What makes a business successful? Initially, many people would argue that the most successful businesses are those that provide a good or service that provides a measure of utility in exchange for a fraction of consumers’ well-earned income. After all, flourishing businesses are those that continually supply a particular product in order to satisfy a collective demand from millions of customers; in spite of this, Micheal E. Porter – professor at Harvard Business School (HBS) – proposes a new hypothesis based on the idea that there are other, more subtle factors that also determine whether a business will eventually set out on a triumphant trajectory.
In his article “How Competitive Forces Shape Strategy” – published by the Harvard Business Review (HBR) – Porter argues that, among other factors, “[staking] out a position that is less vulnerable to attack from head-to-head opponents” may be one of the most important determinants (if not the most important one) in whether a business will succeed or fail.
As previously mentioned, the biggest connection to our MS&E Networks class came about when Porter discussed how essential the strategic positioning of a firm was to its success, and how there are certain ways of consolidating that position – not necessarily just connecting yourself to weak nodes as we saw in class (albeit that is the overarching idea).
In the second half of the article, Porter discussed the case of how Dr. Pepper positioned itself against soft drink giants Coca Cola to ensure their survival. Knowing full well that it was dealing with two industry big-hitters, Dr. Pepper combined “realistic knowledge of corporate strengths [and weaknesses]” to position themselves accordingly. In particular, Dr. Pepper opted for a strategy based on “avoiding the largest-selling drink segment, maintaining a narrow flavour live, forgoing the development of a captive bottler network, and marketing heavily”. That is, they positioned themselves in such a way that they were able to pit the strengths of a small business against the weaknesses of corporate giants. In addition, Dr. Pepper fought to construct strong brand identity and impeccable customer service (also strengths of small businesses) to even further differentiate themselves from their rivals while also taking advantage of the non-existence of economies of scale in soft drink production for their survival – despite their market share of only 6%. All in all, “Dr. Pepper confronted competition in marketing but avoided it in product line and in distribution… [leading] to an enviable record in earnings and in the stock market”.
If we think of the aforementioned case in terms of the simple networks that we covered in lecture, one can think of it as the basic task of adding another node to a three-node network (such that A is connected to B and B is connected to C). As we have seen before, it is better to connect a new node D to either A and C than B precisely because, in having to deal with relatively weaker opponents, one is, by design, more powerful – whether it be in social networks, or business.