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is different from the action that others take. But that still leaves me with dozens of possibilities. How do I choose which one Porter narrows down the choices to three internally consistent generic strategies for creating a position that can be defended in the long run to enable the company to outperform the competition: overall cost leadership, differentiation, and focus. These three strategies can be used alone or in combination. Note where these strategies come from: They are internally consistent. In other words, they are a product of logic. They don t come from the five forces or from empirical evidence on what works. To get these three generic strategies, you divide all products into two kinds: (1) low-cost or standard and (2) high-cost or unique. And you consider your targeted customers as being either (A) the whole market or (B) a particular market segment. Thus the first generic strategy, overall cost leadership, involves selling low-cost products to the whole market (1A). The second generic strategy, differentiation, involves selling a line of highcost products to the whole market (2A). And the third generic strategy, focus, involves selling either low-cost products or a line of high-cost products to a particular market segment (1B + 2B). Porter tells you to choose one of the three generic strategies and stick to it. If you don t, you re stuck in the middle, which is an extremely poor strategic situation. You don t have enough market share, capital investment, and resolve for the low-cost game. You re not different enough for the higher-cost market, and you don t have the focus to go after a particular market segment with either low- or high-cost products. This sounds very logical. But is there evidence to support it Like Senge in The Fifth Discipline, Porter relies on theory and principles rather than evidence. In Competitive Strategy, we find mini-examples, like the IV kits for hospitals and a long paragraph each on Timex and Prelude Corporation. But even these cases serve to illustrate particular points, as the IV story illustrates switching costs, rather than to provide empirical support for Porter s overall method. So we must look elsewhere to find out whether competitive strategy works.
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134 T H E A D V A N T A G E O F E X P E R T I N T U I T I O N
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In a 1997 research paper, Competition and Business Strategy in Historical Perspective, Pankaj Ghemawat reviews the literature from the field of industrial organizations, or IO, on Porter s five forces.5 Here s what Ghemawat found. If you break the five forces down into 47 key points, only 6 of those points show positive results. For the other 41, we just don t know. Ghemawat concludes that even though these 41 points do not match IO research, they reflect the experience of strategy practitioners, including Porter himself. So Ghemawat tells us that the five forces come not from direct empirical evidence, but from the expert intuition of Porter and others. On the one hand, this fits the art of what works. On the other hand, if you can t point to the evidence, current or past, you re asking others to take it on faith that you re right. We find more research on competitive strategy in a 2000 article, What Have We Learned about Generic Competitive Strategy A Meta-Analysis, by Colin Campbell-Hunt. A metaanalysis is a study of studies. You take research results from many sources and use advanced statistics to see what they say collectively. Campbell-Hunt used 17 studies that were done between 1983 and 1994 and covered more than 6,000 companies around the world. Campbell-Hunt tells us that the dominant paradigm of competitive strategy is now nearly two decades old. It fits Kuhn s account of a paradigm because it has so penetrated research, theory, and business practice that it has become the received wisdom taught in textbooks. And yet there has been little normal science about competitive strategy, where you find a dialogue between fact and theory. In other words, Porter s theory has taken over the field, but we still don t know if it works. So Campbell-Hunt tries his hand at finding out. The result 6
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