Porter's Six Principles and Sun Tzu

A whole book could be written about the connection between the Michael Porter's view of strategy and Sun Tzu's Warrior's Rules. Though the noted leader of Harvard's Institute for Strategy and Competitiveness looks at strategy from a more traditional management viewpoint, his and Sun Tzu's classical concepts converge in a number of areas. The purpose of this article is to explain how Sun Tzu's tools for comparing positions help those using Porter's approach.

A whole book could be written about the connection between the Michael Porter's view of strategy and Sun Tzu's Sun Tzu's Rules. Though the noted leader of Harvard's Institute for Strategy and Competitiveness looks at strategy from a more traditional management viewpoint, his and Sun Tzu's classical concepts converge in a number of areas. The purpose of this article is to explain how Sun Tzu's tools for comparing positions help those using Porter's approach. We base this article on Porter's own short explanation of his six principles in the Harvard Business Review (April 16, 2001).

Organization Goals

Both Porter and Sun Tzu start with the same focus on the importance of goals. Porter defines only one correct goal for any organization, superior long-term return on investment. Porter says that other forms of goals, such as sales volume or market share leadership, result in poor strategy. While Sun Tzu agrees that meeting economic goals are a necessary condition for survival, classical strategy views goals and values from a much broader perspective. Without this perspective, truly understanding competitive positions is difficult.

Sun Tzu's strategy teaches that organizations are built on an economic foundation, but they are also constructed around a core of philosophy, mission, or values. This mission describes the organization's role in the world in a way that is meaningful to its members. Most importantly, it creates a shared bond within the organization that is larger than its economics alone. If the only shared goal in an organization is financial, then employees should leave whenever they discover better financial opportunities elsewhere. However, Sun Tzu teaches that people stay with organizations because they support other levels of their mission and get rewards beyond those that are purely economic.

The economic level is the most basic of four levels of goals in classical strategy. The other three levels of motivation are the professional (caring about recognition for your skills), the emotional (caring about your fellows), and the spiritual (caring about ideals). While economic goals must be satisfied for the sake of survival, the higher level of goals make it easier to understand many differences between the competing organizations. The difference cannot be explained by simple economics. Sun Tzu's strategy teaches that economic goals are the broadest but they are also the most shallow. The more an organization is perceived to operating on a purely "economic" level, the less loyalty it generates from its followers.

In Sun Tzu's strategy, goals are the uniting force within an organization. They are the gravity that holds it together. If an organization simply represents a paycheck for its employees and an investment to its stockholders, it has very little gravity, very little attractive force. If an organization represents a set of higher values, it can be attractive in even when its economic value or economic performance during a certain period is less than that of competing organizations.

We will return again to the importance of Sun Tzu's strategy's concept of unifying goals when we discuss Porter's final point about continuity.

The Value Proposition

Michael Porter's second principle of strategy is its delivery of a value proposition. Porter defines this as a set of benefits that are different than those offered by competitors. Again, both Sun Tzu and Porter agree that strategy is a comparative science, comparing positions among alternative positions. They both also agree that a given strategy is never universal. No strategic position can offer all things to all people.

Sun Tzu's strategy enhances this analysis with the idea that a particular value proposition arises from a unique competitive position in a larger environment. This idea is echoed by Porter when he describes the value proposition as focused on "a particular set of uses" or "for a particular set of customers." Sun Tzu takes this analysis much further, dividing the environment into the "ground" and the "climate" and then identifying a number of useful characteristics of each that help us further understand competitive positions in the environment.

Porter's focus on competitors who offer alternatives and set of customers, who have a use for our offerings, is a great place to start. At the most basic level, competitive positions are defined by the subjective view of customers about the relative value offered by competitors. However, a competitive battleground is more than the sum of its customers and competitors. In classical strategy, we can analyze the ground by the types of terrain, the dimensions of distance, obstacles, and dangers, and common forms of competitive alignment. And the battleground is only one half of the competitive environment, the climate must also be considered.

Porter recognizes the complexity of the competitive environment with his view of the five forces that shape a rivalry. He describes these forces as 1) degree of rivalry, 2) barriers to entry, 3) threats of substitution, 4) supplier power, and, 5) buyer power (more about them here). The many different elements within these five categories reflect aspects of Sun Tzu's environment. While Porter offers a valuable breakdown for the discussion of specifics, Sun Tzu offers a more comprehensive overview of the entire system. For example, several aspects of Porter's supplier and buyer power could are more simply understood from Sun Tzu's analysis of "full" versus "empty" ground. That analysis says simply that crowding reduces power. Lots of alternative suppliers reduces supplier power. Lots of alternative customers reduces buyer power. The general rule helps us understand how the specific elements within Porter's model work.

