Competitive Strategy: Techniques for Analyzing Industries and

Competitors
Michael E. Porter (1980)

Why Read It?

A hugely popular book that is taught in most business schools, and read by those interested in
business success.
It put strategic innovation at the forefront of management thinking, and proposes a solution to the
eternal strategy dilemma.
Shows how companies with a clear strategy outperform those whose strategies are unclear, or those
that attempt to achieve both differentiation and cost leadership.

Getting Started
Competitive Strategy, a modern classic of business thinking, provides a strong conceptual foundation for
developing corporate strategy. It offers a rational and straightforward method for companies to extricate
themselves from strategic confusionand three generic strategies for dealing with competitive forces:
differentiation, overall cost leadership, and focus, which for many have become the rules of the game.

Author
Michael E. Porter (b. 1947) is a professor at Harvard Business School, and has won many fellowships and
awards for his work on competitive strategy. He was appointed to the Presidents Commission on Industrial
Competitiveness by President Reagan, and is a four-time recipient of the McKinsey Award.

Context

The rules of competition are embodied in competitive forces such as the entry of new competitors, the
threat of substitutes, the bargaining power of buyers, and the rivalry among existing competitors.
Bases its argument around three generic strategies which help avoid losing out to competitors, and five
competitive forces, that determine what a company must do to remain competitive.
Shows how differentiation entails competing on the basis of value added to customers, so that
customers will pay a premium to cover higher costs.
Explains how the strength of the competitive forces determines the ability of companies to earn rates of
return on investment in excess of the cost of capital.
Offers a guide as to whether some particular strategy, once implemented, can produce worthwhile
profits.

Impact

Explains how effectively implementing any of these generic strategies usually requires total
commitment, which is diluted if there is more than one primary target.
Argues that if a company fails to focus on any of the three generic strategies it is liable to encounter
problems.
Synthesizes all that economists know about what determines industry and company profitability.
Presents a rationalists solution to the long-running strategic dilemma between pragmatism, where
companies have to respond to their own specific situations, and responsiveness, which opens up
competitive advantage.
The current consensus contends that the competitive forces are truer to reality than the generic
strategies.

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Quotation
Strategy is a choice on how to compete.

More Info
Book:

Porter, Michael E. Competitive Advantage: Creating and Sustaining Superior Performance. New York:
The Free Press, 1985. Presents a traditional view of strategic thinking.

See Also
Thinkers

Michael Eugene Porter

Finance Library

The Competitive Advantage of Nations

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