Pathway to success in business heads off down another avenue

WELLINGTON - There is more to competing in business successfully than lower prices or offering something different, according to research by a Victoria University academic.

This finding challenges a long-held management tenet that a company's profits will suffer if it fails to choose between competing on price or being able to charge a premium price for products or services that differ in some way from those of its competitors.

"We have now provided a pretty good test of that theory and it really does not appear to work," says Dr Colin Campbell-Hunt of Victoria University's School of Business and Public Management.

It is 20 years since internationally acclaimed management guru Professor Michael Porter of Harvard University proposed in his best-seller Competitive Strategy that firms wishing to perform had to choose between just those two fundamentally different routes to be able to compete.

Dr Campbell-Hunt says his research indicates the answer is much more complex.

He has found competitive leadership can be achieved in marketing, or sales, or production innovation, or quality reputation, or manufacturing excellence, or by focusing on the distinctive needs of a narrowly defined market - niche marketing.

"I am certainly not in the game of taking potshots at guru Porter," Dr Campbell-Hunt said.

"But with that particular set of [Porter's] ideas I certainly found it quite uncomfortable to make them work when looking at organisations such as Honda that achieve high levels of differentiation on product innovation and quality, but are also cost leaders.

"It's a pretty widely shared discomfort. I think there are a lot of people who work with and teach strategy who found his ideas in this particular area just a bit too limited."

The problem has been that until recently there had been no way of getting past Porter's ideas.

"He set his ideas out in a book and normally what happens is that people will rush out and do a lot of empirical work [analysing actual situations] that either supports or refutes the suggestion."

But previously there had not been a technical way of getting the evidence on firms' strategies and bringing it together to make a "sensible test of his propositions."

The solution came with the development of a sophisticated new scientific research technique called meta-analysis, combined with procedures developed by Dr Campbell-Hunt for generating suitable statistical data to which it could be applied.

Dr Campbell-Hunt was able to bring together previously published studies into a suitable framework for such analysis.

Since 1980, nearly 20 studies on competitive strategy have been published.

The two principal outcomes of the study for today's managers "is a much richer way of talking about competitive strategies instead of just thinking about your strategies in terms of 'are we pursuing low cost or are we trying to differentiate our product?'

"Now you can think about quality, marketing, sales, operations, high-quality manufacturing operations.

"And, crucially, all these different approaches to competing can be mixed up together.

"One of Porter's ideas was that it would be very difficult to choose to mix together low-cost strategies with differentiation strategies."

But much more work remains to be done in finding and analysing information to establish the performance differences between the various competitive strategies and combination of strategies pointed up by Dr Campbell-Hunt's study.

- NZPA