Competing With Your Supplier is Not a Best Practice

Fortune’s Geoff Colvin writes in the July 21 edition about Gary Reiner, GE’s CIO, in Information Worth Billions: General Electric’s CIO Tells How He Makes Infotech Pay In a Big Way.

Reiner reports directly to Jeff Immelt, GE’s CEO. Immelt wants three things from him—one of which is sourcing. Says Reiner:

"…we were one of the first to do e-auctioning. Our job would be to commoditize the item as much as possible and then leverage IT to have our suppliers bid for the business.

Of course, Reiner says that though GE loves to buy through reverse auctions, it hates to sell that way.

"…the more commodity-like the part or service is, the easier it is to auction; and the more differentiated, the less easy it is to auction…we try to make more of our business portfolio be products and services that are non-commodity—that are differentiated. So we are not as auctioned on the sell side as we are on the buy side.

All well and good. And of course (insert here your favorite paragraph on the fabulous track record of GE, Jack Welch, etc.).

And yet, and yet…

I’m left with the inescapable feeling that Reiner—and Immelt, and GE—view business as being exclusively and exhaustively about competition. Including competing with your suppliers. And competing with your customers.

With suppliers, it’s about extracting the best price from an auction. With customers, it’s about extracting the best price by avoiding an auction.

In both cases, it’s about extracting maximum price in a zero-sum transaction whose boundaries are limited to product features, product quality, and price. What’s good for me is not good for you, and vice versa. We are inextricably opposed.

If that sounds perfectly obvious and normal to you, then think about what’s missing.

A relationship. An approach of collaboration. A view that this transaction isn’t a carefully negotiated one-night stand, but rather a joint journey. A view that gets beyond mere product characteristics and price. A sense of commitment to customers or suppliers. A feeling of responsibility for the health of both parties. A willingness to pool information, rather than use it as a wedge.

That’s some of what’s missing.

Let’s call GE’s view the “competition-centric” view. It was given intellectual expression and validity by Michael Porter in his 1978 classic Competitive Strategy. In that book, Porter laid out quite clearly the nature of business: it was to compete. And the nature of competition was equally clear. There were five competitive dynamics facing the firm: two of those five were the competitive struggle between the firm and its customers, and the firm and its suppliers.

In other words—business, by this view, is quite specifically about competing with your customers (and suppliers).

This view is not “wrong” per se. It helped a lot of companies—including GE—to survive and prosper.

But this is not your father’s business world. Nor Jack Welch’s. Not any longer.

Today’s "flat" business world—30 years after Porter—is about extended enterprises, not hard-walled corporations. It’s about supply chains, not about monolithic vertically integrated organizations. Best practices today are about collaboration, not competition; about influencing, not managing; about commercial relationships, not competitive ones. It’s about 1+1=3, not "do unto others before they do unto me."

Those who succeed today aren’t those who play “hardball,” but those who learned early on to play nicely in the sandbox with others. Because in today’s business world, there is no longer any separation worth the name; in a globally scaled world, everyone outsources pretty much everything. A competitor today is a collaborator tomorrow and a customer or supplier on alternate Tuesdays.

Exhibit 1: the auto industry. Toyota has a genuine cost advantage over Detroit because it has always treated its suppliers as an extended organization—not as enemies to be kept at bay and bled nearly dry. That collaborative advantage is the competitive truth—not the self-serving excuses (by Welch, among others) about health care and pension costs (which were after all freely signed into contracts by Detroit management without a gun to its head).

Yet the dominant business ideology in the West continues to be—competition. These antiquated belief systems are increasingly at direct odds with the horizontal, extended, diffuse, globally interdependent world we now live in.

And of course, that’s how it works. Beliefs die hard—well after the conditions that birthed them are long gone. Ideology is the last vestige of a changing world.

Competing with your customers? If that was ever a “best practice,” it should now be relegated to an increasingly bygone world. It’s not “bad” or “wrong”—it just doesn’t work as well anymore. And that trend is only increasing.

 

3 replies
  1. Alan S. Michaels
    Alan S. Michaels says:

    Thank Charles – very interesting.

