Harvard academic has a long view on competitiveness

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Michael Porter looks and behaves like a corporate titan as much as an academic. This is not unusual; the wisdom of top business professors is now tapped almost as frequently by companies and governments as it is by students. But the wisdom of Harvard's Prof. Porter is the highest-octane fuel available.

Like many leading executives, the Bishop William Lawrence University Professor is used to being listened to. His staff refer to him as "Professor Porter." He wears a suit and tie, and our photographer receives instruction that this is the kind of assignment that requires smart casual or business attire at a minimum. And he is busy. Very busy. Earlier in the day of our interview, he was at a board meeting of one of two companies where he is a director. And he must leave to catch a flight in 55 minutes precisely.

If this were not daunting enough, the interview takes place in the Institute for Strategy and Competitiveness. The neo-Georgian town house on the Harvard Business School campus, its pilastered entrance newly covered in gleaming copper, is, according to his official biography, "dedicated to furthering Prof. Porter's work."

In the room where we meet, there is a picture of his two daughters on the mantelpiece. The institute's bookshelves, meanwhile, are filled with multiple editions of his 19 books and the walls adorned with his diplomas, certificates and decorations.

Prof. Porter's reputation has put him near the centre of discussions with both chief executives and politicians about how to restore U.S. growth and prosperity. Sitting down at his own boardroom table, with a look that brooks no small talk, he blames the depressed state of the economy in part on cyclical factors – retrenchment after the real estate bubble, corporate boards' caution about domestic investment – and in part on "a more fundamental competitiveness problem."

It is predictable that competitiveness is the lens through which Prof. Porter sees the problem. At the root of his success was his first article in Harvard Business Review, more than 30 years ago, which outlined the "five basic forces" that determine the state of competition in any industry (customers, suppliers, potential new entrants, substitute products and the underlying rivalry between direct competitors). Companies – and subsequently countries – found it a simple and useful way to assess their own strengths and weaknesses, and plot forays into new markets.

It still animates Prof. Porter, whose steady, high-velocity delivery is punctuated by a mime artist's repertoire of hand gestures (sewing a button, screwing up a jar, chopping a carrot). He points out that globalization has benefited higher-income, higher-skilled people like him. So, having started his career giving speeches on strategy and competitiveness in the U.S., he now gets invited all over the world. "The market for me has increased exponentially," he says, "because all these countries are looking for talent."

Lower- and middle-income workers, however, have suffered. "We've let all kinds of obstacles fall in the way of the U.S. as an effective and efficient and productive place to do business," he says, citing skill gaps, poor infrastructure, and the burdens of health benefits, regulation and litigation. At the same time, "other countries have offered a better value proposition."

While Prof. Porter retains an underlying optimism, this loss of competitiveness obviously pains him. "This is shocking for the U.S. If you go back 100 years, you find that the U.S. really was a huge pioneer in public education … The U.S. was a real pioneer in creating a national, very deep university system … The U.S. was a pioneer in the interstate highway system … We stepped to the plate in the past and made very, very bold investments in the fundamental environment for competitiveness. But right now, we can't seem to agree on any of these things."

The financial and economic crisis also sparked a bonfire of many of the widely accepted academic orthodoxies on which the developed world's prosperity was built. Has it shaken his faith in his theories?

Not a bit. Prof. Porter says his five forces are, if anything, "more and more and more fundamentally important and visible, because a lot of the barriers and the distortions that would blunt or mitigate these forces and the need for strategy and competitive advantage … have been swept away" by globalization, the increased velocity and transparency of information, and the decline in trade barriers.

"What I've always tried to do, for better or for worse, is to get at the underlying, fundamental, structural elements of competition and of how firms compete, in a way that's really invariant to whatever best practices happen to exist or whatever trends are," he claims. "So you can do a five forces analysis in 1985 and you can come to one conclusion based on the circumstances of the day, and you can take the same industry in 2010 and it's going to look very different."

In 2008, Prof. Porter revisited and revised his five forces article, reviewing the "vast literature" that had emerged around it and concluding that the original theory was robust.

He has also not rested on his prominently displayed laurels. Having outlined the five forces' impact on strategy, he became interested in the competitiveness of locations and nations, as well as in the business clusters that emerge around successful companies. He parlayed this into analyses of inner cities, the compatibility of environmental progress and economic growth, and his latest headline concept: "creating shared value" – the idea that corporate activity which advances society will contribute to a positive cycle that allows everyone to grow faster.

Prof. Porter insists "CSV" will underpin the creation of "a next and more sophisticated view of what capitalism is all about," but it has stirred up some resentment in the established corporate social responsibility community. Advocates of CSR see Prof. Porter's concept as neither new nor different. "It's fundamentally different," he retorts, pointing to the many e-mails he receives from companies "energized by the idea that they could think about all of these social issues in this different way."

It is also different from his earlier work, which was grounded in data-based research. The Economist, for example, criticized "the paucity of evidence." The HBR article Prof. Porter co-authored in January cites a series of examples of best practice, such as Nestlé's support for coffee growers in Latin America and construction company Urbi's "rent-to-own" mortgage-financing plan in Mexico. But as Prof. Porter himself says, most examples of best practice are "constantly changing, so that means a lot of management literature after a while starts to look a little bit stale."

Could that be the fate of his work on CSV? He admits that finding empirical evidence and support for the concept "is the preoccupation now." But "if companies can start to show the growth in market share [and]profit improvements that they get from pursuing these strategies, I think capital markets will become the biggest cheerleaders."

Eventually, he says, the world will look back and consider the development of CSV alongside China, globalization and the economic downturn as "one of the big discontinuities of this particular point of economic history."

Given Prof. Porter's obvious desire to leave his mark on history, I wonder to what extent recent reversals of history have left their mark on his carefully burnished reputation – particularly his work with the Libyan government of Colonel Moammar Gadhafi. Monitor, the consultancy he co-founded, has admitted it failed to register as a lobbyist for the now-disgraced regime. Prof. Porter himself helped prepare reports, including a 2006 study heralding "the dawn of a new era" as the country integrated itself into the global economy.

For the first time, the verbal onrush of his thoughts slows. The invitation came at a particularly exciting point in Libyan history, he says, when the country "had essentially settled its disputes with the rest of the world" and it was official U.S. policy to support the country as it edged towards reform. He stopped work in Libya in 2007, when it became clear the hopes for reform had died. He has since become more cynical about invitations to attach his substantial kudos to companies or governments: "I am now probably even more careful in all of my work – and it's not even in funky places any more."

As it happens, he says, one of the Libyans who worked with him on the original study is now de facto prime minister of the transitional council. The report he helped write, and others, are, to Prof. Porter's credit, still available on his institute's website. What is more, he says, they will be "incredibly useful and valid for where Libya goes from here."

As the former university sports star makes a dash for the airport, the difference between him and a chief executive suddenly becomes clear. Few business people would expect to see their strategies outlast them. Prof. Porter, by contrast, has no doubt that his ideas will still be fuelling corporate, economic and political strategy long after he has left his institute for the last time.