The most influential contemporary strategic framework, espoused by Michael Porter, is based on two exclusive ways to compete: low cost or differentiation.1 A company can achieve low cost by aggressively reducing costs or differentiate by creating something that is perceived industrywide as unique. Although low cost and differentiation call for fairly distinct strategies, both center on product economics or on delivering the “best product.” Customers are attracted by a low price or by the differentiating product characteristics that go beyond price.
Although the best-product strategy continues to be relevant, our research shows that it does not describe all the ways companies compete in the current environment. Two companies illustrate this point:
- Microsoft has been a phenomenal success, perhaps the model for a modern business in a complex environment. By 1998, Microsoft had created $270 billion of market value in excess of debt and equity. Did it do this by having the best product? Microsoft does not have a 90 percent share of the market for personal computer operating systems because of low price. While it may have an effective cost infrastructure, its position is not based on being the low-cost provider. On the other hand, its operating system and, most certainly, the MS DOS product that fueled its dominance, has never had the best... To read the complete article, login or sign-up using the form below.
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