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MBA in één dag | Michael Porter

Interview

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MBA in één dag®

Michael Porter

In dit miniboekje vindt u meer informatie over Michael Porter.Kijk voor meer tips, foto’s en videomateriaal op www.mbain1dag.nl


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CV Michael Porter• Michael Eugene Porter werd geboren in 1947 in Ann Arbor in Michigan, als zoon

van een legerofficier.

• Hij studeerde luchtvaarttechniek aan Princeton en later bedrijfskunde aan de prestigieuze Harvard Business School in Cambridge, aan de oostkust van de VS.

• In 1971 haalde hij zijn MBA en twee jaar later promoveerde hij aan de Harvard Business School.

• Nu, ruim 20 jaar later, is hij nog altijd verbonden aan diezelfde Harvard Business School.

• Michael Porter is nu de Bishop William Lawrence University Professor.

• Michael Porter is een serieuze man die over serieuze onderwerpen schrijft en spreekt. Hij is geen typische goeroe die met allerlei anekdotes en volkse wijsheden strooit.

• Zijn eerste boek ‘Competitive Strategy’ is al meer dan 60 keer herdrukt en wereldwijd vertaald.

• Een van de belangrijkste redenen daarvoor is de heldere, praktische benadering, waarmee managers en ondernemers meteen hun voordeel kunnen doen.

MBA in één dag | Michael Porter MBA in één dag | Michael Porter

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Michael Porter

MBA in één dag®


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Here is how Michael E. Porter regards the

business landscape: Beginning in the mid-

1980s, he more or less left the strategy world

to its own devices, focusing his attention

instead on the question of international

competitiveness. He advised foreign

governments on their economic policies

and headed a U.S. presidential commission.

He wrote books and papers on industry

dynamics -- from ceramics manufacturing

in Italy to the robotics sector in Japan. He

spoke everywhere. He was consumed by

understanding the competitive advantage

of nations.

Then, in the mid-1990s, he resurfaced. “I

was reading articles about corporate strategy,

too many of which began with ‘Porter said .

. . and that’s wrong.’ “ Strategy had lost its

intellectual currency. It was losing adherents.

“People were being tricked and misled by

other ideas,” he says.

Like a domineering parent, Porter seems

both miffed by the betrayal and pleased by

his apparent indispensability. I can’t turn my

back for five minutes. Well, kids, the man is

back. Porter seeks to return strategy to its

place atop the executive pyramid.

Business strategy probably predates Michael

Porter. Probably. But today, it is hard to

imagine confronting the discipline without

reckoning with the Harvard Business School

professor, perhaps the world’s best-known

business academic. His first book, Competitive

Strategy: Techniques for Analyzing Industries

and Competitors (Free Press, 1980), is in its

53rd printing and has been translated into 17

languages. For years, excerpts from that and

other Porter works have been required reading

Michael Porter’s

Big IdeasBy Keith Hammonds, February 28, 2001

The world’s most famous business-school professor is fed up with

CEOs who claim that the world changes too fast for their companies

to have a long-term strategy. If you want to make a difference as a

leader, you’ve got to make time for strategy.


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Artikel

in “Competition and Strategy,” the first-year

course that every Harvard MBA student

must take. Porter’s strategy frameworks have

suffered some ambivalence over the years

in academic circles -- yet they have proved

wildly compelling among business leaders

around the world.

This is the paradox that Porter faces.

His notions on strategy are more widely

disseminated than ever and are preached at

business schools and in seminars around

the globe. Yet the idea of strategy itself has,

in fact, taken a backseat to newfangled

notions about competition hatched during

the Internet frenzy: Who needs a long-term

strategy when everyone’s goal is simply to

“get big fast”?

With his research group, Porter operates

from a suite of offices tucked into a corner of

Harvard Business School’s main classroom

building. At 53, his blond hair graying, he is

no longer the wunderkind who, in his early

thirties, changed the way CEOs thought

about their companies and industries. Yet

he’s no less passionate about his pursuit --

and no less certain of his ability. In a series

of interviews, Porter told Fast Company why

strategy still matters.

Business keeps moving faster -- but you

better make time for strategy.

It’s been a bad decade for strategy. Companies

have bought into an extraordinary number of

flawed or simplistic ideas about competition

-- what I call “intellectual potholes.” As a

result, many have abandoned strategy almost

completely. Executives won’t say that, of

course. They say, “We have a strategy.” But

typically, their “strategy” is to produce the

highest-quality products at the lowest cost

or to consolidate their industry. They’re just

trying to improve on best practices. That’s

not a strategy.

Strategy has suffered for three reasons. First,

in the 1970s and 1980s, people tried strategy,

and they had problems with it. It was difficult.

It seemed an artificial exercise. Second, and

at the same time, the ascendance of Japan

really riveted attention on implementation.

People argued that strategy wasn’t what was

really important -- you just had to produce a

higher-quality product than your rival, at a

lower cost, and then improve that product

relentlessly.

The third reason was the emergence of the

notion that in a world of change, you really

shouldn’t have a strategy. There was a real

drumbeat that business was about change

and speed and being dynamic and reinventing

yourself, that things were moving so fast,

you couldn’t afford to pause. If you had a

strategy, it was rigid and inflexible. And it

was outdated by the time you produced it.

