Innovatia

We have started to see where we could be more rigorous about what culture really means and I don’t think we’ve got there yet. One of the most important insights is that cul- ture is supposedly the stuff that is not codified in the organisational structure or the incentive system. It’s more the informal, non-explicit, envi- ronmental norms of behaviours and values. The most important point to make about culture is that there may be some things about it that are universally good but there’s no good culture per se. There’s just a culture that fits the strategy. The way you think about culture is that, given this position in the market place, what sort of culture and behaviour would make sense? If you are Wal- Mart and your philosophy is about having the lowest prices, then you want that mentality to permeate throughout the organisation. You want people to be very careful about cost in everything they do. You want the entire purchasing process to be affected by it. I don’t think we have any sci- ence for doing that but it is definitely important. Another strategy we see a lot, and I think you are critical of, is outsourcing. What are your views on this ? I’m not critical of outsourcing in principle, but I am critical of the idea that outsourcing is always good. As with most things related to economics, there is an optimum, and that’s not a minimum or a maximum, but an optimum. What I’m critical of is that everyone seems to think you should do as much of it as you can, as opposed to finding the optimal mix. The optimal amount has prob- ably gone up over the past 20 years as a result of technological changes. What should you out- source? Something that is involved in providing a service that is not integral to the technology

me, it was a major breakthrough from the work I had done before. It wasn’t that it was changing anything but it was the next chapter. It was the beginning of the third generation of my work. I’ve been bubbling along on that line of work ever since, the Internet article being an exam- ple. I slowed down in publishing because I was concerned about the timing but now, I think it is a great moment, and I just wish I had the book ready. However, even when it comes out, I think it will be a good time. Were some of the major themes of your work, especially those with the most endur- ing qualities such as the concepts of the Five Forces and the Value Chain, conceived in mo- ments of inspiration or was it a result of two years’ work? I think it was more the latter. I am always em- pirically led, in the sense that I am exposed to a tremendous number of examples in industries, including case studies in the Business School that I or my colleagues write. So I have this data set. In the case of the Five Forces, I had started industrial economics and I was aware of Bain, and his work on industry structure in the limited sense that was used in economics in those days. The Five Forces took me a long time. I actually wrote a whole book, trying to take industrial or- “Challenges and exceptions in data are what push our thinking to the next level.”

ganisation and apply it to strategy and I proba- bly finished it around 1975 or 1976. That’s five years earlier than when it was published. Yes. I had showed it to a publisher and after lis- tening to him, I decided to throw it away. It took me a while to figure out that the Five Forces were the right way to look at it. The Five Forces were first put in print in a course note that I be- lieve was written in about 1976 and I used it in teaching. It saw the light of day in the Harvard Business Review article in 1979. The same thing happened with the Value Chain, although it was a little shorter. By the time I published Strategy , I was well un- derway in working on Advantage. The Strategy book was about industry, and I had one chapter about companies and company positions, which was a generic strategy concept. But I understood that in order to take that to the next level, I need- ed to create a theory of the firm, a way of charac- terising it at a more granular level, and so I started down that road. Then the new work What is Strat- egy? was motivated, first and foremost, by some common questions and challenges that I received about the earlier work, probably the most impor- tant of those was “Gee, you can be low-cost and differentiated at the same time”. The classic Japanese example, like Toyota? Right. What I finally figured out was that it is only if your competitors are not operationally effec- tive. I figured out that there was another dimen- sion I had not thought of, and then I was able to clarify in my own mind this concept of tradeoffs: why there were tradeoffs and where they came from. I then laid out the Value Chain view of the

world. I had this notion that there were linkages across activities. Initially, my work tends to be led purely by empirical data and then over time the challenges and the exceptions become very im- portant in pushing your thinking to the next level. What do you think of company culture? I think we need to be more systematic about it because it is unmistakable when you look at case studies. You walk in the door at Nucor Steel and it couldn’t seem more different to another steel company. You walk in the door at Wal-Mart and it couldn’t be more different than going to Tiffany’s.

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