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Leg 4. From Melbourne to Hong Kong (I). Generic Strategies Framework.

Happy afternoon for all of you.

Before starting with today´s topic, let me explain to you why it is so relevant for us to learn the strategy management material it has been taught in business schools during the last 3 or 4 decades. HBR must readsI am spending nine months of my personal sailing life with the Volvo Ocean Race 2017-2018 buddies showing you what my Gen X and Gen Y have learned when doing an MBA or a Doctorate in Business Administration. Since the 80s, all this material has been taught by excellent professors on and on and on. Innumerable cases have been written for students to analyze companies applying those models or strategy frameworks. In advance, let me tell you, I know all these frameworks and business concepts need to evolve and be improved, which is going to be our next challenge for the strategic consulting industry and business schools. it is never too lateFrom the point of view of the Strategic Management Science, this is what we had in academia and still have in the Syllabus and reading materials in universities as Wharton, London Business School, Stanford, Harvard Business School, Brown, Yale, Cornell, Columbia University, etc. Moreover, this material is taught in all these universities, similarly as how I taught it at Escuela Superior de Economía y Negocios (ESEN Business and Economics School) 15 years ago.  All these frameworks are good starting points. Just starting points. We need to start adding the most important part which is the integral value. If we say and act as consultants with integrity and ethics at the core, all these models “conceptually” will have to be adjusted. Nevertheless, before making changes, we have to learn what is in place, or what has been taught.

To understand what is the purpose of Porter Generic Strategies Framework, first, we must clarify what competitive advantage is.

Professor Grant has defined competitive advantage in his book as follows: “When two firms compete (when they locate within the same market and are capable to serve the same customers, one firm possesses a competitive advantage over the other when it earns a higher rate of profit or has the potential to earn a higher rate of profit”.competitive-advantage.png Up to this day, we have understood that a firm can earn a rate of profit in excess of the “cost of capital” either by locating in an attractive industry or by establishing a competitive advantage over its rivals. We spent more than two legs discussing the importance of how to choose industries, which can elevate our perspectives of long-term gains. However, the growing intensity of competition across the businesses in the industries as a whole has meant there are very few industries that are sheltered havens offering secure returns. In consequence, the primary goal for strategists is to help companies to establish a competitive advantage for the firm, just if we define “competitive advantage” as a source of integral value.  I believe this is and will continue to be an important role for business strategists, just if we define competitive advantage in different terms.

quote-the-obsession-with-economic-profit-and-technical-efficiency-puts-the-human-rhythms-of-pope-francis-135-15-45For me, competitive advantage has to be measured not in terms of “economic value added” but in terms of essential or integral value for the society. Maybe I agree much more with Kotler definition of Competitive Advantage: “Competitive advantage is the firm´s ability to perform in one or more ways that competitors cannot or will not match”.  At least professor Kotler definition is more general and appealing. valueOf course, economic profits and “economic value added” are important but do not represent the “only and main” purpose of the firm. Beautiful businesses are here as mechanisms of human auto realization for the benefit of the society. To work help us to be better human beings. Generate economic profits with ethics or integrity at the core is more relevant than the “economic value added” numbers. The idea of maximizing economic profit only” has to evolve in business schools courses.  And in consequence, the Porter Generic Strategies Framework and other frameworks we have visited during the Volvo Ocean Race 2017-2018 will have to be adjusted soon all over the world in every university. The purpose of strategy analysis is not to provide answers but to help us to understand the issues. And I have been telling you for months, that we have big issues to resolve in our strategy traditional frameworks. My company´s mission and value proposition are to help business owners and board of directors, universities and non-profit organizations with that.

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If you wish to download my company value proposition in PDF format, click here: Eleonora Escalante, MBA-MEng Value Proposition 2018.

"If we increase the price by fifteen per cent we'll be able to give bigger discounts."Porter´s generic strategies framework was released in 1983. Porter believed there are two basic types o competitive advantage: Costs or Differentiation. These variables combined with the “scope” of a company´s operation (The range of market segments targeted)  produce the generic strategies for achieving above average performance in an industry: Cost Leadership, Differentiation, and Focus. To Porter, firms that wish to gain competitive advantage must “make a choice” among these generic strategies because “being all things to all people”  is a recipe for strategic mediocrity and below average performance.

Again, I am not telling you that Porter´s generic Strategies framework is wrong. What I am telling you is that the concept of the competitive advantage considering only “to maximize shareholders´value” is incomplete, or it is not enough. The success of a company or business leaders doesn´t have to be based just on ”economic value added”, but based on “creating integral value”.

ninety-nine-per-cent-of-what-we-say-is-about-values-i-firmly-believe-that-ethical-capitalism-is-the-quote-1Economic profits are not bad neither a sin. Please don´t get me wrong. I am an ETHICAL CAPITALISM cheerleader. To look for economic profits and generate economic growth helps to raise the living standards in each society or country, But economic value is not enough anymore. Competitive advantage has to include a common good or ethical legacy for the next 3 to 4 generations, and that has to be measured in several levels: socially, environmentally, human development (People talents and capabilities), ethically and financially… if we don´t include all these aspects in our definition of “competitive advantage” we are not aligning our human purpose in the planet with our business strategy.

If we define “Competitive Advantage” from a holistic perspective, then we can use Porter´s framework knowing that we are contributing to the society evolvement and thinking ahead with a time span of at least the next 4 generations.

Let me introduce Porter´s Generic Strategies framework. On my next posts, we will define each of the quadrants and provide examples.

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If you wish to download the last slides in PDF format, click here: Eliescalante Leg 4 Porter Generic Strategies.

Have a beautiful day. Thank you. Blessings.thanking God for the beautiful blessing ou are

16:29 pm – San Salvador.

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Disclaimer: All the pictures or videos shown on this blog are not mine. I do not own any of the lovely photos posted unless otherwise stated.

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