That view set up a straw man, and it was

a ridiculous straw man. It reflects a deeply


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flawed view of competition. But that view

has become very well entrenched.

The irony, of course, is that when we look at

the companies that we agree are successful,

we also agree that they all clearly do have

strategies. Look at Dell, or Intel, or Wal-Mart.

We all agree that change is faster now than it

was 10 or 15 years ago. Does that mean you

shouldn’t have a direction? Well, probably

not. For a variety of reasons, though, lots of

companies got very confused about strategy

and how to think about it.

There’s a fundamental distinction between

strategy and operational effectiveness. Strategy

is about making choices, trade-offs; it’s

about deliberately choosing to be different.

Operational effectiveness is about things that

you really shouldn’t have to make choices

on; it’s about what’s good for everybody and

about what every business should be doing.

Lately, leaders have tended to dwell on

operational effectiveness. Again, this has

been fed by the business literature: the ideas

that emerged in the late 1980s and early

1990s, such as total quality, just-in-time,

and reengineering. All were focused on the

nitty-gritty of getting a company to be more

effective. And for a while, some Japanese

companies turned the nitty-gritty into an

art form. They were incredibly competitive.

Japan’s obsession with operational

effectiveness became a huge problem,

though, because only strategy can create

sustainable advantage. And strategy must

start with a different value proposition. A

strategy delineates a territory in which a

company seeks to be unique. Strategy 101

is about choices: You can’t be all things to

all people.

The essence of strategy is that you must set

limits on what you’re trying to accomplish.

The company without a strategy is willing

to try anything. If all you’re trying to do is

essentially the same thing as your rivals, then

it’s unlikely that you’ll be very successful. It’s

incredibly arrogant for a company to believe

that it can deliver the same sort of product

that its rivals do and actually do better

for very long. That’s especially true today,

when the flow of information and capital is

incredibly fast. It’s extremely dangerous to

bet on the incompetence of your competitors

-- and that’s what you’re doing when you’re

competing on operational effectiveness.

What’s worse, a focus on operational

effectiveness alone tends to create a mutually

destructive form of competition. If everyone’s

trying to get to the same place, then, almost

inevitably, that causes customers to choose

on price. This is a bit of a metaphor for the

past five years, when we’ve seen widespread

cratering of prices.

There have been those who argue that in this


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new millennium, with all of this change and

new information, such a form of destructive

competition is simply the way competition

has to be. I believe very strongly that that is

not the case. There are many opportunities for

strategic differences in nearly every industry;

the more dynamism there is in an economy,

in fact, the greater the opportunity. And a

much more positive kind of competition

could emerge if managers thought about

strategy in the right way.

Technology changes, strategy doesn’t.

The underlying principles of strategy are

enduring, regardless of technology or the pace

of change. Consider the Internet. Whether

you’re on the Net or not, your profitability

is still determined by the structure of your

industry. If there are no barriers to entry, if

customers have all the power, and if rivalry is

based on price, then the Net doesn’t matter

-- you won’t be very profitable.

Sound strategy starts with having the right

goal. And I argue that the only goal that

can support a sound strategy is superior

profitability. If you don’t start with that goal

and seek it pretty directly, you will quickly be

led to actions that will undermine strategy.

If your goal is anything but profitability -- if

it’s to be big, or to grow fast, or to become

a technology leader -- you’ll hit problems.

Finally, strategy must have continuity. It

can’t be constantly reinvented. Strategy is

about the basic value you’re trying to deliver

to customers, and about which customers

you’re trying to serve. That positioning,

at that level, is where continuity needs to

be strongest. Otherwise, it’s hard for your

organization to grasp what the strategy is.

And it’s hard for customers to know what

you stand for.

Strategy hasn’t changed, but change has.

On the other hand, I agree that the half-life of

everything has shortened. So setting strategy

has become a little more complicated. In the

old days, maybe 20 years ago, you could set

a direction for your business, define a value

proposition, then lumber along pursuing that.

Today, you still need to define how you’re

going to be distinctive. But we know that

simply making that set of choices will not

protect you unless you’re constantly sucking

in all of the available means to improve on

your ability to deliver.

So companies have to be very schizophrenic.

On one hand, they have to maintain continuity

of strategy. But they also have to be good at

continuously improving. Southwest Airlines,

for example, has focused on a strategy of

serving price-minded customers who want

to go from place to place on relatively short,

frequently offered flights without much

service. That has stayed consistent over the

years. But Southwest has been extremely

aggressive about assimilating every new idea

possible to deliver on that strategy. Today, it


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does many things differently than it did 30

years ago -- but it’s still serving essentially

the same customers who have essentially

the same needs.

The error that some managers make is that

they see all of the change and all of the new

technology out there, and they say, “God,

I’ve just got to get out there and implement

like hell.” They forget that if you don’t have

a direction, if you don’t have something

distinctive at the end of the day, it’s going to be

very hard to win. They don’t understand that

you need to balance the internal juxtaposition

of change and continuity.

The thing is, continuity of strategic direction

and continuous improvement in how you do

things are absolutely consistent with each

other. In fact, they’re mutually reinforcing. The

ability to change constantly and effectively

is made easier by high-level continuity. If

you’ve spent 10 years being the best at

something, you’re better able to assimilate

new technologies. The more explicit you

are about setting strategy, about wrestling

with trade-offs, the better you can identify

new opportunities that support your value

proposition. Otherwise, sorting out what’s

important among a bewildering array of

technologies is very difficult. Some managers

think, “The world is changing, things are

going faster -- so I’ve got to move faster.

