Michael Porter's Big Ideas

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needs of customers do shift far enough so that continuity doesn't work anymore, so that your essential positioning is no longer valid.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 their 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.

Great strategies are a cause.