Often referred to as the ‘Father of Modern Strategy’ Michael Porter, Bishop William Lawrence University Professor at Harvard Business School,was in India recently and spoke to BrandWagon on myriad topics. We pick out two ticking American conglomerates— Amazon andApple— and have him dissect their strategies in the current competitive landscape. He also provides an oftforgotten lesson: one cannot rest on one’s laurels after achieving great success.
Porter on Apple
Porter discusses Apple’s slowing rate of innovation and the Apple-Android leader-challenger equation.
‘When you compare it with the success of Android, I don’t think it is clear that Apple has gone wrong; I just think that the degree to which it could innovate on the smartphone, and its ability to really pioneer and push the needle in new ways has slowed down. But yes, the Android world and the Apple world in general are going back and forth to see who can do it better.
It is hard to sustain an advantage in this market. What Apple still has going for it is the fan thing of Apple products — products that work better together, so there’s an incentive to actually being an Apple person and have all your products work seamlessly together.
How long will that advantage be robust is unclear, and I don’t think Apple can rest on this advantage for long. Interoperability among heterogeneous brands is getting better and better. What Apple has been doing lately is just making incremental improvements to existing products. It has to reinvent products. It has done that in the past. What one would like to see from Apple is the next big leap. Frankly, it’s been a long time since it did that. The Apple Watch is fine, but that’s sort of a toy.
There’s speculation that perhaps that next great leap will be smartglasses. If it can really pioneer the idea of smartglasses where you can transmit information to humans that way, and essentially create an augmented reality platform looking through glasses, Apple could restore its excitement.
Right now, the Microsoft HoloLens is very clunky, big and inefficient, and doesn’t give a very good user experience. It’s a ‘wait and watch’ to see what Apple does by the end of the year.’
Porter on Amazon
Porter discusses whether Amazon still has a competitive advantage now that Wal-Mart is threatening its turf.
‘Amazon was an enormous innovation in terms of creating a high-scale, highly efficient logistical network. It started with books — a brilliant choice because there are millions of books and most don’t sell many copies because they aren’t new or bestsellers. It doesn’t make economic sense for a store to stock all of them! Amazon built on that foundation of books to expand to more categories. I think the thing about Amazon that is not often told is that the company took advantage of a subsidy from the public and found loopholes so it didn’t have to pay sales taxes. That was an unfair advantage. I think it distorted the market and penalised the retailers who were just following the rules. So this artificially accelerated the growth of Amazon.
Amazon then got so big, that it could create a very efficient logistical distribution system — very innovative, there. Today, the subsidy is gone — in pretty much every state in the US, Amazon has to pay sales taxes. So now the competition is fairer. But now Amazon is confronting the notion of omni-channel. To me, in omni-channel, there are synergies between the stores and the digital, particularly for products and services where you would like to see/touch them. Consider Wal-Mart, which has thousands of stores in the US. I think within a relatively small number of miles of every percent in America, there is a Wal-Mart store. Although Amazon has a lot of distribution centres, they are farther away from each other. I think the problem was that traditional brick-and-mortar retailers didn’t have the computer systems that allowed them to track every single item in every inventory in every store.
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So they couldn’t be totally sure where they had the product that you wanted. Now the IT systems are much more advanced. The most efficient thing would be to ship from the store that is within five miles from your house. That will always beat Amazon on cost. The omni-channel opportunity now is beginning to neutralise some of the Amazon advantages and the tax subsidy has gone away for Amazon… the company is at an inflection point. Amazon is becoming much more potentially competed against, as compared to five or six years back. There is now going to be a great battle. It will be interesting to see who prevails.
The other thing that people don’t understand about Amazon is that it is one of the biggest polluters on the face of the earth. It is shipping packages to your house with one product in it! Some of the millennials that are so ga-ga about climate change don’t realise that by buying anything from Amazon, they are actually making it worse. Somehow Amazon has been exempt from that whole discussion. What we have understood over the years is that if you can’t translate growth into profit, eventually, you’re gone! Amazon won’t be ‘gone’ but it will have to reinvent itself. I think it is good for Amazon to have some real competition.’