Having a strategy seems to slow me down.” I

argue no, no, no -- having a strategy actually

speeds you up.

Beware the myth of inflection points.

The catch is this: Sometimes the environment

or the needs of customers do shift far enough

so that continuity doesn’t work anymore,

so that your essential positioning is no

longer valid. But those moments occur very

infrequently for most companies. Intel’s

Andy Grove talks about inflection points

that force you to revisit your core strategy.

The thing is, inflection points are very rare.

What managers have done lately is assume

that they are everywhere, that disruptive

technologies are everywhere.

Discontinuous change, in other words, is

not as pervasive as we think. It’s not that

it doesn’t exist. Disruptive technologies do

exist, and their threat has to be on everyone’s

mind. But words like “transformation” and

“revolution” are incredibly overused. We’re

always asking the companies we work with,

“Where is that new technology that’s going

to change everything?” For every time that

a new technology is out there, there are 10

times that one is not.

Let’s look again at the Internet. In Fast

Company two years ago, we would have read

that the Internet was an incredibly disruptive

technology, that industry after industry was

going to be transformed. Well, guess what?

It’s not an incredibly disruptive technology

for all parts of the value chain. In many cases,

Internet technology is actually complementary

to traditional technologies. What we’re

seeing is that the companies winning on the

Internet use the new technology to leverage


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Artikeltheir existing strategy.

Great strategists get a few (big) things right.

Change brings opportunities. On the other

hand, change can be confusing. One school of

thought says that it’s all just too complicated,

that no manager can ever solve the complex

problem that represents a firmwide strategy

today. So managers should use the hunt-

and-peck method of finding a strategy: Try

something, see if it works, then proceed to

the next. It’s basically just a succession of

incremental experiments.

I say that method will rarely work, because the

essence of strategy is choice and trade-offs

and fit. What makes Southwest Airlines so

successful is not a bunch of separate things,

but rather the strategy that ties everything

together. If you were to experiment with

onboard service, then with gate service, then

with ticketing mechanisms, all separately,

you’d never get to Southwest’s strategy.

You can see why we’re in the mess that we’re

in. Competition is subtle, and managers

are prone to simplify. What we learn from

looking at actual competition is that winning

companies are anything but simple. Strategy

is complex. The good news is that even

successful companies almost never get

everything right up front. When the Vanguard

Group started competing in mutual funds,

there was no Internet, no index funds. But

Vanguard had an idea that if it could strip

costs to the bone and keep fees low -- and not

try to beat the market by taking on risk -- it

would win over time. John Bogle understood

the essence of that, and he took advantage

of incremental opportunities over time.

You don’t have to have all the answers up

front. Most successful companies get two or

three or four of the pieces right at the start,

and then they elucidate their strategy over

time. It’s the kernel of things that they saw

up front that is essential. That’s the antidote

to complexity.

The chief strategist of an organization

has to be the leader -- the CEO. A lot of

business thinking has stressed the notion

of empowerment, of pushing down and

getting a lot of people involved. That’s

very important, but empowerment and

involvement don’t apply to the ultimate act

of choice. To be successful, an organization

must have a very strong leader who’s willing

to make choices and define the trade-offs.

I’ve found that there’s a striking relationship

between really good strategies and really

strong leaders.

That doesn’t mean that leaders have to invent

strategy. At some point in every organization,

there has to be a fundamental act of creativity

where someone divines the new activity that

no one else is doing. Some leaders are really

good at that, but that ability is not universal.

The more critical job for a leader is to provide

the discipline and the glue that keep such a

unique position sustained over time.

Another way to look at it is that the leader

MBA in één dag | Michael PorterMBA in één dag | Michael Porter

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has to be the guardian of trade-offs. In any

organization, thousands of ideas pour in

every day -- from employees with suggestions,

from customers asking for things, from

suppliers trying to sell things. There’s all

this input, and 99% of it is inconsistent

with the organization’s strategy.

Great leaders are able to enforce the trade-

offs: “Yes, it would be great if we could offer

meals on Southwest Airlines, but if we did

that, it wouldn’t fit our low-cost strategy.

Plus, it would make us look like United, and

United is just as good as we are at serving

meals.” At the same time, great leaders

understand that there’s nothing rigid or

passive about strategy -- it’s something that

a company is continually getting better at

-- so they can create a sense of urgency and

progress while adhering to a clear and very

sustained direction.

A leader also has to make sure that everyone

understands the strategy. Strategy used to

be thought of as some mystical vision that

only the people at the top understood. But

that violated the most fundamental purpose

of a strategy, which is to inform each of the

many thousands of things that get done in

an organization every day, and to make sure

that those things are all aligned in the same

basic direction.

If people in the organization don’t understand

how a company is supposed to be different,

how it creates value compared to its rivals,

then how can they possibly make all of

the myriad choices they have to make?

Every salesman has to know the strategy

-- otherwise, he won’t know who to call on.

Every engineer has to understand it, or she

won’t know what to build.

