Jan
12
Placing Competitive Advantage back into the hands of business managers
Back in the eighties, when Michael Porter published his seminal work ‘Competitive Advantage’, the importance of understanding detailed business activities became evident. Specifically Porter determined that activities provide the vital bridge between strategy and implementation and that a successful, powerful business strategy is not a vague visionary idea but a particular configuration of activities which a firm adopts compared to its rivals.
Porter went on to postulate that activities make strategy operational; implying that the creation and successful management of a particular strategy is critically dependant on business managers understanding the firms activities in the form of its value chain. Only then can employees understand how their particular activities contribute to the whole.
With this in mind it follows that it is business managers of all levels that need to be given the tools to enable them to understand and manage their activities. Senior managers need to be able to visualise the value chain so they can formulate strategy. Middle managers need to understand their place within the value chain so they can successfully manage operational delivery.
None of this may seem particularly contentious. After all, since Competitive Advantage was published firms have used the value chain idea to radically re-engineer their operations and create entirely new business models. One only has to compare the current financial services industry to that of the eighties to see this in action.
But what I find odd is the ownership of the tools and the very particular way in which that ownership has skewed the way the tools have been used.
This all started when Porter mentioned the word ‘process’, in his context, as a sequence of related activities. Processes also relate to information technology where long before Porter came along, that section of industry was used to mapping out data flows as part of the design of IT systems. This in turn was a natural extension of the process engineering techniques used in the oil, gas and petrochemical sectors –‘the process industries.’ Since the process industries had already created specialist tools for the technical visualising of their processes, it followed naturally that IT would adopt something similar.
So when Competitive Advantage came along IT departments put the two together to visualise ways that IT systems could be used to create competitive advantage. Technical specialists used technical tools which employed technical language to map technical systems flows. Where there were obvious gaps or bottlenecks, so there were opportunities for the gaps to be plugged and the bottlenecks to be removed. But since this was all done by technical specialists with a great interest in IT systems, their obvious solution was for both to be achieved by process automation i.e. the application of more IT. The result was that service automation was born and with it the boom in new systems-led business models which has fuelled the last decade of growth.
But whilst the revolution which ensued has no doubt been profound and powerful, the nature of its birth has caused industry to tilt on its axis. It has meant that process improvement has been naturally associated with systems automation. The two have become synonymous. Along the way, the business manager – the very person that should be in control of competitive advantage and its delivery – has been cut out of the picture.
You may well take the view that it does not matter since regardless of who owns the ability to improve the business, the business has nonetheless been improved. But I would argue strongly that it does matter – and for one reason above all other, which goes right back to our dear friend Professor Porter.
If one takes the time and trouble to map out a corporate value chain and then to map up and down from supplier to customer, it becomes very evident that only a small portion is able to be automated. 20% appears to be the maximum quoted. So even when every department is able to access a multitude of workflow systems to aid human activity the bare fact is that 80% of industry involves activities that cannot be improved through automation. In our growing knowledge sector that figure is expected to be even higher. We still depend on human beings to innovate and 80% of information in industry is in their heads with a further 16% residing in the form of unstructured information. So even after the automation boom, the majority of activity knowledge is not being captured and used by business managers to create competitive advantage. In the race to adopt Porter’s ideas a great chunk of them have been hijacked by one sector of business – the IT community – and as a result business managers have been left out in the cold.
Surely now, with the enormous pressures on industry to become more agile, effective and efficient, it is time to return to the core of Professor Porter’s ideas. We have to put competitive advantage back in the hands of business managers.
