Discarding all evidence of his previous identity, he found succour in an office in Soldiers Field. His gamble paid off. Within a few years, he had found fame and fortune.
The young man was Michael Porter. The institutions he left behind was the economics department of Harvard Univer-sity. The institution in which he took refuge was the Harvard Business School. The plans he brought with him described what had become known as the structure-conduct-performance paradigm (SCP).
The structure of SCP is drawn from what still remains its Bible, the magisterial survey by F M Scherer. It begins from the basic conditions of supply and demand which any industry faces. The SCP paradigm asserts that these conditions determine the structure of the market and industry, and that the competitive conditions which result influence the behaviour of companies and dictate the performance of the industry.
It provided and still provides a coherent framework which permits a logical ordering of the many influences on industries and markets.
The structure-conduct-performance paradigm explains how structure influences conduct and performance. Its criteria of performance are the criteria of public policy: full employment, efficiency and equity. A business analyst would look at the norms of business success profits, revenues, market shares.
But these are not what interest Scherer. He and his former Harvard colleagues found themselves much in demand as advisers to government, particularly in the anti-trust division of the Department of Justice. But they were rarely consulted by senior executives.
Now if they had been consulted by senior executives, there would have been severe constraints on what they were able to say. Because another feature of the structure-conduct-performance paradigm approach is that it fails to explain, or even to address, the central question of business strategy. Why do some companies do better than others, operating in the same environment? If two companies each face the same basic conditions of supply and demand, if both companies operate with the same market structure, why should there be any?
Porters achievement was to address the first of these problems. He rewrote the SCP framework in terms which were directed at, and accessible to, business people. The affinity between the structure-conduct-performance paradigm framework and Porters famous five forces, is immediately obvious. Industrial economics had become business strategy.
But Porters translation did not resolve, and could not resolve, the second and more fundamental weakness of the SCP approach. Why did some companies manage the five forces better than others? That is why Porters framework is much more successful in his first book Competitive Strategy, which is mostly concerned with the structure and behaviour of industries and markets than it is in his second Competitive Advantage which attempts to focus more closely on the issues which affect individual companies.
It is ironic, but hardly surprising, that in his third work The Competitive Advantage of Nations Porter had reverted to the traditional concerns of Harvard economists. That book is mostly directed to public policy. And to do so he trawled back to the concepts of an even earlier generation of economists.
It was Marshall and Pigou, from Cambridge, England, who had first described the growth of industries and markets by describing clusters of companies and who had emphasised the importance of external econo-mies cost advantages which arise when many companies succeed in the same industry.
But while Michael Porter was teaching strategy on the Boston side of the Charles River, something new was happening on the other bank. They do not teach the SCP paradigm in the Harvard economics programme any more. SCP has given way to a new style of industrial economics. An industrial economics that emphasizes topics such as asymmetric information how markets work, and often dont work, when sellers know more about what they sell than buyers about what they buy.
It uses game theory to understand how small groups of competitors interact. It deals with contracts, relationships and describes how incentive structures influence the behaviour of principals and agents.
And in Cambridge, England, an economist called Edith Penrose had laid the basis of the resource-based theory of strategy. In it, companies are not as they are in SCP and the five forces black boxes whose internal workings are unexplained.
They are dynamic collections of capabilities. For the first time, there was a theory of the most important economic fact of the last century the existence of large companies.
But mostly, the new economists wrote in mathematics, preferring the esteem of their peers to the rewards of the business guru. Still, the rewards of the guru are not to be sniffed at. Perhaps, a few more people should cross the river?
The author is the Peter Moores Director of the Said Business School of Oxford University