“The dot com boom of the mid 1990’s ushered in a new wave of technological optimism. One success story after another served to tempt another digital speculator to enter the field” (Harris, n.d.). This boom and the subsequent collapse is what I believe Michael Porter was referring to in his journal on strategy. Due to the meteoric rise of the IT industry in the mid 1990’s many companies and investors entered the market without any sound strategic vision or sustainable business plan in place.
Michael Porter argued that companies intent on competing for operational effectiveness would shift the productivity frontier outward, which would effectively raise the bar for all competitors and make them more efficient, but would not result in superior profits (Porter, 1996). These companies effectively spent all their time imitating each other instead of coming up with sustainable strategies that would make them different from their rivals and thus give them an opportunity at achieving a prolonged competitive advantage. Most of the industry was under the misguided impression that sacrificing profits for product growth and market share would eventually yield long term benefits. Porter felt that even though some companies would survive with these principles, most would not and even those that did would need to quickly overhaul their strategy to achieve a unique competitive position (porter, 1996).
Before the global economic crisis commodity related industries enjoyed the fruits of a 24 month boom not unlike the IT boom of the mid 1990’s, with commodities achieving record highs in the metal exchanges and companies enjoying above average profits. The ease of making profits in a constantly rising market created the misconception that all companies were making equally large profits. Many competitors became complacent and lost sight of the discipline that is needed to maintain a good strategy and operational efficiency. The last 10 months have exposed these...