Porter vs. McGrath

        Regardless of the industry in which they operate, organizations all face a common obstacle; competition. It is therefore not surprising that, for decades, researchers and CEOs alike have sought to understand the nature of competition in the hopes of prospering from its mastery. The following essay will examine strategy through the eyes of Michael Porter and Rita McGrath whilst comparing their respective models and seeking to understand which one is more relevant today.

        Michael Porter is considered to be the leading authority figure in strategy and competitive advantage. In the late 1970s, he developed his Five Forces model which remains one of the most widely accepted and commonly used models within the business community. Porter’s model is centred around the five forces of competitive advantage; the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitutes, and the rivalry among existing competitors (Porter, 1980) and the three generic strategies - differentiation, segmentation, and cost leadership - that companies can use to effectively manage them. Porter’s core argument is that “a good competitive strategy will result in sustainable, superior performance” (Magretta, 2012).

        Over the last few decades, a new school of thought, one that contradicts Porter’s correlation between competitive strategy and performance sustainability, has emerged. Rita McGrath, a Professor at Columbia Business School, is a recognized expert in the field of strategy in unpredictable environments. In 2013, she published The End of Competitive Advantage, a book in which she discusses why competitive advantage is no longer sustainable, as well as the gaps between “traditional approaches to strategy and the real world” (McGrath, 2013). Contrary to Porter, McGrath believes that “competitors and customers have become too unpredictable” (McGrath, 2013) for companies to feasibly create strategic plans that can be applicable for more than a year. McGrath’s theory is based on the idea of a transient advantage, which consists of four phases; the ramp up, exploitation, reconfiguration, and disengagement. Her model is different than Porter’s in that it expects change as opposed to stability and considers the idea of a sustainable competitive advantage to be dangerous (McGrath, 2013). She also theorizes that it is no longer the organizations within an industry that are competing against each other, but the entire industries themselves.

        The undeniable differences between the markets of the 1970s and those of the 2000s have raised a simple yet fundamental question regarding Porter’s Five Forces model; is it still relevant? The problem with Porter’s model today is that it does not take into account the unpredictability of markets, nor does it consider non-market forces in its framework. While his model was a brilliant and innovative approach to competition and strategy within the context of a 1980s economy, it lacks the flexibility to keep up with today’s dynamic market place. As such, Rita McGrath’s theory on the end of competitive advantage, although fairly new, seems to offer a more realistic outlook on strategy in the 21st century. That is not to say, however, that Porter’s model is completely obsolete; it does still offer some valuable insight into factors such as, for example, differentiation, a topic that McGrath also takes up in her discussion of transient advantage.

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