Microeconomics of Competitiveness, the Porter way

August 26, 2008
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, NAIROBI, July 22 – Harvard Business School (HBS) describes Michael E. Porter as "a leading authority on competitive strategy" and "the father of the modern strategy field."

Prof Porter is the Bishop William Lawrence University Professor, based at HBS.

He was in Nairobi recently to facilitate a workshop on "Microeconomics of Competitiveness", hosted by the Strathmore Business School. He spoke exclusively to Capital Business.

Q. Why did you choose to focus your latest work on social problems such as healthcare and the environment?

A. We have these very important social needs like health and environmental impact that affect our society. But too often we see that social needs and economic needs have been conflicting.

For example, all the early work on environment said ‘we have to protect the environment so we have to have strict rules and those rules will be costly but we’ll get good environment at the price of higher cost.’

My work has always focused on looking again and asking ‘what are the underlying drivers of value?’ And when you do that you can have dramatic effects on the ability to achieve social needs and in some cases not add costs but improve the economic potential.

So for example, in the environment, what I originally proposed was in order to reduce environmental impact you can make yourself more competitive, because environmental pollution is often a misuse of resource. If you burn too much energy then you are just wasting energy.

So what I was able to show was that a cleaner environment may (translate to) lower cost.

I believe that the way to address all social problems is to look at them through the lenses of value and competitiveness

Q. Define value and competitiveness in health and environment.

A. Value is the health outcomes of the patient for every dollar spent on health.

So for example if you’ve got Malaria, ask ‘what’s the best way to cure the patient from malaria, the fastest with the lowest possible cost?’ That’s a value perspective.

Q. The government is now offering some free healthcare and education. The idea is ‘at least you’ve got the service.’ Is this wrong in the sense that we are not focusing on the quality of these services and the environment in which they take place? Are shooting ourselves in the foot here?

A. The classic mistake of most social policies is that it focuses on the inputs and not the outputs.

So the idea is we have kids and they are going to school and if we give them more school days then that’s good. That’s the result. That’s the purpose.

It’s not how many days they sit in school; it’s the value of what they learn. The quality is important because if it isn’t good then it can’t help them get a job, start a business or go to college.
 
Then I think you are absolutely right. Too many social policy issues are not understood from the point of view of value. You are shooting yourselves in the foot.

In almost all social issues the focus is on volume and not value. It is about the quantity and not the quality.

Q. Is it arguable that the conditions under which the social services are taking place aren’t as important as just having that opportunity to get them in the first place?

In some cases it is the opportunity but the opportunity to go to a hospital that doesn’t do a good job isn’t much of an opportunity.

We have to approach every aspect of society in terms of what we are getting in terms of results for every dollar we spend.

Traditionally, we haven’t even tried to measure the results. Are the people healthier? Do we have fewer deaths? No body measures that. People just measure how many beds do we have? How many doctors do we have?

Q. So how does one measure social services?

A: Measurement of outcome and result is different in every field. In health care you really need to measure outcomes in each medical condition.

So for example in maternal and child health you want to measure basic things like ‘did the mother survive or die during child birth? How healthy are the children?’

In the economy you can measure profit. And profit is a measure that applies to any business. But in social services you have to create specific measures for each service area.

Q. Isn’t that because it is qualitative? How healthy is healthy?

A. Well, no. It isn’t really qualitative. Heath is actually pretty easy to measure. Like did the mother die from child birth. That is pretty easy to measure. If the mother didn’t die but had to be in the hospital for a long time you can measure how much disability the mother experienced.

If you really do try to measure the results of social services you really can do it.

But you can’t just measure one thing. You have to come up with many different sub-measures to come up with an overall profile of the outcome of the health delivery system.
 
But the thing is we really need to start approaching social services like a business. We can’t just claim that by simply making it available we’ve achieved success.

Education and training are the most fundamental requirements for a successful economy.

Having said that, that doesn’t mean that any school system is going to be of benefit to society. We have to apply our rigorous thinking about ‘are we getting good results for our money?’

That leads to the way government’s work. Government’s often don’t hold the members of government accountable for success. We need to apply the principles of accountability to our social organisations and not just to our public organizations.

Q. Have you had opportunity to interact with our Vision 2030 and if so is it measurable?

A.I think Vision 2030 is the classic mistake of most social policies. It focuses on the inputs and not the outputs.

It is very much a great document that is getting a lot of the critical issues facing the country. It probably could be written in a way to be more measurable.

I think the real problem is not the vision, its getting things done. The big problem of Kenya is the inability to implement, to mobilise institutions to create change.

I was here a year ago and I spent the same half an hour sitting on the road between the airport and down town Nairobi. Everybody in the Universe knows that if you could just add another lane to that road you could make it a better road and you would save millions and millions of hours of citizens and businessmen. But for some reason we can’t build the road.

That’s fundamentally a problem of government, of governance and a lack of accountability.

But I do think Kenya has a vision. There’s a strong fundamental base of entrepreneurs here. Whenever the private sector is left to work, it is quite successful in Kenya.

But there is an institution-government gap here that is holding back the country and it is very frustrating.

You have to get over the factionalism, this group and that group, this tribe and that tribe, this region and that region and create an effective civil service. Start agreeing as a society that these historical distractions need to be put aside and start focusing on results and getting things done.

Next week, Michael E. Porter speaks on Kenya’s local companies Vs foreign direct investment.

"The home industries are inefficient and uncompetitive so what are you really protecting? (Allow foreign companies) opportunity to drive competition and raise the standard."

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