The best CEOs I know are teachers, and at

the core of what they teach is strategy. They

go out to employees, to suppliers, and to

customers, and they repeat, “This is what

we stand for, this is what we stand for.” So

everyone understands it. This is what leaders

do. In great companies, strategy becomes

a cause. That’s because a strategy is about

being different. So if you have a really great

strategy, people are fired up: “We’re not just

another airline. We’re bringing something

new to the world.”

Keith H. Hammonds

([email protected]) is a Fast

Company senior editor based in New York.

Bron: www.fastcompany.com


Interview

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Porter’s Institute for Strategy and Competi-

tiveness has just introduced a new database

tool to help corporations and policy makers

pinpoint these clusters, which number forty-

one in the United States. The tool, called the

Cluster Mapping Project, uses statistical

techniques to profile the performance over

time of regional economies in the U.S.,

with a special focus on clusters. Clusters

are geographically concentrated groups of

interconnected companies, universities, and

related institutions that arise out of linkages

or externalities across industries. Regional

economies and clusters are analyzed at

various geographic levels including states,

economic areas, and metropolitan areas.

Access to top-level data on the CMP is free;

more in-depth information is available for

a modest charge.

In an e-mail interview with HBS Working

Knowledge editor, Sean Silverthorne, Porter

discusses the importance of cluster research

and the value of the CMP.

Silverthorne: How can data from the Cluster

Mapping Project help corporations make

better location decisions?

Porter: The competitiveness of a company is

strongly influenced not just by the decisions it

makes and the assets inside the company, but

also by the surrounding business environment

in the locations at which the company operates.

The business environment shapes the skills,

knowledge, and technology available as well

as the productivity with which a company

can operate.

At the core of the business environment is

the cluster, or the group of interconnected

firms, industries, and institutions present in a

particular field. Examples of clusters include

Silicon Valley, Boston in asset management,

and Houston in energy. Being a part of

a cluster allows a company to be more

competitive because it is easier to source

skilled people, access suppliers efficiently, and

operate productively. In money management,

for example, every road show comes to

Boston because there is a cluster of major

investors there, making it easier for Boston

New Cluster Mapping Project Helps Companies Locate FacilitiesEditor’s Note: Too often corporations decide to locate facilities based solely on cost savings. And that’s

shortsighted, argues Harvard Business School professor Michael Porter. Instead, business leaders

should look for locations that gather industry-specific resources together in one “cluster” (think Silicon

Valley or the Napa wine country) that can lead to competitive advantage. Sean Silverthorne


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money managers to conduct research and

gain access to company managements.

Clusters allow companies to operate more

productively than where they must do things

themselves (vertical integration) or where

they must outsource goods and ideas from

distant locations.

Since the existence and depth of clusters

affects productivity and competitiveness,

a company needs to understand where the

clusters are in its business. It must understand

the competitive position of its cluster versus

other locations. This is important not only

to inform location decisions, but also to

inform how a company should direct its

energy towards enhancing its cluster, both

individually and collectively through trade

organizations.

The Cluster Mapping Project reveals the

detailed patterns of cluster location across

the United States. It allows an evaluation

of whether a cluster is growing or shrinking

in a particular region, where it is gaining

or losing national share, and whether it is

getting broader or narrower in depth. The

data covers not only the overall cluster but

also segments or “subclusters.” These

further reveal the cluster’s strengths and

weaknesses. The data is a powerful new tool

to take location and economic development

decisions to a new level of sophistication.

Q: Many U.S. companies over the last twenty

years, particularly in high tech, made the

decision to move manufacturing offshore

where costs are lower. You have argued

that the location decision should involve

much more than simple financial savings.

What have these companies missed out on

in terms of benefits not realized? Are they

less competitive today?

A: There has been a tendency to look too

narrowly at location decisions, focusing

just on labor cost, electricity costs, tax

breaks, etc. But input costs are not what

matters. What matters is total cost, which

depends on the quality of inputs and, most

importantly, the productivity with which they

can be used. Cheap labor is not really cheap

if workers are unproductive. Input costs can

be overshadowed by logistical costs, delays,

and inefficiencies.

There are hidden costs of outsourcing. The

most obvious is the cost of management

and coordination required to supervise

disparate sites, transfer new product lines,

update technologies, etc. Another cost of

outsourcing is the cost of inventory. A part

might be manufactured cheaply in Mexico,

but shipping the part involves inventory, not

to mention delays and risks.

Another growing cost of outsourcing is

lead time. Sourcing from Asia, for example,

requires weeks for transit alone, not even

considering coordination time. Product cycles

are shortening, and less lead time allows

companies to wait longer to make decisions

on quantity, features, style, and fashion.

Q: Over the next ten or twenty years, what

new clusters do you think will emerge that

are not now represented in the forty-one

competitive clusters covered in your research?

A: One of the major trends in the world

economy is the aging of populations, which

will create the need for retirement living,


Interview

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health services, and no doubt many other

goods and services. This may create an

entirely new cluster. We are also witnesses

to substantial breakthroughs in life sciences

technologies and continued breakthroughs

in information technology. While there is no

entirely new technology cluster evident on

the horizon, new segments will be added

to existing clusters such as genomics and

proteomics in biopharmaceuticals. Economies

are remarkably dynamic, however, and some

entirely new clusters may emerge out of

existing ones and become clusters in their

own right.

