Management and the Limits of Logic Part II

Michael Porter

When I wrote last week’s blog, I was unaware that Monitor Group, the consulting company founded in 1983 by strategy guru Michael Porter and some Harvard Business School colleagues, had filed for bankruptcy in mid-November and that its assets were to be sold to Deloitte. On its website the company accentuates the positive and represents the events as a strategic coup, with the bankruptcy as a purely mechanical measure to facilitate it.

The bankruptcy is, however, also a sign of failure. When a leading management consultancy fails, it raises inevitable questions about the quality of the advice they were giving and their ability to implement their own advice. The bankruptcy has certainly attracted its own share of scrutiny and perhaps a little schadenfreude on the part of people who have never liked Porter’s work (a group which includes me). In his Forbes blog, aspirant guru, Steve Denning seized the opportunity to deliver a blistering attack on Porter’s Five-Forces Model and the idea that strategy was all about dealing with competition. He describes Porter’s relationship to strategy as being similar to that of “what Aristotle was to metaphysics”. He accuses him of “hype, spin, impenetrable prose and abstruse mathematics, along with talk of ‘rigorous analysis’, ‘tough-minded decisions’ and ‘hard choices’ all combined to hide the fact that there was no evidence that sustainable competitive advantage could be created in advance by studying the structure of an industry.”

Strategy as a Gardening Tool

The trouble I always experienced with Porter’s frameworks was their foundation on neoclassical economics and fact that there were no people (let alone passion) in them – innovation and creativity were always “exogenous”. You couldn’t do a Five-Forces Analysis (assuming you wanted to – I could never understand why) unless you already had an industry, which is a relatively late stage in the development of a business ecosystem. Markets and industries were just there – Porter never asked where they came from…Of course this was the stage that the manicured “gardens” of large American corporations were at in the 1970s/80s – markets were just “there” – so Porter’s ideas resonated with the problems that the firms then faced.

It has been clear for decades, however, at least to some observers, that there are distinct limits to the rationalism that has underpinned strategy ever since Igor Ansoff et al. introduced the concept into management in the 1960s. Rationalism and logic can extend strategy, rationalize strategy, scale up strategy but they cannot create the initial seeds of strategy. The concept of strategy is a versatile “gardening” tool that can be used to create the right conditions for growth, to nurture growth, to fertilize, to weed, to prune, to train, to transplant, to uproot etc. but it cannot create the seeds of growth – that takes people and passion.

Rationalist theories of human nature don’t help here. In last week’s blog I used Jonathan Haidt’s metaphor for human nature as a rider (reason) on an elephant (intuition) from his book, The Righteous Mind. Porter’s material addresses the riders and ignores the elephants completely. This is why the very concept of strategy has become so closely associated with executive power, with rational arguments being used often as a cloak for the exercise of arbitrary power. To get to the roots of strategy we need to understand elephant dynamics, which means people (including the bosses) getting on the ground and acting and messing around without too many preconceptions and busting the occasional rules in the cause of small-scale experimentation.

Markets (and businesses) are conceived in passion and are nurtured in communities of trust and practice. These often emerge from communities of faith and not (pace Max Weber) just Protestant communities of faith. So to understand the genesis of strategies we have to understand the genesis of social ecologies and under what conditions people learn to cooperate and create with others who are not their kin.

The Problem of “Balance”

If we accept this ecological perspective, we can all agree that it’s not “either/or” – reason (rider) or intuition (elephant) – but “both…and”. Unfortunately this leaves most commentators muttering about “balance”. But what is the balance between the rider and elephant in space and time? That’s difficult to handle if one thinks of organizations as static structures rather than as movements. I think it helps to think of them as ecological processes – movements. In their early days firms rarely pay any explicit attention to formulating strategy – they are just doing it – all elephant and no rider! Entrepreneurs in the early stages of what will become a business are often improvising ends from the means at their disposal (what they know, who they know and what they can do)

Over time, if they are to survive, an ends-means connection emerges, a.k.a. “strategy” and the corporate elephant’s rider appears. As the business grows in scale and cause-and-effect relationships become clearer yet, the owners can articulate their “strategy” better and start to use the concept as a gardening tool along the lines I suggested earlier – weed, fertilize, train, scale etc. This is the classical strategy formulation phase where Porter’s frameworks typically begin and the corporate riders have some control over their elephant.

As the firm becomes large and successful and mature, strategic work will loom large, not the least because they need a compelling narrative to tell to their investors. Strategy is now concerned mostly with “rationalizing” the past. At the same time, however, the original ends (the “who” and the “why”) of the firm become forgotten (they have long been achieved) and the means (the “what” and the “why”) tend to take over. If maximizing shareholder value becomes an end instead of a means, this readily leads to the emergence of a power elite, a disengaged workforce (no one gets up early in the morning to “maximize SHV”!), little innovation and sets the stage for crisis, destruction and possible renewal. It’s all rider and no corporate elephant at this stage, but lots of individual elephants doing their own thing. Without renewal the firm’s resources will be broken down and returned to the larger systems and the cycle is ready to begin again…

Denning doesn’t suggest that it was the use or misuse of the Five-Forces model that doomed Monitor, neither does he blame Michael Porter, who has been involved with the company only indirectly for the last decade. Rather, he concludes that the firm went bankrupt because its customers were no longer prepared to buy what it was selling. That’s true but hardly earth shattering, it’s a bit like concluding that someone died because of a lack of oxygen; in the final analysis that’s why everyone dies. The specific reasons why Monitor could not generate enough customer demand will be much more complex. But one of the major components I suspect was the firm’s and its founders’ impoverished view of human nature and their failure to recognize the limits to logic.

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One Response to Management and the Limits of Logic Part II

  1. warren says:

    Theoretical Porter Principle

    …when profit is the only passion,
    there is a predictable demise.

    …when passion is people, passion
    enables logic, emotion and intuition
    towards unbreakable strides.

    (Ok, a little corny)