Michael Porter on Bad Strategies

Michael E. Porter, director of Harvard's Institute for Strategy and Competitiveness recently spoke on -- "Why Do Good Managers Set Bad Strategies?" -- offered as part of Wharton's SEI Center Distinguished Lecture Series.

Portar feels that Bad strategy often stems from the way managers think about competition, he noted. Many companies set out to be the best in their industry, and then the best in every aspect of business, from marketing to supply chain to product development. The problem with that way of thinking is there is no best company in any industry. "What is the best car?" he asked. "It depends on who is using it. It depends on what it's being used for. It depends on the budget."

Managers who think there is one best company and one best set of processes set themselves up for destructive competition. "The worst error is to compete with your competition on the same things," Porter said. "That only leads to escalation, which leads to lower prices or higher costs unless the competitor is inept." Companies should strive to be unique, he added. Managers should be asking, "How can you deliver a unique value to meet an important set of needs for an important set of customers?"

Another mistake managers make is relying on a flawed definition of strategy, said Porter. "'Strategy' is a word that gets used in so many ways with so many meanings that" it can end up being meaningless. Often corporate executives will confuse strategy with aspiration.