Porterian and Peterian Performance

13 July 2018

What makes an organization effective? After Peter Drucker, Michael Porter and Tom Peters became the most prominent writers about the performance of organizations, but with quite different perspectives. For Michael Porter, in his book Competitive Strategy, an effective organization positions itself in the marketplace for competitive advantage. For Tom Peters, in his book In Search of Excellence (with Robert Waterman), an effective organization executes excellently whatever position it has. One of these guys might eat in a restaurant that is different, the other in a restaurant that is solid (although I suspect that, personally, they might opt for the opposite).

Porter described competitive advantage as either cost leadership or differentiation, namely providing lower prices or unique offerings—say, fast food fusion or high-end poutine. And both strategies can be pursued with a wide or narrow focus—for example, through a single outlet or a whole chain. Accordingly, in his writings on health care, Porter is a fan of specialized hospitals (as in cardiac surgery), not general ones. In his terms, general hospitals hardly have strategy: they tend to be neither differentiated nor cost leaders.

But might Porter be looking for strategy in the wrong place? General hospitals have a focus that must be the most common strategy on earth. I call it “local producer.”1  From the corner shoemaker to the national post office, they provide some undifferentiated service at regular prices in a geographic niche (a community, a country). In fact, I recall Peters being a great fan of just such an organization: a garbage collection firm in San Francisco. The CEO had a little garbage truck on his desk, and explained his success as being “…because I love garbage!”

Would you rather go to a hospital that does unique things, or ordinary things correctly? That, of course, depends on whether you have an ordinary problem, like appendicitis, or a complicated one, like a special heart ailment. Given the time and the money, I imagine that both Porter and Peters would not hesitate to fly to a specialized hospital for the latter treatment, whereas both might go to a local general hospital for the former, especially if it is urgent. Their choice would be made, in one case, on the basis of strategy, in the other, on the basis of location. But not only that: the quality of the service would also be uppermost in their minds.

Accordingly, to be truly effective, a Porterian organization has to be Peterian: it has to have a great strategy with wonderful execution. True, some organizations can get away with being more Porterian than Peterian—if their market position is really good. When I shopped at IKEA years ago, they were notorious for running out of stock. (Someone in the company once told me that it was because the founder hated planning!) But in other respects—design, layout, meatballs and more—IKEA executed brilliantly. So I went back.2  The problem with this, however, is that enticed customers can tire of going home disappointed.

A truly effective Peterian organization, however, need not be Porterian. Excellent execution can be enough. I imagine that both these guys might eschew a differentiated garbage collection company in their community, maybe even a cost leader, for one that is clean and reliable. Thus, in this battle that I have concocted of these two titans, while together both win, apart I believe that Peterian effectiveness usually wins. Who needs an effective strategy effected ineffectively? I used to seek out restaurants that were truly novel, until I realized that many of them failed to blend their fancy ingredients. (That is called synthesis, beyond analysis.) Now I celebrate restaurants that do classic dishes, and not just novel ones, splendidly.

Porter does include customer service as a form of differentiation. Isn’t this Peterian? Not quite. For Porter, this is a strategic choice—calculated—perhaps to offer more extensive service, aside from  more attentive service. For Peters, service is not so much a calculated choice as a driven imperative: a philosophy of doing business, a way of life, done with soul. A management fixated on strategy—the grand and the glorious, from the top—can lose sight of what is happening on the ground. Don’t we all know companies with great strategies to which we shall never return?

Too much calculation can get in the way of managing with soul.  On the desks of people who manage like this, you are more likely to find a financial report than a garbage truck. What they love is Shareholder Value. But surely we have enough cold love in our economies. So please: a little more attention to Peterianism, with or without Porterianism.

© Henry Mintzberg 2018. Coming in the new year, a collection of my TWOGs entitled Bedtime Stories for Managers (Berrett-Koehler).

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1See my book Managing the Myths of Health Care (2015) on strategy with regard to hospitals (pages 173-179).

2One such IKEA experience of mine is described in “Opening up Decision Making: The View from the Black Stool” (with Ann Langley, Pat Pitcher, Elizabeth Posada, and Jan Saint-Macary) Organization Science (May-June 1995).