Q: One area companies seem not to consider

in their expansion or moving plans is the

inner city. But your work with, among others,

the Initiative for a Competitive Inner City

(www.icic.org), has shown that inner cities

have advantages in terms of proximity to

transportation infrastructure, unmet market

needs, lower employee turnover and much

more. Have you seen a growing awareness of

the potential of urban areas, or is corporate

America still bypassing a huge opportunity?

A: There is some heartening progress. The

word is out among retailers about the under-

served market in inner cities. Drug chains,

such as Walgreen’s, and many other retailers,

such as Home Depot, are pursuing this

opportunity to good results. There is also

beginning to be an awareness of the inner

city opportunity in services. For example,

there is a trend to locate call centers in

central cities, to access a loyal and available

labor force and strong telecommunications

infrastructure.

The corporate sector is starting to wake up

to the opportunity, but there is still much

to be done. Perceptions are slow to change.

Many business people still view inner cities

as areas where there are no businesses, no

workers to hold jobs, and rampant crime.

The Initiative for a Competitive Inner City

is working to change these perceptions and

document inner city business opportunities.

In partnership with Inc. magazine, the ICIC

scours America each year looking for the

most rapidly growing private companies

based in inner city areas. The Inner City 100,

as we call them, were selected this year from

more than 4,000 nominations. The Inner

City 100 companies, and hundreds that do

not quite make the list, are proof that there

are opportunities to take advantage of the

inherent competitive advantages of an inner

city location. As the number of nominees for

the list goes up and the size of our annual

awards dinner grows, the word is starting

to get out.

What is not yet recognized is that inner cities

mirror the future of the U.S. economy. Inner

cities are disproportionately populated by

minority groups, which reflects the growing

consumer market. The workforce is also

becoming increasingly diverse, making

inner cities a window into the workforce

of the future. The logistical efficiencies of

inner cities—just-in-time, rapid response,

rapid servicing—are metaphors for where

the economy is going.

Inner cities are not only important for social

or equity reasons, but for economic reasons.

As companies understand this better, they will

come to view inner cities as a more strategic

location than they can imagine today.

Bron: ww.ibscdc.com


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Manjari Raman | December 29, 2004

Harvard Business School’s Michael Porter

is said to be the world’s greatest authority

on strategy and global competitiveness.

The overwhelming message from Porter is

that it is still too early for India to think it has

been successful -- or even partially successful.

And there’s a worry that India’s globalisation

story may be aborted by short-sightedness in

policy or blindsided by misguided ambition.

Were Indian companies more likely to succeed

at globalisation if government helped them -- or

were they better off without policy support?

Why were relatively-new industries like IT

services and pharmaceuticals spawning the

first Indian multinationals while long-time

leaders like textiles and apparel floundering

in dim obscurity?

Why did the US, Japan and the Netherlands

display a higher propensity to nurture global

corporations than other nations did?

What Porter says can be summed up in two

words: tough love. Not only did he spare

time from a hectic schedule to comment

on India’s competitive global standing, he

took pains to be honest in his feedback.

As a frequent visitor to India and as head of the

Institute for Strategy and Competitiveness at

Harvard, Porter has a clear understanding of

India’s potential as well as Indian companies’

latent aspirations for global growth.

At the same time, as the architect of the

Business Competitiveness Index in the

World Economic Forum’s annual Global

Competitiveness Report, he knows how far

Indian companies have to go before they can

rightfully claim their place in the League of

Multinationals. He also knows, first hand,

how hard it is to make Indian CEOs realise

that a critique is not the same as criticism.

“India has a tremendous tendency for

overstatement,” says Porter, adding wryly:

“I’ve made many presentations over the

years in India. One thing I’ve noticed is that

‘India still has a long way to go’

The Rediff Interview/Michael Porter, head, Strategy Insititute, Harvard


Interview

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Indians don’t take criticism well. They get

very offended.”

To compete in an aggressive global

environment, Indian companies must not

only learn to invite criticism, but also find

ways to use it to strengthen strategy and

twist into competitive advantage. In a no-

punches-pulled interview, Porter reiterates

the purity of his purpose while “critically”

evaluating Indian’s global competitiveness.

“I want to make sure (my opinions) come

across as sympathetic and respectful. I

have a deep affection for India,” Porter says

repeatedly in an interview with Manjari Raman.

Just as the interview is ending, he says it

once more -- with feeling. “Indians come

to the US and they thrive! They build great

companies, they’re global. Isn’t that a

wonderful metaphor for what we are talking

about?” Indeed, it is.

Excerpts from an exclusive interview:

The Top 100 listings of global companies or

global brands never had any Indian companies

whereas companies from a few countries,

like the US, the UK, Japan, Italy, France, and

the Netherlands, tended to dominate the

lists. Why do some countries spawn more

global companies than others? Surely that

has implications for India?

You’re absolutely right! The ability of Indian

companies to prosper and be competitive

internationally has a lot to do with the home

base, and whether India offers an attractive

business environment. What we’ve learnt over

and over again is that if companies don’t

have to compete at home and don’t have

a vibrant, dynamic environment at home,

it’s very, very hard for them to compete

internationally.

What must be done so that Indian companies

make it to the Top 100 global lists?

A good place to start is to think about the

nature of the business environment in India

and where India stands internationally.

Certainly, India is on the right track and is

improving its economic performance.

