The Debunking of Porterism?

When I was younger, Michael Porter's books on strategy were seen as The Last Word. Now it would seem that his consulting company, Monitor, has gone under. Does this count as "the end of Porterism" - Forbes

Was Monitor’s demise something that happened unexpectedly like a bolt from the blue? Well, not exactly. The death spiral has been going on for some time. In 2008, Monitor’s consulting work slowed dramatically during the financial crisis. In 2009, the firm’s partners had to advance $4.5 million to the company and pass on $20 million in bonuses. Then Monitor borrowed a further $51 million from private equity firm, Caltius Capital Management. Beginning in September 2012, the company was unable to pay monthly rent on its Cambridge, Mass., headquarters. In November 2012, Monitor also missed an interest payment to Caltius, putting the notes in default and driving the firm into bankruptcy.

2008 was a tough year for consultancies, from small ones to very big ones, so this is not as surprising as it may seem, the ones with big fixed overheads really struggled (my main project a year later was to turn one around - succesfully, I may add - but we learned all about the carnage at some other fairly well known names, and a lot of boutiques folded). But the article's gist is that in essence Porter's strategic solution relied on creating unbreachable barriers to entry rather than making stuff people actually wanted to buy, and therein lay the seeds of the demise of Porterism as:

(i) High Barriers to entry cannot protect you forever if you make crap products and/or services that no one wants to buy

(ii) This is especially true if Globalisation creates new, better competitors you didn't expect and...

(iii) The internet rips up many of those carefully created barriers to entry

In short, Porterism only works in the narrow confines of a national, internet-less corporate environment in the 1960's/70's in which it was bred - but by then it had gathered intellectual steam, even though the basic underlying assumptions were shifting. Forbes again:

There was just one snag. What was the intellectual basis of this now vast enterprise of locating sustainable competitive advantage? As [Matthew} Stewart notes, it was “lacking any foundation in fact or logic.” Except where generated by government regulation, sustainable competitive advantage simply doesn’t exist.

Porter might have pursued sustainable business models. Or he might have pursued ways to achieve above-average profits. But sustainable above-average profits that can be deduced from the structure of the sector? Here we are in the realm of unicorns and phlogiston. Ironically, like the search for Holy Grail, the fact that the goal is so mysterious and elusive ironically drove executives onward to continue the quest.

Hype, spin, impenetrable prose and abstruse mathematics, along with talk of “rigorous analysis”, “tough-minded decisions” and “hard choices” all combined to hide the fact that there was no evidence that sustainable competitive advantage could be created in advance by studying the structure of an industry.

But in my observation, the problem of all companies that have found a golden goose, is that it is always very hard to kill it off and eat it when the eggs it lays are no longer fresh. In short, Monitor did not change its approach as fast as the market was moving.

It is only recently that Porter’s writing has begun to include any awareness that creating safe havens for businesses with unending above average profits protected by structural barriers is not good for customers and society, with his advocacy of shared value. This recognition has come, however, without yet jettisoning any of the toxic baggage of sustainable competitive advantage.

So after a while their customers deserted them.

Monitor wasn’t killed by any of the five forces of competitive rivalry. Ultimately what killed Monitor was the fact that its customers were no longer willing to buy what Monitor was selling. Monitor was crushed by the single dominant force in today’s marketplace: the customer.

There is no doubt validity in the above, plus the actual Consulting market is itself being disrupted, but my experience of turning companies around would tell me that yes, this is probably all true, but its all a medium term game. I'd be prepared to bet there was also something far more prosaic going on - costs crept up and fat crept in, and they were unable (or unwilling - I can imagine there were loads of "next year will be better again" platitudes until far too late) to structurally reduce them quickly enough after 2008/9.