    Although I liked your post very much, please note: Porter is still here! And a close reading of Porter’s books would show that he strongly believes in optimizing relationships with vendors, and not playing a zero sum game to keep as many dollars as possible.  He also discusses best practices for working with, not against, channels and customers.  He even goes into detail about how to be a good competitor; and why it’s not always smart to destroy your competitors.  His methodologies do stop  short of your concept of "play nicely with others."  
    In your article, as you move from methodologies to personality types when you say, "Those who succeed today aren’t those who play ‘hardball’ but those who learned early on to play nicely in the sandbox with others " – I can say that when I met Dr. Porter almost 20 years ago, he definitely seemed like the type of person who played nicely in sandboxes when he was a kid; he was as nice as could be. By analyzing his recent works in: corporate social responsibility; improving world health; improving inner-city businesses; and helping third-world countries get their economies moving – it obvious that Michael E. Porter  is one great man in every sense of the word!
    Cheers,
       Alan S. Michaels, co-founder http://www.eCompetitors.com
    Reply
  2. Charlie (Green)
    Charlie (Green) says:

    Alan,

    Thanks for the comment. Mike Porter was a professor of mine at HBS, and I see him about every 5 years at reunions. He has always been a genuinely nice man to me as well, so I’ll add my testimony to yours on that front.

    He’s also extremely intelligent, and was part of the vanguard of a small group that made a revolutionary change in business thinking. He’s arguably the most influential strategist of the last half century.

    That said, his initial stake in the strategic ground was as I stated–the view that the essential nature of business is competition. Just about every one of his books since then include "competitive" in the title–including those that deal with CSR and the inner cities.

    While it is possible to tackle social issues from a competitive perspective, I think that the further you get away from pure competition and the closer you get to social issues of collaboration, the more constraining it is to use "competition" as a descriptive model.

    Talking about social issues that transcend corporate or organizational or national boundaries by using the language of competition is like talking about love and romance using the language of Sun Tzu and Machiavelli–possible, but not the most obvious choice at hand.

    Words like "co-opetition" intentionally reflect the irony in using a competitive model to talk about cooperation. As world economies get more integrated and the imperative to cooperate gets higher, the use of irony becomes less and less appropriate in describing reality. If we’re going to talk about collaboration, let’s be direct–let’s call it what it is.

    With all due respect to Porter–and a lot is due–the competitive framework, in my humble opinion, is fraying at the edges when faced with a new economy described in books like Thomas Friedman’s The World is Flat. We need a new conceptual framework to match up against the new economy.

    Or so it seems to me.

    In any case, Porter’s own thinking is less the point than what others have chosen to take from him.  Companies like GE, as indicated in the Fortune article, have very much borrowed from his straight-ahead writings on competition.  That was the foundation of Jack Welch’s emphasis on "be number one or number two"–vintage Porter–and on Reiner’s emphasis today on trying to maximize zero-sum price negotiations with suppliers and customers.  Porter’s legacy in GE is more likely to be the lessons Reiner took from him on competition than it is lessons in corporate social responsibility.

     

    Reply
  3. Alan S. Michaels
    Alan S. Michaels says:

     

    Charlie,
    Thanks again for your great posting (and I’m very glad we both agree that Porter is genuinely a nice man) but again, even though you are clearly very intelligent, how do you link GE’s "be number one or number two" motto with Michael E. Porter? (I haven’t seen the Fortune article.)
    There’s nothing wrong with GE’s slogan if it’s to raise employee morale and productivity, although I can offer GE a better slogan: "be number one."
    I always found GE’s motto, and similar comments like: "Increase revenues by 10%, " or "Increase profits by 10%," or "Increase shareholder value by 10%," equally simplistic – although they are all fine as goals. But again, in each of these cases, 11% would be better, and so on.
    Porter, I believe, is saying: analyze the industry and stake out a position and strategy for success, insuring all activities are aligned in concert with the chosen strategy.  There can numerous winning strategies in an industry – including one cost leader and multiple companies with different differentiation strategies that customer value.
    In industries with poor industry structure, even being number one or number two can still be a losing game for shareholders.
    But if you have an article by Fortune that says Porter helped create GE’s "strategy" of "being number one or number two" – either Fortune really got it wrong, or, gulp, I did.
    Cheers,
     Alan S. Michaels
       co-founder, http://www.eCompetitors.com
    Reply

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