The growth in GDP per capita has been

quite good. The growth in productivity is

still low, but there is some evidence that it

has picked up a bit. Although I did say in my

presentation at Mumbai earlier this year that

there seems to be a slight deceleration, it is

not yet clear what we should make of that.

India’s exports are growing, but that growth

is dominated by growth in service exports

and in particular IT-related services. India is

doing quite well in IT-enabled services, but

to a considerable extent, that’s it!

It’s a one-trick pony. India is getting

tremendous international profile from IT

service exports, but they aren’t indicative

of the broader economy. If you look at the

India’s export portfolio, the export clusters

that are growing rapidly are jewelry and

precious metals, textiles/apparel, fishing,

construction, metal manufacturing and

agriculture.

Interesting that you don’t mention

pharmaceuticals and automotive components

where Indian companies are trying to be

more global.


16


Pharmaceuticals are very small, and according

to our data, the sector is growing at a slower

rate than India’s average growth rate of

exports of goods. In automotive components,

we do see India showing up on the list; in

automotive products, India has a 0.15 per

cent share of world exports, and it has not

grown its share.

Components are one area that has been

doing a little bit better, according to our data.

India has a 0.3 per cent world export share in

automotive parts and it has grown slightly.

But automotive components exports from

India in 2002 amounted to just $460 million.

Are you saying there is need to be cautious

because the gains India has made so far are

small compared to the global competitiveness

of other countries?

India has a tremendous tendency for

overstatement. I’ve made many presentations

over the years in India. I’ve noticed that

Indians don’t take criticism well. They get

very offended. Everybody feels they have

to overstate the positives and understate

the negatives.

I once gave a presentation to a group of

senior managers attending the Advanced

Management Program at Harvard Business

School, and the Indian managers in the

class were enraged although I made a very

balanced presentation.

One point that ought to emerge from this

interview is that India needs to learn to be

more self-critical, more open, and much

more honest about what needs to be done.

Isn’t sensitivity to criticism a defense

mechanism? One of the critical problems

that companies in developing economies

face when internationalising is quite simply,

confidence. But your point is that by being

self-critical, Indian businesses can go global

faster than if they were defensive.

It’s over defensive. In terms of the business

environment, IT service exports are growing,

but India’s service exports, in general, are

not growing that fast. Exports of goods

are growing, but, again, not that fast, and

the big areas in goods exports are still

traditional clusters like textiles. There is

certainly movement in the right direction,

but the magnitude of that improvement is

still tiny. In terms of assessing where India

really is, we have to understand that there’s

a long way to go.

Where does a country’s globalisation story

begin? Does good government policy, which

creates internationally competitive clusters

which yield global companies, come first?

Or do companies identify global competitive

advantages, and need to be supported by

sound government policy?

Theory would say that to build a competitive

economy, first, you need to have sound overall

contextual conditions, such as macroeconomic

policy, a sound legal system, etc. Those are

cross-context factors, and include macro,

legal, social, and political factors. They

need to be sound, stable, and trusted for

an economy to be competitive. But in of

themselves, those are not enough.

In order to have a competitive economy, you

also have to have competitive firms. To have


Interview

17

competitive firm, you need to have an efficient

and appropriate business environment, which

creates the right inputs, the right incentives,

and the right competitive pressure to allow

firms to improve their productivity.

Governments shouldn’t work with individual

firms--that’s almost always a mistake.

Government should work, first, to enhance and

improve the overall business environment--

the cross-cutting business environment that

affects many clusters. Then, government ought

to work with established or emerging clusters

to remove the obstacles and constraints

that prevent those clusters from becoming

more dynamic.

If government does those two things, we

find that exports and outward foreign direct

investment follow. But it’s inappropriate and

inefficient for government to engage with

individual companies.

Moreover, when it is engaging in cluster

development, the government’s role is really

to support the efforts of all existing and

emerging clusters to upgrade productivity

rather than to make choices about which

clusters need specific support. There has

long been a tendency in India of distorted

support through subsidies. The mentality

needs to shift from “we need to support

some clusters” to “we need to create a policy

framework that allows all clusters to flourish.”

Does that imply that government should give

up traditional clusters in favor of emerging

clusters that fit in better with the needs of

the global economy at that point in time?

It would be a big mistake to ignore traditional

clusters because they are a major asset.

What needs to be done is to upgrade those

clusters. In textiles and apparel, for example,

government must ask: how can India move

to the next level of technology? How can

the quality levels improve? What are the

constraints--does India need standards?

What are the things that will allow Indian

clusters to rise to a higher level?

I strongly believe that no nation should

ever abandon any cluster. Indeed, the most

important cluster that needs attention in

India is agriculture because it’s dominant

in employment. If India could make its

agriculture more productive, it could not

only raise the standard of living, but it can

also free up people who then can migrate

into more productive uses in the rest of

the economy.

Basically, while there are new clusters and

emerging clusters, like bio-pharmaceuticals,

there are also traditional clusters--and

government should pay equally vigorous

attention to all of them.

Let us consider the links between country,

clusters, and companies. Why do you think

it is important to have globally competitive

companies in a country?

The way we define competitiveness is,

companies that can be productive and meet

the test of international competition.

A company has to be globally competitive, or

it’s simply going to die. From a company’s

point of view, competitiveness is a matter of

survival. Having competitive companies is

the way a country supports a high and rising


18


standard of living because those companies

can afford to pay high and rising wages.

