I've just finished reading Jim Collins' latest book, Great By Choice (which he co-authored with Morten Hansen). Collins is a smart observer and a gifted writer. It's hard to put down a Collins book feeling anything but...well, inspired. He's the coach or the Dad you always wanted. You can do it, he says. You really can. You can choose to be great.
Collins has a knack for asking good questions. In a series of books starting with Built to Last, Collins has addressed every manager's ultimate anxiety: performance. Each new book finds just the right question, the point of intersection between the timeless issue — performance — and the timely challenge managers are grappling with today. Great By Choice, for example, focuses on why some companies thrive in uncertainty, even chaos, when others do not. Collins works through the question like a detective trying to solve a mystery.
Maybe that's why reading Great By Choice reminded me of a Sherlock Holmes story — the one about the dog who didn't bark while the racehorse was stolen from its barn. How did Holmes identify the perpetrator? It was, he told the baffled Scotland Yard inspector, "the curious incident of the dog in the night-time." But, the inspector replied, "The dog did nothing in the night-time." Precisely Holmes's point: "That was the curious incident." The dog, he reasoned, must have known the thief.
There is one incredibly quiet dog in Collins' work: strategy. Collins is a master at putting the human face on performance. That, in my opinion, is a significant contribution. Get the right people on the bus. Be disciplined. Be empirical. Be creative. And so on. But good strategy makes the link between the specific actions managers take and the financial results of those actions. Assuming you can figure out who belongs on your bus, someone still must pick a destination. Is it really enough to choose to be great? Don't you also have to make great choices?
Or let me tone down the rhetoric a notch. You have to make good choices. And that's where Michael Porter enters the picture. Strategy is not some arcane, academic abstraction. Strategy is about making choices that lead to sustainably superior performance. And the kind of performance I'm talking about can, and must, be rigorously defined and quantified. Porter's work provides that rigor, as it defines the economic fundamentals of competition and strategy. And most important for managers, Porter's five tests of good strategy can help you to tell the difference between good choices and bad.
So what are good choices?
First, you must choose a distinctive value proposition. Which needs will you serve, which customers, at what relative price? Have you staked out a positioning that's different from rivals?
Second, and far less intuitive, you must choose to tailor your activities to that value proposition. Competitive advantage lies in the activities, in choosing to perform activities differently or to perform different activities than rivals. These ultimately are the choices that result in a company's ability to charge premium prices or to operate at lower cost. (Remember, we're talking about quantifiable performance.)
The third test of strategy, making trade-offs, may well be the hardest. It means accepting limits — saying no to some customers, for example, so that you can better serve others. Porter explains why trade-offs are an important source of profitability differences among rivals, and why trade-offs make it difficult for rivals to copy what you do without compromising their own strategies. The essence of strategy, says Porter, is choosing what not to do.
Fit is the fourth test. Great strategies are like complex systems in which all of the parts fit together seamlessly. Each thing you've chosen to do amplifies the value of the other things you do. That's how fit improves the bottom line. It also enhances sustainability. Says Porter, "Fit locks out imitators by creating a chain that is as strong as its strongest link."
Continuity is strategy's fifth test. While managers are often berated for changing too slowly and too little, it is also possible to change too much, and in the wrong ways. Faced with the latest New Thing, managers must choose whether to embrace it or not. Continuity of strategy helps companies to make good choices about whether and how to change in the face of turbulence. Good choices will strengthen tailoring, sharpen trade-offs, and enhance fit.
So, is it great by choice...or making great choices? MBA students and their professors tend to divide the world into two separate domains: people and numbers. There are the "soft" subjects like leadership and organizational behavior, and the "hard" ones like finance, accounting, and operations. Of course this distinction only makes sense in the classroom. All good executives know that the central challenge of performance is seamlessly integrating the two into a working whole. Good strategies do just that. Jim Collins, meet Mike Porter.