An industry is simply a particular group of firms offering the same type of products and services. Each country has its group of firms which compete in the same immediate industry. We have as many industries as products and services. Industries are local and global. Each industry has a different return of profitability, measured in terms of Ratios such as Return on Invested Capital, or Return on Equity or Return on Assets or other ratios.

Why is it important to understand the industry of a company?

Because strategy is about doing decision making of your business competing in a specific industry… If our business will compete in an industry where there are not many competitors, then your strategy will be different than in an industry where your business is one of the two firms of a duopoly. As I have explained you in detail, Professor Porter did an effort to management by designing a model to analyze the industry of businesses. But Michael Porter’s Five Forces is just one model. ONE MODEL. That’s’ it. It is one model, it is not the bible of business OK.

Any Management professor in the world can design a model to analyze competition, as Porter did it, but that doesn’t mean the model is the right one or the most appropriate or it is the ethically correct one, or worst it has been adopted globally as a management theory for 38 years!!!.

As a professional consultant, researcher and writer, I had to learn Michael Porter’s Five Forces, but I do not deliver “integral” solutions with it. I use it only as a starting point. Why? Because I believe Porter’s’ Five Forces is not enough. It has to evolve to a better version. And even though I am also critical of Porter’s model, I always use it as a starting point. I mean we have to start from something. I have to start with it in order to explain why we need to evolve to better models. Porter model has been available for 38 years!!!. Many practitioners have used Porter’s model for years, but many good ethical academic management professors don’t like it either because Porter model is based only on an economic value nor based on integral value. I always use Porter’s model as a starting point. It has limitations. And I would like to be very clear about it.

I have talked to you a couple of times about Doctor Sumantra Ghoshal. He was born in India. And he got a scholarship to study at MIT, Boston, Massachusetts. Ghoshal then enrolled for an MIT Ph.D. program and subsequently, he also did a second doctorate at Harvard Business School. He joined London Business School as a faculty member after spending several years at INSEAD, in the nineties. He was Professor of Strategic and International Management. I was privileged to have met him when I went to study there. Sumantra produced literature, books, papers, articles, case studies and academic journals. Sumantra was passionate about his job and we loved to listen to him. He was always watching at the future with a precious heart. Anyone who took a class with him, can tell you he was a firm believer that companies can be a force of good, evolving to be better, as the human being is able to evolve.

The last time I saw him was at LBS Annual Summit in June 2003, where he said: “Businesses have lost their way”. He exposed his point of view addressing more than 500 business leaders at the Summit. His presentation was nothing else than saying that Ethics and integrity matter in business too.

Ghoshal final work promised to be about “Towards a good theory of Management” and he was writing about two topics:   1. The nature of business school research;  2. The substance of management theory.

Ghoshal argued that theories as the influential and wide-ranging transaction cost economic agency theory, population ecology, and Michael Porter’s Five Forces have influenced management practice for worse, particularly have influenced the lack of ethics and wrong beliefs of an entire generation of managers. Ghoshal wanted the management theories to evolve because he knew the business world needed new management positive theories with human ethics. He was pushing forward to evolve. Suddenly, Ghoshal passed away in the year 2004.

Those who worked closely with Ghoshal such as Professors Julian Birkinshaw, Linda Gratton and Henry Mintzberg and his family will tell you how much he is missed. I would like to continue doing my Ph.D. research on business because it is certainly needed.

Let me leave you with a video of him. See you next week.

Published by eleonoraescalantestrategy

Corporate Strategy Artist, San Salvador, El Salvador View all posts by eleonoraescalantestrategy