The firm wanted to exit the business, but couldn’t, because doing so would trigger environmental clean-up obligations from chemical leakage over the years. Furthermore, the market had turned highly competitive, making the refinery very unprofitable. The plant was antiquated and inefficient. The facility was inherited in an acquisition many years earlier. For instance, a diversified firm that I studied owned a coal tar refinery that had operated for over 100 years. Another great economist, Joseph Schumpeter, described the competitive turbulence of capitalism as the “gale of creative destruction.”īeing stuck in an unattractive business without a viable exit is one of the worst situations for a firm. And periodically, new technologies come along that completely upset the competitive field. They continually change as firms try to best one another. But it struck me that they often ignored another aspect of Porter’s work, the dynamic “jockeying for position” among firms. I recall that his readers quickly absorbed his thinking about competitive positioning and generic strategies. I was a student of Porter’s in the 1970’s when his iconic treatise, Competitive Strategy, hit the business world. Today’s single-minded focus on cost or difference may be tomorrow’s business graveyard. Then too, there is the pesky problem that consumer demand keeps changing over time, which necessitates constant experimentation by firms to discover where the new demand is. After all, demand can be defined on numerous dimensions, well beyond cost and difference, such as convenience, style, and location. Porter’s characterization eventually spawned opposition, arguing that the middle may not be all that bad or that it may be entirely sensible for managers to test the middle for the sake of discovering possible new segments of demand. As these examples seem to suggest, the middle is not a place to become stuck. Pepper was acquired by Cadbury Schweppes. Piaggio acquired its way into the differentiated end of the market by buying Aprilia. Chrysler and GM required a government bailout in 2009. The firms in “the middle” have felt or are feeling a severe contraction.Īmerican Airlines recently filed for bankruptcy. The following table gives some examples from various industries. The firm stuck in the middle also probably suffers from a blurred corporate culture and a conflicting set of organizational arrangements and motivation system.” ( Competitive Strategy, p.

Yet it also loses high-margin businesses - the cream - to the firms who are focused on high-margin targets or have achieved differentiation overall. It either loses the high-volume customers who demand low prices or must bid away its profits to get this business away from low-cost firms. Porter wrote, “The firm stuck in the middle is almost guaranteed low profitability. He seemed to be saying, “find what you are good at and stick to it.” This focus on competencies is very sound. The problem, Porter said, was in trying to do both and thus doing neither very well. Across most industries you can find firms and products that aim for advantage based on either cost or differentiation. And he argued that competitive advantage derives from one of two strategies: cost leadership or differentiation of products or services. It depends more importantly on the firm’s position and competitive advantage in that industry. Michael Porter of Harvard Business School originally discussed the problem of “stuck in the middle.” He said that the profitability of firms depends not only on the typical rates of return in an industry. How you see the problem has big implications for taking action.Ĭloser to home, a recent article, “Trouble in the Middle,” which appeared recently in The Economist, suggested that time may be running out for business schools that “aren’t quite elite.” The Economist uses its rankings to segment the market (readers of this blog will be familiar with my reservations about rankings.) The author argued that the value proposition of mid-ranked schools has worsened and presages a “shakeout…which could be nasty.” Thus, the problem of the middle is relevant beyond the boundaries of the for-profit sector. I see things slightly differently: the problem is not the middle it is allowing your firm to get stuck at all. The conventional view is to see the “middle” as the problem. There is ample research on business strategy that suggests the middle is to be avoided for fear of being stuck in it. The “middle” seems to be what every executive wants to avoid these days. “Stuck in the Middle with You” a song by Stealers Wheel

Here i am stuck in the middle with you