Recently, I wrote on my blog that I had ordered a copy of Michael E Porter’s book, Competitive Advantage along with Peter Drucker’s Practice of Management. I have written about the first, though not as a book review because it wouldn’t have been fair to Drucker. As far as Michael Porter’s book is concerned, I wanted to read it because I thought it could be related to my thinking on brands.
It is for that reason, that this piece too will not be a review, but an exploration of how Porter’s competitive advantage theory and model can be related to brands. Competitive Advantage is a long, text-book like read and I suppose that amount of explanation is required to convey his concept of competitive strategy, as well as guide readers through the various aspects of how a firm can develop a competitive advantage through its strategy. I am not sure how much of this book is genuinely his, because there are some strange examples that he cites, some of which I shared in social media to say that there looks like plenty of mischief with this book as well. In fact, according to this book, which was written in 1985, Porter wrote a previous book titled Competitive Strategy in 1982, parts of which he does mention here as well for the reader’s benefit.
As an advertising professional for over 20 years in India, that too as a writer, I have fortunately had the chance to dwell upon matters of strategy quite often and contribute to it. This was especially the case at Ogilvy, Delhi. I do realise that most of our preoccupations with strategy are usually confined to advertising and communications strategy, not with all of marketing strategy, and rarely ever with corporate or business strategy. In fact, it has been the point I have been stressing for the past many years, ever since I began putting down my thoughts on brands, that the advertising industry has ceded the strategy space to management consultants and that we need to reclaim it, because we are the ones creating a whole lot of intellectual property for our clients, so much of which goes unrecognised and unremunerated.
Even if I hadn’t read any of Michael Porter’s books before, I was familiar with his five-forces model of competitive advantage, which is what most of this book deals with. He took his thinking on the subject further in another book, Competitive Advantage of Nations written in 1990, a book that I would like to read next.
According to Porter, there are what he calls three generic strategies that all firms adopt to stay competitive: cost leadership, differentiation, and focus. In addition to these, Porter says that firms require to keep certain forces in mind at all times, when developing their business strategies. These are the five forces that determine a company’s competitive advantage: Industry specific competition, the threat posed by new entrants, buyers’ (customers) bargaining power, suppliers’ bargaining power, and the threat of substitute products. You can read more in this HBR article by Porter himself.
If we closely consider these five forces that determine a company’s competitive advantage, we can see that almost all of them are also aligned to brands. Whether it is within-industry competition, new entrants, buyers’ and suppliers’ bargaining power, they all have a lot to do with brands. And I don’t just mean brands in the marketing sense of the word, but in the corporate sense of the word as well. To put it in another way, if these five forces determine a company’s competitive advantage, brands are what help establish that competitive advantage. Brands are the weapons in a company’s armoury that it can use to stay competitive. Because eventually, as Porter himself says elsewhere, strategy is all about differentiation. And so are brands.
There is one dimension, though, that Porter says he introduced into his five forces theory in order to break each of these dimensions down and help companies implement competitive strategies better, that I found a little puzzling. It is the value chain concept which, according to him, is each activity that the company undertakes in its operations. He goes into great detail elaborating value chains under each force and where and how companies can improve those. I always understood value chain a little differently. To me it represents a particular position in a hierarchy of value additions that a company can make, in order to maintain competitiveness, not activities or tasks. Perhaps, that is because I have considered value chain at a macro-industry level. For example, when I say that advertising has to move up the value chain in areas of strategy, in order to better compete with management consultancies, I mean our relative position of strategy value offering vis-à-vis those of management consultancies.
As a thought experiment, I have tried to layer brands on to the five forces model, just to explain what I mean by brands helping companies establish their competitive advantage. If you look at the centre of Porter’s diagram, where we have industry competition, it is brands that help establish or maintain competitive advantage. If we consider new entrants, brands can act as barriers, or can allow companies the flexibility to deal better with new entrants through segmentation. When we consider buyers’ bargaining power, brands are what help companies build relationships with customers and maintain preference. Similarly, with suppliers’ bargaining power, brands act as markers of standards and magnets for who suppliers would like to do business with. Even in the case of substitute products which are usually to do with disruptive change in the industry, brands can help companies navigate the changes better, for example, through brand extensions.
Porter also writes about interrelationships between business units as well as between companies in a conglomerate. He writes of fostering vertical as well as horizontal linkages within companies, in order to leverage their competitive advantage even further. Where companies have common areas of expertise or strength, those ought to be shared or transferred for maximum gain. This is best done through transference of knowledge, movement of people, and technical know-how where applicable.
I have been writing about companies better integrating their individual brands with the corporate brand to create a cohesive whole that stays with consumers and other stakeholders. In my own industry, I have seen how well some agencies, such as Ogilvy, do this; with every new communication discipline and business unit that was launched, greater cooperation and transference of knowledge and skills took place between them, living up to David Ogilvy’s ideal of “one agency, indivisible”.
Some companies are better at this than others, but I think it is really up to the leadership team to ensure that the linkages are created and strengthened. American Express and Apple are examples of really well-integrated companies and brands, though they are both multi-product companies and it is apparent to me even though I am not an Apple person! Google, while also being a giant tech company is not so well-integrated across its various businesses.
If GE and Sony progress along the lines that I would suggest to them, they too would be much more competitive and well-integrated as corporate brands. Similarly, my attempt through this blog, to try and share my thoughts on Tata Motors and JLR, as well as some preliminary thoughts on Tata Consumer Products would make these companies more competitive and well-integrated. If you ask me, Titan Company too needs to move in this direction. With three brands already across three different product categories: Titan watches, Tanishq jewellery and Taneira sarees, they need to formulate clear brand strategies for each and also for how they all come together under Titan, the corporate brand. And as I have written before, if Vodafone Idea had not merged the Vodafone and Idea brands into one new brand, Vi, they might have had a better chance against the new entrant, Reliance Jio.
I was wondering how Porter would view the technological disruption that has been with us since 2000, and has transformed entire industries. Competitive Advantage has a chapter on technology and competitive advantage, but he doesn’t deal with industry-wide changes here; in a footnote, he mentions that he writes about it in his previous book, Competitive Strategy. Technology has been disrupting so much of business and so rapidly, that companies have a hard time staying up to speed and still being able to take a long-term view. In just the two years of the Covid-19 pandemic, businesses have had to adopt digitization at a pace unimaginable earlier. Every new technological change means disrupting the business equilibrium and not all the changes are likely to last, so how do companies decide on what strategy to adopt with respect to technology that is likely to stay for the slightly longer term. At times, it appears that companies are just having to take the plunge because their competitors are, or because they can meet their immediate and short-term targets better. And when every company is facing the same set of disruptive changes in technology, how does one maintain a competitive advantage?
I have also been writing about making India more competitive as an economy and it ties in with the idea of Brand India. That’s why I look forward to reading Michael E Porter’s Competitive Advantage of Nations, prices on Amazon India permitting.
Meanwhile, I have just started reading Start-up Nation that I recently ordered from Amazon, about how Israel became one of the most innovative countries in the world. More about that on my blog, soon.