A Comparison Among the Three Most Important Strategic Frameworks: Porter, the Resource-Based View of the Firm, and the Delta Model
According to former MIT professor Arnoldo Hax, creator of the Delta Model, in spite of the enormous proliferation of competing schemes in the business strategy literature, there are two fundamental paradigms that have emerged as the most influential in the last two decades. First, Competitive Positioning, as proposed by Michael Porter from the Harvard Business School in the 1980s, and, second, the Resource-Based View of the Firm that evolved during the 1990s.
Porter’s arguments are drawn from the work of organizational economists who place the industry as the central focus of strategic attention. According to Porter’s framework, structural characteristics of a firm’s industry best explain variations in firm performance. In other words, Porter sees good industries, such as pharmaceuticals, where most players enjoy high margins; he also sees bad industries, such as trucking, where most participants suffer from low profitability.
Using the language of economics, a successful firm is one that appropriates monopolistic rents. In other words, in the industry as a whole or in a segment of the industry, the firm establishes itself as the dominant (or sole) competitor. Porter’s logical conclusion from this perspective is that there are only two ways to compete: through Low Cost or Product Differentiation. Cost leadership is achieved through the aggressive pursuit of economies of scale, product and process simplification, and significant product market share that allows companies to exploit experience and learning effects. Differentiation calls for creating a product that the customer perceives as highly valuable and unique. Approaches to Differentiation can take many forms: design of brand image, technology, features, customer service, and dealer networks.
The strategic positions of Low Cost and Differentiation are centered on product economics. The resulting mentality of this approach, which is widely apparent in the business world, has enormous implications that I will address upon request for the people interested in taking my Delta Model Executive Training Seminar.
Instead of looking at the industry as the source of profitability, the Resource- Based View of the Firm argues that the attention should turn to the firm. Instead of seeking profitability at the intersection of the products and markets, the Resource- Based View looks for value derived from resources, capabilities, and competencies. Instead of relying on monopoly rents, premium returns depend upon what economists refer to as “Ricardian rents.” What makes one firm different from another is its ability to appropriate resources that are valuable, rare, and difficult to substitute or imitate.
The roots of this perspective go back to David Ricardo, a British economist who lived in the early 1800s. Ricardo tried to explain variations in farm profitability by pointing to differences in the supply of fertile land. Proponents of the Resource-Based View had the insight to recognize that management skills, information capabilities, and administrative processes can also be regarded as scarce factors able to generate Ricardian rents.
Porter’s framework and the Resource-Based View of the Firm basically perceived the primary role of strategy as achieving a unique competitive advantage. I underline the word competitive because that seems to us to be the common principle.
In this sense, the objective of strategy becomes beating your competitor either by excelling in the activities of your value chain that allows you to establish a dominant position in your industry, or through the mobilization of unique resources and capabilities.
Although these frameworks have often been presented as conflicting views, since they emphasize different dimensions of strategy, they can richly complement each other. However, they both can be enhanced by adding a missing perspective: the Customer. Surprisingly the customer does not emerge as the key player in either of these two frameworks. If you take Porter literally, the customer is represented by the “Buyer” – one of the Five Forces Model – whose bargaining power we should resist or diminish. In that respect, the customer constitutes an additional element of the rivalry that we need to overcome. In the Resource-Based View of the Firm, there is no explicit mention of the customer.
By contrast, the Delta Model places the customer at the center of strategy, and defines the essence of strategy to be achieving customer bonding. I also feel that the new technology surrounding the Internet provides novel and effective ways to link to the customer and to the extended enterprise, opening up new sources of strategic positioning that should be properly evaluated.
You can download the PP presentation here: Frameworks_Delta2016_H.pdf
Upon request, I will send you the complete Delta Model Executive Training Program for your review.