Competitive Advantage by Michael E Porter

In: Business and Management

Submitted By Molly1010
Words 3639
Pages 15
Competitive Advantage

Creating and Sustaining Superior Performance

Author: Michael E. Porter

Michael E. Porter's Competitive Advantage explores the underpinnings of competitive advantage in the individual firm. Porter's groundbreaking concept of the value chain disaggregates a company into "activities," or the discrete functions or processes that represent the elemental building blocks of competitive advantage. Giving readers a comprehensive understanding of business strategy and how to create a sustainable competitive advantage for their organization, Porter explores how a firm can put the generic strategies of cost leadership, differentiation and focus into practice. This essay will explore Competitive Advantage and the underlining theory that to compete in any industry, companies must perform a wide array of discrete activities that are narrower than traditional functions. It will analyze the real core of the book which is to determine whether companies profit from creating value for customers, or whether that value is competed away.

“Competitive Advantage is at the heart of a firm’s performance in competitive markets. After several decades of vigorous expansion and prosperity, however, many firms lost sight of competitive advantage in their scramble for growth and pursuit of diversification. Today the importance of competitive advantage could hardly be greater. Firms throughout the world face slower growth as well as domestic and global competitors that are no longer acting as if the expanding pie were big enough for all” (Pg. XXII). Competitive Advantage is a continuation of Michael Porter’s Competitive Strategy. Competitive Advantage gives readers a comprehensive understanding of business strategy and how to create a sustainable competitive advantage for their organization. Porter explores how a firm can put the…...

Similar Documents

Competitive Advantage

...Event “Competitive Advantage” 15 September 2013 The term competitive advantage is the ability gained through attributes and resources to perform at a higher level than others in the same industry or market (Chacarbaghi and Lynch 1999, p. 45). There has been quite a bit of study and research interest due to existing issues regarding superior performance levels of businesses in the present competitive market conditions. "A firm is said to have a competitive advantage when it is implementing a value creating strategy, not simultaneously being implemented by any current or potential player" (Barney 1991 cited by Clulow et al.2003, p. 221). Firms that have a competitive edge over their rivals thrive in the marketplace and can exist for a very long time. Public companies in this category can have substantial returns for investors because they are able to capitalize on their competitive advantage. If one or more competitors can copy their ideas or make better products, then the company that had the competitive edge loses that advantage quickly. A prime example is Apple iPhones, in the cell phone manufacturing industry, U.S.-based Apple Inc. was on top of the world last year due to the astounding popularity of its iPhones and other products. Investors couldn't get enough of Apple's stock, pushing it well over $700 per share late last year. Investors were absorbed by the media and Wall Street’s glamorization that they seemed to fail to realize that Apple’s competitive......

Words: 731 - Pages: 3

Michael Porter

...flexible to respond rapidly to competitive and market changes. They must benchmark continuously to achieve best practice. They must outsource aggressively to gain efficiencies. And they must nurture a few core eompetencies in the by Michael race to stay ahead of rivals. Positioning-once the heart of strategy-is reject- ! ed as too static for today's dynamic markets and changing technologies. According to the new dogma, rivals can quickly copy any market position, and competitive advantage is, at hest, temporary. But those beliefs are dangerous half-truths, and they are leading more and more companies down the path of mutually destructive competition. True, some barriers to competition are falling as regulation eases and markets become global. True, companies have properly invested energy in beeoming leaner and more nimble. In many industries, however, what some call hypcrcompetition is a self-inflicted wound, not the inevitahle outcome of a changing paradigm of competition. The root of the problem is the failure to distinguish between operational effeetiveness and stratHARVARD BUSINESS REVIEW N,)vt;mbt;r-D(.ct;mbi;r 1996 What Is Strategy r egy. The quest for productivity, quality, and speed has spawned a remarkable number of management tools and techniques: total quality management, benchmarking, time-based competition, outsourcing, partnering, rcungineer'ing, change management. Although the resulting operational improvements have often E. Porter ^^^^ dramatic, many......

Words: 7414 - Pages: 30

Competitive Advantage

...CONCEPT OF COMPETITIVE ADVANTAGE IS CENTRAL TO THE STUDY OF STRATEGIC MANAGEMENT, AND EXAMINE THE USE OF PORTER’S GENERIC STRATEGEIS BY COMPANIES TO COMPETE. KEY TERMS Competitive advantage. This is the favourable position an organization seeks in order to be more profitable than its competitors. Strategic management. It is the systematic analysis of the factors associated with customers and competitors (the external environment) and the organization itself (the internal environment) to provide the basis for maintaining optimum management practices. The objective of strategic management is to achieve better alignment of corporate policies and strategic priorities. Porter’s generic strategies. These are three general types of strategies developed by Michael Porter that are commonly used by businesses to achieve and maintain competitive advantage. Company. It is a voluntary association formed and organized to carry on a business. Types of companies include sole proprietorship, partnership, limited liability, corporation, and public limited company. INTRODUCTION The concept of competitive advantage is central to the study of strategic management, since a company or an organization must follow an aligned strategy to outperform their rivals in the industry. Michael Porter introduces three generic strategies that a firm may apply in order to do so they include; overall cost leadership, Differentiation and Focus. In order to create and sustain competitive advantage,......