They create new jobs. And by the way, India

has a crisis of jobs in the formal economy.

When we think about cluster development,

we can’t think national; we have to think

regional. The locus of economic development,

particularly in a country of the scale and

size of India, needs to be driven down to

the state level, and within the state, down

to the metropolitan and urban areas. The

fact that some states are fairly advanced and

organised in terms of that kind of thinking is

one reason that India as a nation is successful.

It’s not that India is successful; certain

regions have been particularly successful, and

those regions are driving the whole country.

I don’t see any systematic policy framework

that works collaboratively between central

and state governments to upgrade clusters

on a national scale.

In the last two years, you have done

competitiveness reports on Brazil, Russia,

China, and India. Do those emerging nations

display any common trends?

Emerging economies are becoming more

significant players in the global economy.

We are seeing increasing outbound foreign

investment from the emerging economies,

and India is an example of that. Foreign

investment out of India is up to roughly

$1 billion a year, and that’s a meaningful

amount of external investment by Indians.

That would be one trend.

Secondly, the global economy has been

shifting a little from the traditional West

to the emerging economies in terms of

sheer weight.

How does India compare?

There’s quite an interesting story about India.

Although the Indian business environment

is improving in multiple respects, it has

some fundamental weaknesses. Number

one, the capital markets remain relatively

weak and undeveloped. Number two, the

physical infrastructure is abysmally ranked.

Indian firms face a really compelling logistical

disadvantage over companies in China in

terms of getting goods and services to market.

But the most pernicious problems in India--

which are still not being confronted head-on

- are the pervasive barriers to competition.

A lot of Indian companies are investing abroad

partly to, if you will, escape weaknesses in

the domestic business environment, and

to build assets and skills that are slow to

develop at home. It’s interesting that the

most successful Indian clusters are ones

where the government didn’t really have

any (contribution).

A fundamental shift is still required in the

nature of the business-government relation-

ship. That is still very much a work in progress.

Traditional belief is linked to getting to global

scale in domestic markets and then going

global -- but the Indian IT industry has hardly

any home base and is focused on exports.

What happened to building scale locally in

that case?

That works where the local market is very


Interview

19

open and competitive. India’s been frozen.

So, Indian IT companies have bypassed

the domestic market and preferred to seek

opportunities in the global market because

it is open and competitive?

Exactly. Bollywood’s case would be the

opposite. There is a lot of domestic demand

and competition, and that’s now inter natio-

nal ised too. Those are two very interesting

symbolic cases, both of which weren’t

affected much by government policy, but

have internationalised for different reasons.

India would have the opportunity to see

more of the natural pattern if it could free

up internal competition. But, right now,

that natural growth has been stunted by

the policy legacy.

Do you find that when there is a large

domestic market, like in India, companies

virtually have a disincentive to globalise?

In general, that’s absolutely true, and it’s

certainly true for India. Firms can be fat,

dumb, and happy at home. I remember

cases like bicycles, where because the market

was protected and sheltered, products were

abysmal. The consumer had no clout and

no choice.

Basically, India ended up with a frozen

situation, where it had companies happy to

make very good profits operating at home.

But if India opens up its domestic market

and has a lot of competition in the domestic

market--as in the United States--then it will

begin a more positive cycle.

Companies will get to ramp up and build

some capability in the domestic market, and

competition will drive them to start looking

abroad. That dynamic could happen in India

if the fundamental characteristics of the

business environment are systematically

addressed.

The other consequence of a large domestic

market--which affects both India and China-

-is, what little foreign investment comes

into India is not because India is a great

business platform; it’s there because of

the consumers.

China has taken better advantage of that

than India has because China is in many

ways more open, more dynamic. We’ve seen

many more companies come into China

because that’s such a dynamic place. The

business environment is a bit more efficient,

which is why multinationals use China as

an export platform. But we don’t see that

much in India. The multinationals are there

primarily just to do business in India and

sell to the Indian market.

Another really big challenge for India, if

she is going to develop the more advanced

clusters, is the issue of intellectual property

(IP) protection. Until India can be really

credible on that, I think the growth of biotech

will be limited.

In a way, globalisation is a great spur for

Indian companies to address the IP issue.

More Indian companies in emerging clusters

are beginning to recognise the value of

innovation, and how leveraging IP can

increase returns by an order of magnitude.

All the metrics on innovative activity in India


20


used to be horrendously low. In the last five

years, we’ve seen a real pick up in innovative

activity. The acid test is US patenting, and

that supports your point.

Indian companies are starting to see that IP

is valuable, and that protecting it is valuable.

That gives them a lever with which to be

competitive in the international market. It’s

crucial for that momentum to build, so that

government policy can be improved in that

area. What government should try to do is

create a business environment that supports

higher levels of productivity and innovation,

and encourages company strategies based

on productivity and innovation.

In the past, India’s business environment

was very inefficient and unproductive. The

mentality of most companies was, “let’s

stay home, let’s copy or imitate, and let’s

compete on price.’ That didn’t lead to many

competitive companies. That explains your

first question (on why more Indian companies

don’t show up in the top global lists).

Hopefully, there will be continued progress

on the business environment and a continued

mindset shift and a reallocation of competitive

strategy among Indian companies. That

combine will yield more clusters like Bollywood

and IT services.

