Forget beating competitors, seek strategy that works, says expert.
Company strategies which focus on beating the competition are doomed to fail, one of the world's leading business gurus, Professor Michael E Porter, said yesterday.
Speaking at his first conference in Wales, Prof Porter told an international audience of more than 500 business leaders it was crucial that company strategies were grounded firmly in economic fundamentals, taking account of key measures like return on invested capital.
And the American Harvard Business School academic said too many companies took shareholder value as a strategic benchmark, regardless of the fact that share prices hardly ever give a true reflection of a firm's financial position.
Prof Porter told the conference, sponsored by the University of Glamorgan, at St David's Hall in Cardiff, 'All executives see having a strategy as important and think they should have one.
'However, what I am finding is that many strategies have lost all meaning, with no clarity as to what they are.'
Prof Porter, who has advised many of the world's leading businesses and governments (including the UK's) on competitiveness, said creation of a strategy should not be left in the hands of 'poets or creative intellectuals'.
'A strategy has to be grounded in economic fundamentals,' said Prof Porter.
He added, 'Business leaders have to understand that there is no one solution to being successful, whether it be things like out-sourcing or the internet.
'If it only was one thing then everyone would be successful and then there would be no competitive advantage.'
And he said strategies simply stating that companies wanted to be the best were flawed.
He said, 'If a company aims to win then the competition has to lose ... this is a very tough destructive kind of competition and a very dangerous one.
'I have worked with hundreds of companies and there is no one best way of competing.
'You often see companies having a strategy of wanting to be number one.
'However, there is no clear evidence that being number one makes you the most profitable.
'However, I believe a more robust way and thinking about competition is to find a way for your company to be truly distinctive and offer value which your competitors don't.'
And Prof Porter said a strategy couldn't be achieved if its authors did not have a clear understanding of what the goals of a business are.
He said, 'If you don't link the strategy to income figures and the balance sheet then you are going to have problems.'
And he said the only true measure to gauge if a firm is creating economic value was by assessing its return on invested capital - over a three to five-year period.
'If return on sales is the goal then this is a mistake, as it doesn't account for the utilisation of capital,' said Prof Porter.
He added that the notion of shareholder value, based on a company's share price, was another poor measure.
'How often does a company's share price mirror its true economic value?' he said.
'I think it happens once in a blue moon.'
Prof Porter said a company's share price was driven by many factors, including the general economic climate, short-term preference for certain types of stock and the threat of terrorism.
Professor Porter's conference was entitled 'Discovering strategy, directing business - delivering success.'
University turning theory into workplace reality :An initiative to turn business theory into workplace reality was yesterday unveiled by the University of Glamorgan.
The university's Welsh Institute for Competitive Advantage (WICA) will aim to translate the latest research and development in strategic management into sound organisational principles.
'Strategy today is not about formal plans and predictions,' said Simon Brooks, senior lecturer at the university' s business school and head of the new unit.
He added, 'It is about creating the right conditions to allow businesses to adapt to the changing demands of markets and stakeholders.
'We are all hungry for anything that will put us one step ahead of our competitors, such as the latest cutting-edge business thinking, but the key is translating these theories into working practices that can show real, tangible benefits.'
At yesterday's launch at Professor Michael Porter's conference in Cardiff, the unit presented its initial findings of research into the strategic landscape of Wales.
Mr Brooks said, 'We have surveyed over 130 businesses and assessed them on their use of strategic tools and techniques, strategic decision making, use of knowledge management, corporate social responsibility and organisational culture and leadership issues.
'We will be presenting an overview of what the key strategic issues facing businesses are and how they are dealing with them.'
WICA, although based in Wales, will work with clients across the world on a collaborative basis.
Mr Brooks said, 'We insist on engaging clients in the process, to ensure that they feel a greater sense of ownership of the findings and solutions and that the project remains within their requirements.'