In classical analysis, climate represents all the forces driving change. This element can be inferred from Porter's analysis but it is not dealt with directly. Sun Tzu's strategy teaches that understanding climate is an important as understanding ground. Even in his "threats of substitution," Porter overlooks how change can completely undermine existing competitive models. Sun Tzu's strategy teaches that change is built in to every competitive position. We cannot understand the competitive picture of relative value as a snapshot. Relative competitive positions are not a point on a map, but a path with direction and velocity (something that Porter does recognize in his idea of continuity below).

To use Porter's terms, the value proposition of using classical strategic analysis in conjunction with Porter is that it offers a powerful simplified perspective that helps us understand a bigger picture. This perspective allows people to see the relative power of different positions more quickly and easily. Porter's system invites more detailed and in-depth analysis of competitive positions. Sun Tzu's system allows people to make fairly good decisions when the time or information isn't available for more detailed analysis.

The Distinctive Value Chain

Michael Porter's third principle of strategy is that it must be reflected in a distinctive value chain. This means that the organization must perform activities differently than its rivals. Porter's argument here is that if a company adopts only "best practices," it starts behaving more and more like its competitors and thereby loses its competitive advantage.

Sun Tzu's system agrees with this analysis and extends it in significant ways. For Sun Tzu, what Porter calls the value chain is just one aspect of what Sun Tzu called methods. The key element of methods is itself just one half of what makes a competitive unit function. Methods, that is, the organization's skills of manufacturing, logistics, service delivery, marketing, human resource management and so on (to use Porter's list) must be coupled with the skill of individual decision-making or what Sun Tzu calls "command" or "leadership." While people work together functionally, we each make decisions alone. What decisions individuals are free to make and how they go about making those decisions are also part of the organization's competitive ability. Group process are the result of individual decisions, but what individuals can decide is also a part of those processes.

Sun Tzu also separates the methods of production, which is Porter's primary focus, from the methods of competition. This difference is critical because, while production processes are within the control of the organization, competitive processes are, by definition, outside of the organization's control. Production systems can be planned and information about production environments can be fairly complete. Competitive methods must adapt to changing external conditions and information about those conditions is always very incomplete. While Porter's view of the value chain works well for productive systems, the Sun Tzu's strategy of Sun Tzu is superior for competitive systems.

Both Sun Tzu and Porter agree that, to have an advantage, an organization must do something differently than its competition. This is true both of internal production systems and external competitive systems. The main advantage of learning Sun Tzu's systems in addition to Porter's, is that they help you in developing unique, external, competitive systems.

Trade Offs

Michael Porter's fourth principle teaches that good strategy requires trade-offs. An organization must reject some product features, services, or activities in order to have the resources to provide others. Porter teaches that choosing trade-offs is what makes an organization truly distinct. Porter uses the idea of trade-offs to identify where best practices can be imitated. If an improvement doesn't involve a trade-off choice, it can be imitated. If an improvement requires a trade-off, the practice should not copy others because doing so "almost guarantees that a company will lack any advantage."

Porter's ideas about trade-offs and Sun Tzu's are virtually identical. However, while Porter focuses on internal choices about product features and services, Sun Tzu's strategy focuses on external choices about how to work outside the organization.

First and foremost, the concern of Sun Tzu's strategy is the source of our limited resources. Their source is the environment that we control. We get our physical resources, money, employees, and raw materials, from the ground that we control. In a sense, we get our emotion resources and time from the other half of the environment, the climate.

Sun Tzu's strategy teaches that resources are limited because our control of the environment is always limited. The more people work on the front-lines, the less control they have over their resources, even their resource of time. The environment itself makes demands on their time in ways that cannot be planned or controlled.

Working on the front-lines, people must be even more systematic about their choices regarding trade-offs because of higher failure rates. In a production process, waste can be minimized by controlling the process. In a competitive environment, a high percentage of efforts must result in waste because the most critical actors and resources are outside of organization control. A salesperson cannot know which prospects are worthwhile and which are not without investing time. A salesperson must often go through the entire sales cycle in order to discover if his or her time has been wasted or not. While internal advantages can be created by simply focusing innovation on trade-off decisions, external competitive advantages require a much more sophisticated system of individual decision-making. This is why Sun Tzu's strategy offers such as sophisticated tool set helping people to choose which external opportunities to pursue.

Whatever their differences in focus, both Porter and Sun Tzu agree that the key to competitive advantage is moving away from competition.

