Victoria academic breaks 20-year deadlock
A researcher at Victoria University has published a radical new analysis of business competitive strategy, challenging ideas that have dominated world thinking for two decades.
For 20 years, descriptions of how firms compete with each other have been heavily influenced by the ideas of Harvard University's Professor Michael Porter.
But findings by Victoria academic, Dr Colin Campbell-Hunt, of the University's School of Business and Public Management, suggest that these ideas are no longer adequate.
A globally-celebrated management guru, Porter wrote the best-selling 'Competitive Strategy' in 1980 in which he proposed that firms had to choose one of two fundamentally-different routes to competitive success - either achieving lower costs than competitors, or a price premium based on some form of differentiation.
Porter argued the strategies involved in cost leadership are systematically different from those required for differentiation, and that firms could not achieve both at once. If they tried, Porter predicted they would become "stuck in the middle" and achieve only mediocre profits.
Dr Colin Campbell-Hunt says he, like many others, had not been comfortable with these ideas for several years.
"There are just too many examples of outstanding companies, like Honda, that achieve high levels of differentiation based on product innovation and quality, but are also cost leaders."
While on research leave at the University of St Andrews in Scotland in 1996, Campbell-Hunt set himself the task of collecting together all the research on so called 'generic' competitive strategies, to see where the balance of evidence lay on Porter's theory.
This involved bringing together many previously-published studies into a statistical framework called a 'meta-analysis'. This step was the most challenging, and the key to Campbell-Hunt's research.
"The kind of statistics used to describe competitive strategies are not simple single values like an average, but compounds of many variables - equations that show how strategies such as advertising, brand leadership and channel influence are closely related to each other. There was no established way to create a meta-analysis for this kind of work.
"Without a meta-analysis, what happened was that each study published on competitive strategy - and there have been nearly 20 over the last decade or so - was effectively isolated from the others. There was no way to accumulate the evidence and see what it was saying."
Using his new procedures, Campbell-Hunt discovered a much richer variety of competitive strategies.
He has found competitive leadership can be achieved in marketing, or sales, or product innovation, or quality reputation, or manufacturing excellence, or by focusing on the distinctive needs of a narrowly-defined market.
The strategies involved in each of these, says Campbell-Hunt, are quite distinct from each other.
"The differences between each of these six faces of competitive strategy are as important as the differences Porter expected to see between cost and differentiation. They are quite distinct ways to pursue competitive advantage, and we now have a much richer language with which to describe firms' efforts to get ahead of competitors."
Contrary to Porter's expectations, Campbell-Hunt has found that firms build competitive strategies that are mixtures of these various routes to advantage.
"They mix cost advantages together with the various sources of differentiation as often as they mix any other type of strategy," he says.
Campbell-Hunt also tested Porter's idea that firms' performance would suffer if they failed to choose between cost-based or differentiation-based forms of advantage.
The analysis showed no support for Porter's 'stuck in the middle' hypothesis.
"Companies that mix cost and differentiation in their competitive strategies are as likely to achieve any given level of profit as often as anybody else."
Campbell-Hunt concludes "we are going to have to look deeper, or in different places, to explain the sources of competitive success."
His research is published in this month's issue of Strategic Management Journal.