MEMORANDUM
Date: February 18, 2008
To: Professor Truex
From: Emily Tsang
Subject: Comparison of Competitive Advantage of Nations and Strategy and the Internet
Introduction:
This summary compares the affects of the internet in nations and further companies in obtaining sustainable competitive advantages illustrated by Porter in Harvard Case articles entitled 'Competitive Advantages of Nations' and 'Strategy and the Internet'.
While both articles were written by Porter, one is from the perspective of nations' actions to companies and the other being more company action specific, both speak to the influence of the internet and how to utilize the technology to go beyond operational effectiveness and obtain stainable strategic positioning.
In this write-up, we will link the underlying messages Michael Porter is trying to convey in both articles. We will focus on the significance the environment has on the utilization of the internet; some factors that cause one to innovate or upgrade; some common misperceptions of competition; and what happens when technology is used as a complement to and not a driver of obtaining strategic and competitive advantages.
Analysis:
While technology exists and is available, those nations that have the environment and leadership that permits and supports ongoing information and continuous upgrading are the companies that can gain a competitive advantage. Porter expresses in his 'Strategy and the Internet' article, that it is not so much the availability or the existence of the technology, but the environment such as the right leadership to employ those technologies that can avail a competitive advantage. "While each industry will evolve in unique ways, an examination of the forces influencing industry structure indicates that the deployment of Internet technology will likely continue to put pressure on the profitability of many industries" (2001, pg 12). Even further to his point, it is through the leaders that utilize technology as a part of their overall strategy and not as the plan for task oriented operational effectiveness is what can obtain sustainable advantages.
This still does not necessarily mean that those with more resources have a more ideal environment for the use of technologies such as the internet, but the environments that have the necessary catalysts such as good leadership or other insufficiencies that push the nation and companies to be more resourceful with the use of technology are the ideal environment for innovating most effectively. In Porter's 'Competitive Advantage for Nations', he states that "[f]inally, when the national environment pressures companies to innovate and invest, companies both gain a competitive advantage and upgrade those advantages over time" (1990, pg 9). Porter later clarifies that the disadvantaged are prodded to innovate and upgrade more in order to become advantaged in a more dynamic model of competition, away from the traditional static model of competition. Companies further overcome their deficiencies by innovating and upgrading in order to be competitive. Porter clarifies this argument by contrasting how companies that are the have lots become inefficient when their environment allows them to operate complacently, versus how the have not's are pushed to be innovative and more resourceful; thus utilizing technologies better in the following statement. "When there is an ample supply of cheap raw materials or abundant labor, companies can simply rest on these advantages and often deploy them inefficiently. But when companies face a selective disadvantage, like high land costs, labor shortages, or the lack of local raw materials, they must innovate and upgrade to compete" (1990, pg 9).
Technologies such as the internet return benefits only in the format that they are utilized. Most companies go wrong with the implementation of technologies in a narrowly focused deployment accompanied with expectations of outcomes that are too all-encompassing. Porter shares some common misperceptions on the nature of competition first in the 'Competitive Advantages of Nations' article and similarly again in the 'Strategy and the Internet' article. Even though the need for change and the environment must be conducive to upgrade and employ technologies such as the internet must exist, more so "the goal, for both nations and companies: [should be] not just surviving, but achieving international competiveness" (1990, pg 21). The problem is where companies focus too much on uses of the internet for operational effectiveness. Those are the tasks before them that are survival tasks. In 'Strategy and the Internet', Porter shares his views of how operational effectiveness is necessary for survival; and profitability is obtained through sustainable competitive advantages and strategic positioning. "The Internet affects operational effectiveness and strategic positioning in different ways. It makes it harder for companies to sustain operational advantages but it opens new opportunities for achieving or strengthening a distinct strategic positioning" (2001, pg 13). Operational effectiveness alone is not enough to gain or sustain a competitive advantage as one can only expect to gain speed and agility. "Without a distinctive strategy, speed and flexibility lead to nowhere" (2001, pg 14). With forward thinking leaders recognizing the company's ability to innovate in areas beyond operational tasks of gaining efficiencies and ancillary forms of value, competition becomes more of strategic positioning and other forms of customer value creation. In turn the companies can charge not only for their products or services at hand, but the value overall generated.
Repeatedly, Porter states the need for recognition and understanding of both the needs for innovation but innovation by itself is not the stand alone solution. The 'company agenda' as Porter refers to it encompasses the leadership roles and correct usage of innovation in order to "tap selectively into advantages"(1990, pg 20). That the environment must exist to support the introduction of innovation, but strategy must exist to utilize technologies in a format beyond operations in order to compete advantageously. The companies can then obtain sustainable competitive advantages in operational excellence and superb strategic positioning, which is harder to duplicate by using technology as a complement and not the sole factor for obtaining those advantages. The strategies that allow innovation and technologies such as the internet to better automate and link operations and functions will propel the company or nation further ahead and secure a competitive advantage and position.
Conclusion:
Ultimately, the common message that Michael Porter has tried to convey in both the 'Competitive Advantage of Nations' and 'Strategy and the Internet', is that the right environment must exist to have the optimal condition to incorporate innovation and upgrading. This environment is not necessarily only made-up of available resources and infrastructure or lack there-of, but the necessary forward-thinking leadership. When innovations such as the internet are integrated as a complement to a company's strategy, then true sustainable advantages can be obtained. It is not so much the technology itself that is the catalyst for a good strategy, but the capabilities that it has to further link and automate functions and parties throughout the value chain that create value. Value, which is created that becomes competition beyond products and later turned into profitability.
Criteria | Competitive Advantage of Nations | Strategy and the Internet |
Significance of the environment and use of the Internet for strategy. | High | High |
Why Innovate and upgrade? | Weak nations will look to innovate in order to get rid of deficiencies such as the Japanese who have no natural resources, in order to compete they were forced to develop JIT, and TQM strategies combined with their infrastructure advantages to maintain competitive advantages. | Internet influences industry structure and sustainable competitive advantage; while not maintaining operational effectiveness, but maintaining strategic positioning |
Misperceptions of competition | Tasks vs. Forward Thinking leadership | Customer value vs. ancillary forms of value |
When technology is used as a complement and not a Driver… | National environment pressures companies to innovate and invest; companies both gain a competitive advantage and upgrade those advantages over time… Company Agenda | Beyond operational excellence and more sustainable Strategic positioning and thus a competitive advantage |
Bibliography
Michael Porter, (1990)"The Competitive Advantage of Nations" Harvard Business Review, pp. 73-91.
Michael. Porter, (2001) "Strategy and the Internet" Harvard Business Review, pp 63-78.