What are the common mistakes of emerging

globalisers that you would caution Indian

companies about?

Indian companies are starting to internatio-

nalise more, and have more international

strategies. In some sectors, that is proceeding

in a healthy way. In IT services, for example,

companies understand that they have to

move upscale and offer more advanced

services. Some of their foreign investment

is in getting closer to the customer, so that

they can be more involved--not just in back-

office business, but also in design.

Ideally, Indian companies should use inter-

national investment to upgrade their strategy

over time. The big risk is that they will go and

make a lot of acquisitions to be big and to

claim that they have a global position without

having any strategic clarity or focus about

how they are going to be different from all

the other companies in the global market.

Some Indian companies that are investing

abroad are doing so with a really strategic

focus. Others are just buying companies, so

that they can say they are global.

Chinese outbound foreign investment is

about five times as big as India’s outbound

foreign investment. Even though it’s an

important trend that more Indian companies

are internationalising, in absolute terms, it’s

still relatively small.

You appear to be concerned that Indian

business might harm their cause by celebrating

their global success too soon.

India shouldn’t want to overstate. People tend

to look at current trends, and say, ‘wow, isn’t

it a big deal?’ Well, it’s only a billion dollars

a year; it’s a trickle in terms of FDI. Indian

companies are going to have to step up to

a much higher level of internationalisation.

I also think Indian companies are bypas sing


Interview

21

some of their natural markets in interna-

tionalising. A lot of Indian companies should

be starting with the region and then moving

to Europe and North America.

For prestige and ego, perhaps, we are

seeing too much of a focus on the advanced

economies rather than on the gigantic

opportunity in the region and Asia.

Imagine the year 2025. Are Indian companies

on Top 100 global lists--or do US, European,

and Japanese companies continue to dominate

them?

It’s up to India collectively, to determine

the answer to that question. We should see

Indian companies on those lists, as we see

Samsung and Sony on them now. Thirty or

forty years ago, they didn’t exist, they weren’t

on lists, they weren’t important.

There’s every reason why Indian companies

could become part of the global 100 or 200

or 500--but that is going to require change.

Although the trends are positive, the magnitude

of the changes that have taken place in the

business environment and company strategy

are still modest.

India is a complex democracy, with a complex

governance process with a cumbersome, slow,

and torturous reform trajectory. It remains

to be seen whether India can sustain a rapid

enough rate of progress, so that we see a

South Korea or Japan kind of situation 30

or 40 years from now.

Going back to my earlier observation, the

question is: can India be self-critical? Can

Indian companies be self-critical? Can they

overcome traditional mindsets and policy

failures which held the country back for the

last 40 years?

Only Indians can answer that question.

Bron: www.in.rediff.com


22

MBA in één dag:ultrakort en tóch volledigWat verklaart het succes van MBA in één dag? Waarin zit de kracht? MBA in één dag biedt antwoord op twee fundamentele vragen van managers:

Vraag 1: Hoe blijf ik bij?

U heeft een méér dan volle werkweek. Het bijhouden van de managementliteratuur

schiet er dan bij in. Dat is logisch, maar ook zonde. Want juist met de inzichten uit

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Vraag 2: Hoe zat het ook alweer?

Tijdens uw opleiding heeft u de boeken van goeroes als Henry Mintzberg, Philip Kotler

of Michael Porter gelezen. Maar dat is alweer een hele tijd geleden. Terwijl u juist nú

deze kennis zou kunnen toepassen: hoe geef ik beter leiding? Hoe organiseer ik mijn

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Bijblijven + opfrissen = MBA in één dag

In ‘MBA in één dag’ smelten deze twee vragen samen in een wervelend seminarpro-

gramma. Ben Tiggelaar behandelt de greatest hits in management. Hij selecteerde de

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snelste manier om managementkennis op te frissen en aan te scherpen.

Een MBA-opleiding in één dag: dat kan toch niet?

Uiteraard is dit seminar geen volwaardige MBA opleiding. En u krijgt ook geen titel om

achter uw naam te zetten. Maar toch: managen is een praktisch vak en MBA in één dag

is ontdaan van alle fratsen die veel opleidingen zo onnodig hoogdravend maken. Méér

dan de inzichten uit dit seminar heeft u niet nodig om effectief te zijn als manager.


Interview

Ben Tiggelaar‘MBA in één dag’ staat onder de bevlogen leiding van bestsellerauteur en

toptrainer Ben Tiggelaar. Ben verzorgt sprankelende seminars waarin hij

‘inhoud’ en ‘vorm’ op een perfecte manier samenbrengt.

Een dag Tiggelaar is beslist géén luierdag: Ben hanteert een hoog tempo en

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ReactiesDit zeggen deelnemers over Ben Tiggelaars ‘MBA in één dag’...

“Met een TGV door managementland!”

Martijn Kamp, Getronics PinkRoccade

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Ga naar www.mbain1dag.nlvoor een uitgebreid programma

Ook op www.mbain1dag.nl: reacties van deelnemers, foto’s, meer tips en veel videomateriaal

Op MBA in één dag passeren vele goeroes

de revue. In dit boekje vindt u bij wijze van

‘luxe knipselkrant’ een aantal geselecteerde

artikelen van of over Michael Porter.

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MBA in één dag®

Michael Porter

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