Finding the five forces in a morass.
Topic: Creative Process
Michael Porter: I was asked some time ago to talk to a group of graduate students about research. And I did reflect a little bit on this, and I’m not sure I can put it into words. But I think, first of all, to do really, really creative work, you have to have a very strong grounding in some underlying, theoretical disciplines that are relevant to the problem – highly relevant.
In my case it was economics. I had a very strong training across the river – _______ Business School – in economics. And I had that perspective, that point of view, that rigor.
But that’s not enough. Then you’ve got to find a way to sort of immerse yourself somehow in the phenomena and get enough data and data points, and enough conflicting examples and stories. And then there’s a collision between the two. And then what you find out is that the economic theory and the frameworks that you start out with are failed.
And then there’s some process of seeing a new way of looking at the problem. For example if you look at any industry; autos, tires, whatever it is. There are probably 20,000 things about an industry that are relevant. You can make lists, and lists, and lists. The product is green. The product is blue. It’s heavy. The cost of shipping is X. Thousands of things that are relevant.
Every industry is different, so that becomes an intractable problem of, “How do I describe an industry? What’s the way of thinking about it that’s relevant?”
You have some economic theory principles, and economic theory tells you that profitability is in some sense the most profound metric that you want to look at. Because when you create a profit, you also create social value because somebody’s willing to pay more than the cost of doing something. So one of the things you do to help you think through this morass of looking at industries is you sort of have to have an objective function. And that’s profit.
Then you’ve got to ask yourself, “How do I look at this to inform choices and really understand a phenomenon? How do I sift through the 20,000 things that are different and come up with the five forces?”
How that actually happens, I don’t know. It just happens. It comes from being an engineer. It comes from looking for order. It comes from forcing a way of trying to put a wrap around something that encompasses all the cases that you can encounter. I don’t know exactly how that happens at the very micro level; but somehow it’s the kind of reverence with one, you have a strong theoretical framework and a strong discipline; but then it’s just diving into the phenomenon.
And when I was saying earlier that I spent six or seven years in the library, six or seven years was not on the theory. Six or seven years was on getting enough data points, and understanding enough industries and enough companies that I could start confidently saying that this way of looking at it really did encompass all the cases that we’d actually do.
I don’t know if that’s an answer, but it’s the best I can come up with.
Recorded on: June 11, 2007