Words: 3350 - Pages: 14

Strategic Competitive Advantage

...viewpoints. This article aims to explain and critically evaluate the approaches of Jay Barney and Michael E. Porter, two leading strategy theorists, in-turn explaining the basis leading to the difference. 
 What is Strategy & Competitive Advantage? Strategy is the creation of unique and valuable position involving a different set of activities.1   A firm is said to have competitive advantage when it is implementing a strategy which is not is being implemented by it’s current or potential competitors and also sustains profits that exceed the average for it’s industry. " Is Competitive Advantage enough? The goal of much of business strategy is to achieve a sustainable competitive advantage which is the same as competitive advantage but the advantages of the strategy cannot be duplicated by the competitors. (Barney, 1989). Different authors have different viewpoint in regard to sustainable competitive advantage. A sustained competitive advantage is simply a competitive advantage that lasts for a longer period of calendar time (Porter, 1985). A competitive advantage is sustained only after the efforts to duplicate the advantages of the strategy have been ceased (Lippman and Rumelt,1982). " Michael Porter’s Viewpoint Sustainable competitive advantage is when a strategy is implemented and the same strategy is not being implemented by the current or potential competitor and that advantage lasts for a longer period of time. For example, BIC, the pen manufacturing......

Words: 1714 - Pages: 7

Michael Porter

...MICHAEL PORTER VENTAJAS COMPETITIVAS En el capitulo 1 de “La Ventaja Competitiva” de Michael Porter”, se plantea la ventaja competitiva como un modelo eficaz para formular la estrategia que permite a las organizaciones tener una mayor rentabilidad y ser menos vulnerables si entienden las cinco fuerzas de su entorno. Porter encontró que estas fuerzas determinan la posición de una empresa frente a sus competidores: -Amenaza de nuevos competidores: Las organizaciones ya establecidas pueden sentirse amenazadas por nuevos competidores de su industria, lo que podría llevarlos a mantener los precios bajos y aumentar su nivel de inversión. -Poder de los proveedores: Los proveedores grandes y poderosos pueden fijar precios altos, limitar los servicios o la calidad y cambiar los costos a sus clientes, conservando así mas del valor para si mismos. La concentración de los proveedores y la disponibilidad de proveedores sustitutos son factores significativos para determinar el poder del proveedor -Poder de los compradores: Los clientes poderosos, el reverso de los proveedores poderosos, pueden obligar a reducir los precios, exigir una mejor calidad o servicio y hacer aumentar los costos para la organización que provee. -La amenaza de los sustitutos: Los cambios del costo, nuevas tecnologías y tendencias sociales pueden influir en el poder de las alternativas y sustitutos para un producto o servicio, lo cual desviara la lealtad de los compradores y otros cambios del entorno.......

Words: 531 - Pages: 3

Michael Porter Contribution

...choosing what not to do. The business environment has now become so competitive requiring leaders to develop effective strategies that result in improved competitive. Technology has now made it so easy for competitors to match one’s product within a short space of time. Changes in customer tastes and preferences require robust systems and strategies to maintain current market share profitably and ensure growth. It is within this spectrum that Michael Porter has become a well-known contributor in the field of strategic management as he shades light on which elements to consider in coming up with a strategy for both domestic and international markets. A good strategy will result in the creation of a unique and valuable position, involving a different set of activities. Strategic position emerges from three distinct sources which are serving few needs of many customers, serving broad needs of few customers and serving broad needs of many customers in a narrow market. After positioning itself, an organisation must ensure that its strategic efforts results in creating “fit” among a company’s activities. Fit has to do with the ways a company’s activities interact and reinforce one another. In his endeavour to build strategic intent within organisations, Michael Porter is well known for the following contributions in the field of corporate strategy: 1. Generic Strategies 2. Value Chain 3. Competitive Advantage 4. Porter’s Diamond 5. Five Forces Model 1.......

