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Tuesday, 27 May 2014

Michael Porter and UKIP

Again, not an obvious juxtaposition, but it seems to work.

Ask any MBA or Economics student about the leading work on competitiveness and he will tell you that it is "Competitive Strategy" by Michael E. Porter, Professor of Business Administration at the Harvard Business School, the recipient of the 1979 McKinsey Foundation Award for The Best Harvard Business Review Article. Professor Porter developed the much praised MBA course on Industry and Competitive Analysis, lectures widely on competitive strategy, and is a strategic consultant to numerous companies round the world.

For the benefit of those who don't know it, Porter's ideas on competition are widely used to analyse the competitive position of companies, and evaluate their potential as credit risks or investment opportunities (or at least it was until the markets became obsessed by asset prices and volatilities, as though tat had anything to do with the real world).

Porter has applied the same framework to analysing the competitive position of countries, which no doubt has generated extra consulting income from various governments, but it strikes me that the same thinking applies to politics too, and it explains a lot about the current situation in politics.

The Porter Model is based around an analysis of 5 forces:

Supplier Power: The standard Porter business model assesses the power/threat from suppliers. In the political model we substitute this for the power of capital and tax payers - i.e. those who fund the economy and pay its taxes.

Buyer Power: The standard Porter model looks at the relative power of customers and their ability to dictate terms.  In the political model we look at the demands of the population.

Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if you are unique, then you can often have tremendous strength. Same in business as in politics.

These 3 forces drive the competitive position of most political parties most of the time.  When the government needs cash because it is spending too much and taxes are too high, then the political mood willl swing to the right.  When services decline but the people think they can afford more, the parties of the left will be stronger.  Who exactly gets into power will depend on how many parties there are and where they are positioned.

So far so very familiar.

Threat of New Entrants: In business the strength of a company is undermined if other companies can enter a market at will, and strong companies will have barriers to entry, such as intellectual property, high capital costs or unique strategic positioning (e.g. ports, airports, prime real estate). In politics this risk is mitigated by strong party structures, but this doesn't completely obviate the risk of a party or government being displaced by another group with similar values (but maybe a different approach). Witness Berlusconi and the Russian oligarchs who gained political power by SWOM (sheer weight of money), or the many military coups that take place in a year

Threat of Product Substitution: In business this is the risk that your product offering will be made obsolete by innovations, or perhaps just a new way of doing things.  In politics, it may be the risk that a new party will simply look at the world in a different way from the traditional left-right view taken by most politicians. In many cases, the new entrant will be a single issue party that tacks on a lot of subsidiary policies to demonstrate that it is more than a one trick pony, but in essence it has a single cause that is its sole raison d'etre and which it uses as the basis for its views. Witness the Greens, various Nationalist (and ultra-nationalist) parties, and of course, UKIP. Conventional politicians don't necessarily have a response to the points made by these parties, so they try to pigeonhole them as left or right wing.  They also attack them for being outside the usual political discourse (i.e. not one of us).

In fact what they should be doing is to respond to their needs in such a way as to eliminate them before they get too big, but they ain't always that smart, which is why we are where we are with UKIP.

1 comment:

Demetrius said...

Good one and very interesting. On Friday 23 May I did a post harking back to the 1906 Election and what followed called "Ringing The Changes". Given our electoral system we could finish up with a Labour elite continuing on a base of twenty per cent of the electorate.