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.

Quotation
Strategy is a choice on how to compete.

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.
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Competitive Strategy: Techniques for Analyzing Industries and Competitors

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.

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 C. K. Prahalad Finance Library Competing for the Future The Competitive Advantage of Nations

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Competitive Strategy: Techniques for Analyzing Industries and Competitors

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