‘competitive advantage’, and thus remains ambiguous. In this light, Porter’s claim that his theory is normative is devoid of meaning. It is for this reason that we feel justified in pointing to a profound contradiction pervading the entirety of the Porterian approach. His initial