Words: 4555 - Pages: 19

Competitive Advantage

...components of the strategic management process; * assessment of target markets and forecasting of the components of the marketing mix; * assessment of the importance of market research in developing a global initiative * Integrate e-business applications into your overall global initiative. * Appraise how employment law constrains choices for the organization * Relate how regulatory law affects an organization's decisions * Identify and incorporate the key elements of contracts. * Assess the influence of different cultural perspectives on global business operations. * Argue the influence of regional trading organizations on business opportunities and constraints In the following I discuss in summary perspective the key takeaways from this course as well as learning objectives I did not meet. Integrate Porter's Five-Forces Model into developing a solid global strategy. Porter’s five forces model of competitive analysis allows business managers to better understand where they are strong and how they can improve weaknesses before changing market positions. The model can also be a useful tool for firms moving to compete internationally because it provides a uniform framework for evaluating the competitive landscape. Porter’s model does have limitations that business managers should regard carefully. The five forces model is intended more for line of business rather than industry or segment application. The model also does not readily......

Words: 4179 - Pages: 17

Summary What Is Strategy? by: Porter, Michael E.

...Michael Porter’s article describes the difference between operational efficiency and strategy by providing detail examples throughout the article. Porter explains how operational efficiency is key to any business but should not be the driver for business success. He outlines how strategy is the key to any business by creating a unique and valuable position within a market even though there could be trade-offs. Porter refers to operational efficiency as performing industry wide actions better then your competitors. He provided an example of when Japanese’s electronic manufactures where able to lower cost and still provide top notch quality in the 1980’s. These manufactures quickly realized they were unable secure key market real estate within Japan. They need to change their strategic position. He simply showed how operational efficiency is not the way to sustain business as once these activities are known in the industry all similar companies will replicate them. Porter refers to strategic position as performing industry wide actions in a complete different way. Porter uses Southwest Airlines and IKEA as companies who have used their strategic position to their fullest. Southwest airlines deliberately chose a different way to perform existing activities by using a Needs-Based source. Porter argues there are 3 key sources of strategic positioning and the only way to gain advantages; Variety-Base Positioning, Needs-Based Positioning, and Access-Based Positioning. These......

Words: 487 - Pages: 2

Porter and National Competitive Advantage

...discussions', 'critical discussions'] - “The contribution by Porter (1990) on the competitive advantage of nations has led to an extensive discussion among academics and practitioners on the sources of international competitiveness (Grant, 1991; Gray, 1991). However, in order to understand why so much emphasis is placed on the diamond framework in the management literature, this essay will discuss Porter’s concept of the Diamond and the factors that contribute to the development of national competitive advantage. This paper will begin with a theoretical approach followed by the reception of different authors and schools of thoughts who disagreed with his management thinking, and then goes on to consider empirical issues which have arisen subsequently, followed by a conclusion.” Theoretical Discussions (explain the 'main theory' [such as 'Late/Early industrialization', 'Managerial enterprise', 'Weber's theory about impacts of culture'] in this question) - “Porter’s theory of national competitive advantage is based upon a study of the characteristics of the national environment which identifies four sets of variables, and an additional two, which influences a company’s ability to establish and maintain competitive advantage within international markets. These interacting determinants are: factor conditions; demand conditions; related and supporting industries; and firm strategy, structure and rivalry and form what Porter refers to as the “national diamond.” The four......

Words: 2872 - Pages: 12

Who Is Michael Porter

...Who is Michael porter? Michael porter is the Bishop William Lawrence University Professor, based at Harvard Business School, this is one of the highest professional recognitions that can be awarded to a Harvard faculty member. He is considered the father of the modern strategy field and also as one of most influential thinker on management and competitiveness. He is one of the leading man in competitive strategy, the competitiveness and economic development of nations, states and regions, and the applications of competitive principles to social problems. He has written 18 books and more than 125 articles. He has a BSE, he got high honors in aerospace and mechanical engineering (1969) from Princeton University. Porter has an M.B.A (1971) and a PhD in Business Economics (1973) from Harvard. One of his biggest contributions to business are the five forces, which are: • The threat of the entry of new competitors. • The threat of substitute products or services • The bargaining power of costumers (buyers) • The bargaining power of suppliers • The intensity of competitive rivalry Michael Porter wrote the book Competitive Strategy, which has been translated into seventeen languages. This book changed the way that chief executive officers thought about their companies. He was appointed in 1985 to President Ronald Reagan’s Commission on Industrial Competitiveness, this helped him publish his next big book, The Competitive Advantage of Nations, in 1990. Porter still......

Words: 401 - Pages: 2

Competitive Advantage

...Competitive Advantage Introduction Why do you buy a cup of coffee in Starbucks? Why will you choose KFC for your lunch rather than other brands? The answer lies on the term competitive advantage. It becomes the main reason to build brand loyalty for customers. (Boundless 2015) Nowadays, most firms both in local and global markets all face a challenge for a marketing strategy is to find a way of achieving and sustain a competitive advantage compared with the other products and companies. The basic condition of competition has changed a lot and the speed of this tendency is increasing. And with the change of competitive environment, traditional competitive such as economical scale or advertisement expenditure cannot be such effectively as past time. What’s more, traditional management ideas are unlikely to lead a firm competing with other companies. Therefore, managers need to build a new managerial mind-set about competitive advantage. (Barney&Mackey 2005) This article will introduce the definition of competitive advantage in a market and emphasis the importance of it. It will also be presented two main strategies including cost strategy and differential strategy. And then some issues will be stated that organizations facing in trying to gain and maintain competitive advantage. Then it gives some reasons that why competitive advantage is still a significative concept at present. Body Definition of Competitive Advantage A competitive advantage means one firm has...