Fit

Porter's fifth principle says that strategy defines how all the elements of methods fit together. He says that the choices made about the value chain are interdependent. All activities should reinforce one another. Products should be designed to be easily manufactured and designed and manufactured to be easily serviced after the sale. This fit is difficult for competitors to imitate because it is easier to duplicate one activity or feature than it is an entire system.

Sun Tzu also uses the idea of "fit," but again his concern is external rather than internal. While Porter worries mostly about the efforts of competitors to duplicate competitive processes, Sun Tzu's strategy worries primarily about the fit between product or service scope and benefits and customer's needs. The concern is less about efficient and unique process than about leaving openings that represent opportunities for rivals.

A number of tools from Sun Tzu's strategy are designed to identify external opportunities that fit an organization's capacities. This is done in a number of dimensions. One of those dimension is size. Sun Tzu's strategy teaches that organizations should not try to pursue markets that too large for their capabilities. Opening large markets without the capabilities to fill them invites competitors with more resources to duplicate a pioneer's successful efforts on a larger scale. Instead, Sun Tzu's strategy teaches organization to explore only niches that they can fill. For example, filling a local market completely before spreading out nationally. This an issue of limiting costs as well as inviting competition.

Sun Tzu explains the idea of competitive "fit" with his theory of "weakness" and "strength." This concept says that a company's strengths "fit" the weaknesses of its customers in a way that its competitor's strengths cannot. This concept describes an external opportunity simply as an "opening that fits surplus capabilities." The five dimensions of "fit" follow the five key factors. In other words, Sun Tzu concept of fit ties together all of the key aspects we have discussed thus far into a neat, discrete package.

Both Porter and Sun Tzu are concerned about eliminating the downstream costs of poor fit. Both see good fit as a competitive advantage that is nearly impossible to duplicate. The differences are between the fitting together the internal processes in the value chain and fitting the organization into its environment. Both require very different skill sets and decision-making tools.

Continuity

Porter's sixth and final principle says that strategy requires continuity of direction. A company avoids certain opportunities in order to define what it stands for. Porter teaches that without this continuity, companies cannot develop unique skills, assets, and build a reputation. Organizations that have to reinvent themselves are invariably weak competitors. For continuous improvement to work, it must be "guided by a strategic direction."

This brings us back to the key difference between Sun Tzu and Porter on the topic of goals. While Porter sees goals as strictly financial, classical strategy teaches that an organization's goals, values, and mission must be the source of its focus and unity. These goals are the organization's guiding principles. If the guiding principles are economic alone, they provide no basis for maintaining continuity. They tell you nothing about what business you should or should not be in. When those goals have professional, emotional, and even spiritual dimensions, people can know for certain where they should and should not focus their efforts.

If the organization's goals are its unifying force, they will also naturally direct its continuity. In Sun Tzu's system, all the other four elements of a strategic position --ground, climate, decision-making, and methods--are connected through the organization's shared goals. These other elements change readily as positions are built up and advanced over time. New markets are captured. Changes of climate are leveraged. New leaders emerge. New methods are learned. What maintains the organization's continuity is its core values, its core goals.

This core of values is what holds the organization. These values become the organization's identity. They prevent it from getting too spread-out into different marketplaces. They allow it to survive downturns in business climate. They allow it to rally around a central leader rather than be torn apart by separate divisional goals. They allow it to hold to its core competencies while farming out ancillary activities.

While Porter's approach identifies the importance of continuity in building a competitive positions, Sun Tzu's system identifies the source of that continuity as its mission and values. Many strategic systems mistake a mission for a strategy, but while mission must connect to the other elements of strategy, it is just the core. A corporate level mission must be translated into lower level missions, down to the role that individuals play in that mission. In Sun Tzu's system, a mission is a direction, a path. The original term Sun Tzu used for mission is known in Chinese as the tao, which means path.

Summary

Porter's ideas work so well with Sun Tzu's strategy they share very similar perspectives on the nature of competition. While Porter's financial goals are absolutely necessary, Sun Tzu suggests that a more extensive understanding of goals is necessary to address Porter's need for continuity. Porter identifies the importance of strategy in delivering a value proposition, but Sun Tzu brings in the larger idea of the competitive environment to help us understand the relative strengths and weakness of a value proposition more clearly. The creation of Porter's distinct value chain is easier if we understand how decision-making affects both internal processes and external competition. Using Sun Tzu's ideas, we can easily extend Porter's idea of fitting together internal processes to fitting into competitive niches. Together, the two systems bring together two sets of different tools with the same goal of developing a distinctive competitive position.