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Internet Strategy – Gaining Competitive Advantage

It was 10 years ago in March of 2001 that famed business strategist Michael Porter wrote an article for the Harvard Business Review titled Strategy & the Internet. In this article he got a few things wrong, like reverse auctions like Priceline would not continue to work &  Internet advertising revenues would drop. Overall however Porter’s basic business strategies held true for the Internet as they did for the pre-digital world. It is a great article and worth the read.

In this article there is a section from an even older article that still holds great value today no matter how you do business.

The Six Principles of Strategic Positioning

  1. Start with the right goal – Economic value is created when customers are willing to pay a price for a product or service that exceeds the cost of producing it. If you’re simply going after value or market share, poor strategies often result.
  2. Be Different than Your Competition – You need to deliver a unique value in a particular set of uses for a particular set of customers. Simply copying what worked for someone else will mean compromises in price in market share.
  3. Have a Distinctive Value Chain – You must provide your service or product in a different way than your competitors. Adopting best practices means you’ll end up doing most things like your competitors, and have no advantage.
  4. You Need a Trade-Off – In order to be different you may need to abandon some features or service in order to be unique. These trade-offs need to be painful for your competition to copy.  Trying to be all things to all customers will guarantee a lack of any advantage.
  5. Entire Value Chain Should be Interdependent – All elements of your company must fit together. Your product or service design should be uniquely fitted to your entire value chain. Copying a product feature is easy, copying an entire value chain is not.
  6. Continuity – Pick a direction and value proposition and stick with it. Develop continuous improvement along your strategic direction, but stay the course. Frequent corporate “reinvention” is usually a sign of poor strategic thinking.

Too many companies today can’t or won’t change to meet new business models or customer desires. How do the current successful Intenet business models mark up against Porter’s principals?

  • GroupOn – Easily copied technically, but who will match their 6,000 sales people?
  • FourSquare – Too easy to copy?
  • Facebook  – Are they loosing focus? Will they last? 6M less US memebers in recent months.
  • Amazon – Difficult value chain to reproduce, yet all things to all people?

Does your business practice Porter’s Strategy for Success?

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