Words: 2158 - Pages: 9

Increasing Competitive Advantage

...FEB, 2016 Individual Assignment Increasing competitive advantage, unit 5 mustafa.malik Contents Competitive Advantage 2 Low Cost Leadership 2 Differentiation 3 Focus on Niche 3 Resources required to execute these strategies 4 Competitive Advantage Objectives Measurement 4 References: 5 Competitive Advantage Businesses always look for a competitive advantage to look different and to offer something right for a selected target audience. Competitive advantage is to indentify customer’s needs, to develop a high quality product with a decent price and to deliver it better than the others. As stated by Cole Ehmke & M.S. a competitive advantage is to answer this question “Why should the customer purchase from this operation rather than the competition? (Cole Ehmke, M.S: 5-01)”. The key point is that a brand has loyal customers for a reason. These loyal customers are often the cause of a successful growing business that builds upon a strong competitive edge than the competitors as stated by Michael E. Porter, a “Competitive advantage is at the heart of a firm's performance in competitive markets (J Collins, Michael E. Porter: 102)”. A competitive advantage can be sourced through many factors such as a high quality product, a superior customer service, less price then rivals, better location, more reliable product than the competitor, better design and providing a better value for money. According to Porter these factors can be categorized into three......

Words: 1324 - Pages: 6

Michael Porter

...QUESTION: Choose an industry in which you would like to compete. Use the five forces method of analysis to explain why you find that industry attractive. Porter’s Five Forces Method Industry: Car service industry Introduction Michael Porter is a professor at Harvard Business School and is a leading authority on competitive strategy and international competitiveness. Five forces uses concepts developing, Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the industry profitability. Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. These are: 1. Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are. In the car service industry, for company owned players the bargaining power of suppliers is less as it can get constant supply of spare parts including OEM parts (Vehicle manufacturer’s brand) and OES parts (reputed brands of component manufacturer’s either domestic or international, supplying to vehicle manufactures or aftermarket)....

Words: 1334 - Pages: 6

The Five Competitive Forces That by Michael E. Porter Hbr.Org | January 2008 | Harvard Business Review 79 Shape in Essence, the Job of the Strategist Is to Under Strategy

...5:33:57 PM THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY STRATEGY Peter Crowther by Michael E. Porter Editor’s Note: In 1979, Harvard Business Review published “How Competitive Forces Shape Strategy” by a young economist and associate professor, Michael E. Porter. It was his first HBR article, and it started a revolution in the strategy field. In subsequent decades, Porter has brought his signature economic rigor to the study of competitive strategy for corporations, regions, nations, and, more recently, health care and philanthropy. “Porter’s five forces” have shaped a generation of academic research and business practice. With prodding and assistance from Harvard Business School Professor Jan Rivkin and longtime colleague Joan Magretta, Porter here reaffirms, updates, and extends the classic work. He also addresses common misunderstandings, provides practical guidance for users of the framework, and offers a deeper view of its implications for strategy today. IN ESSENCE, the job of the strategist is to understand and cope with competition. Often, however, managers define competition too narrowly, as if it occurred only among today’s direct competitors. Yet competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products. The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive interaction......

Words: 11176 - Pages: 45

Competitive Advantage

...It is no surprise that today in most companies be it diminutive or immense, competitive advantage runs through their daily operations. Simply by wanting to achieve higher profit than the average competitor in the product market (Porter,1980).Companies seek to use their understanding to outline their market offers to deliver more value to the customers. They do so by applying competitive strategy; which according to Porter (1980) is the search to find a favorable competitive position in an industry. It aims is to establish profitable and sustainable position against the forces that determine industry competition. Therefore competitive strategy is about beating the competition. To achieve such goals Michael Porter and other advocates such as Mintzberg, McGee and Bowman suggested few market positioning approaches and models. The three main approaches are Porter Generic Competitive Strategies, Mintzberg market positioning and customer matrix. To add up, models such as product life cycle, Porter Five forces model, Strategic Grouping and Scenario planning also help to formulate the competitive strategy of a business. Porters Five forces model is the key influence to other models. This model determines industry profitability because it influences the price, cost and return on investment. Porter believes that the five forces is more than just competing with direct competitors but also fighting for profits. In any industry no matter what it produces whether product or service of......

Words: 2047 - Pages: 9