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A harmonised tax system like GST important for India: Michael Porter

25-May-2017
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A harmonised tax system like GST important for India: Michael Porter

Renowned academic and thinker, Michael Porter, known for his theories on economics, business strategy and social causes, was in Mumbai on Wednesday where he spoke at the Institute of Competitiveness’ (IFC) Porter Prize event in what turned out to be a coveted class in bus.

The select crowd of corporate bigwigs and entrepreneurs listened in rapt attention as the Harvard Professor gave out his views on a range of issues from India’s complexities and demographic advantage to creating and sustaining competitive advantage, shared value for business, the role of a CEO and more.  

Porter talked about creating and sustaining competitive advantage and shared his own unique ideas about the role of business in creating shared value in society.
“The instinct most people have about success is distracting. The idea of success, which is to be the best in the industry, is dangerous. The danger in strategy is to think that there is only one way to compete,” he said.

According to him, being the best depends on who you are serving or trying to serve. The No. 1 principle of strategy should be, “How am I unique and how can I create unique value for the customers I serve.”
“One of the worst mistakes a company can make is to try and serve everyone. You cannot serve the needs of everyone. Another mistake is to compare with competitors on the same things. Businesses need to find unique choices to deliver unique value,” he said.

Porter defined strategy as a process to create long term, sustained economic value. “Every industry has a value chain and if you want to succeed, then you need to address this value chain. You have to choose between one of the two paths: creating lowest cost or differentiation, you cannot have both,” he added.

He opined that a lot of great strategies are about segmentation of consumers, for which he gave the example of IKEA, and said that the test of a successful strategy was a distinctive value chain; an operating model that aligns with your value proposition.

The role of a CEO
According to Porter, the CEO should lead the strategy of the organisation, but not do all the work as no one else in the organization has the perspective other than the one leading the overall business.
“Strategy cannot be a popularity contest where everyone has a vote,” said Porter.

India still has complexities, but future is bright
Speaking about India, Porter said that there were still too many complexities in the country and there was still a long way to go in terms of infrastructure, etc., for India to become great for business.
He acclaimed the impending implementation of GST saying that a harmonized tax system would be “incredibly important”.

“The only way that a big country can be highly successful is if it is broken down into smaller units where leaders are not focusing on the entire country but individual areas. The key is that every state should create diversity in economic policies. I hope we do not get entangled in internal divisions,” he said.

He was upbeat about India’s chances in the global economy, pointing out to the fact that India is still growing demographically, with a growing young population at a time when many other countries were stagnating.
Speaking about the job conundrum, he said, “If you can double your GDP, you can get the ball rolling to create the underpinning of greater prosperity. This engine has not been cranked yet, but you are growing. Do not think that there is only a finite amount of demand in the world; there is a lot of need in the world. I think a lot of your growth will be domestic. The first thing is to create an economy and industries,” he said.

Innovation and execution
According to Porter, innovation is not something that is built separately; it is about the set of insights needed to work in a new way, with a deep understanding of an unmapped need or how to do things in a different way.
Speaking of the importance of great execution, he said, “Create a culture where people are always looking at how to do things better. Most of execution is just best practices.” He also spoke against the current breed of management thinking by saying that there is too much simplistic thinking and unnecessary jargon in today’s management thinking.

Creating shared value

He also questioned what the role of business should be in the society. According to him, the age old belief that businesses just need to create profits and leave social work to the government is wrong. He also said that just giving money to various charities as part of CSR was not doing enough as it would not change anything. Giving the example of companies like Nestle, Ito En, etc., he pointed out that businesses should address societal needs and challenges as part of the business itself with a proper business model. This, according to him, is creating shared value.

“Traditional institutions set to deal with social problems are just not capable of doing it on their own. Business is the only institution that can actually create wealth and prosperity. This is the unique thing about business and it is also scalable. CSR is good, but it alone will not make a huge difference,” he said.

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