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Competitive Advantage, Creating and Sustaining Superior Performance (Hardcover)
by Michael E. Porter
| Category:
Competitive strategy, Competition, Strategy, Business |
| Market price: ¥ 398.00
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An awesome classic, a business must-read from one of the world's leading authorities on competitive strategy and international competitiveness. |
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Author: Michael E. Porter
Publisher: Free Press
Pub. in: June, 1998
ISBN: 0684841460
Pages: 592
Measurements: 9.6 x 6.5 x 1.8 inches
Origin of product: USA
Order code: BA00015
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- Awards & Credential -
Michael Porter's works on competitive strategy are long regarded as authorative references for business leaders throughout the world. |
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- MSL Picks -
Achieving cost leadership and differentiation are also usually inconsistent, because differentiation is usually costly. To be unique and command a price premium, a differentiator deliberately elevates costs, as Caterpillar has done in construction equipment. Conversely, cost leadership often requires a firm to forgo some differentiation by standardizing its product, reducing marketing overhead, and the like.
Reducing cost does not always involve a sacrifice in differentiation. Many firms have discovered ways to reduce cost not only without hurting their differentiation but while actually raising it, by using practices that are both more efficient and effective or employing a different technology. Sometimes dramatic cost savings can be achieved with no impact on differentiation at all if a firm has not concentrated on cost reduction previously. However, cost reduction is not the same as achieving cost advantage. When faced with capable competitors where further cost reduction requires a sacrifice in differentiation. It is at this point that the generic strategies become inconsistent and a firm must make a choice.
If a firm can achieve cost leadership and differentiation simultaneously, the rewards are great because the benefits are additive – differentiation leads to premium prices at the same time that cost leadership implies lower costs. An example of an company achieving both cost leadership and differentiation in its segments is Crown Cork and Seal in the metal container industry. Crown has targeted the so-called "hard to hold" uses of cans in the beer, soft drink, and aerosol industries. It manufactures only steel cans rather than both steel and aluminum. In its targeted segments, Crown has differentiated itself based on service, technological assistance, and offering a full line of steel cans, crowns, and canning machinery. Differentiation of this type would be much more difficult to achieve in other industry segments which have different needs. At the same time, Crown has dedicated its facilities to producing only the types of cans demanded by buyers in its chosen segments and has aggressively invested in modern two-piece steel canning technology. As a result,, Crown has probably also achieved low-cost producer status in its segments. (Comments from MSL: Dell is another example that has succeeded on achieving both a cost advantage and differentiation).
– Michael Porter
Competitive Advantage
Michael Porter is one of the world's leading authorities on competitive strategy and international competitiveness. He's the C. Roland Christensen Professor of Business Administration at the Harvard Business School. Porter is the author of 14 books, among them are Competitive Advantage, Competitive Strategy, The Competitive Advantage of Nations, Michael Porter on Competition and Cases in Competitive Strategy.
Porter's first book, Competitive Strategy (1980), is its 60th printing and is deemed by many to be the definitive work on corporate strategy. His last to date, The Competitive Advantage of Nations, analyzes the reasons for 10 countries' ability to gain global market share in certain industries. All these 3 titles will be available from MSL.
Michael Porter's basic tool for managers seeking to analyze their own company's competitive position employs 5 factors or forces that drive competition:
- Existing rivalry between firms
- The threat of new entrants to a market
- The threat of substitute products and services
- The bargaining power of suppliers
- The bargaining power of buyers
This is the second of the classic volumes by Michael Porter. The first was Competitive Strategy and it outlined the general methods and industry analysis. This volume, Competitive Advantage, is more complex and offers methods for understanding what a firm is and does and how it creates value. We all know the term value-chain. Both books are highly recommended as essential references on strategy and competition.
Target readers:
Managers, executives, entrepreneurs, corporate strategists, MBAs, professionals, government and/or non-profit leaders, academics and University lecturers.
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Competitive Strategy, Techniques for Analyzing Industries and Competitors, with a New Introduction
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Michael E. Porter, one of the world's leading authorities on competitive strategy and international competitiveness, is the C. Roland Christensen Professor of Business Administration at the Harvard Business School. In 1983, Professor Porter was appointed to President Reagan's Commission on Industrial Competitiveness, the initiative that triggered the competitiveness debate in America.
He serves as an advisor to heads of state, governors, mayors, and CEOs throughout the world. The recipient of the Wells Prize in Economics, the Adam Smith Award, three McKinsey Awards, and honorary doctorates from the Stockholm School of Economics and six other universities, Porter is the author of fourteen books, among them Competitive Strategy, The Competitive Advantage of Nations, and Cases in Competitive Strategy, all published by The Free Press. He lives in Brookline, Massachusetts.
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From the Publisher:
The essential complement to the path-breaking book Competitive Strategy, Michael E. Porter's Competitive Advantage explores the underpinnings of competitive advantage in the individual firm. With over 30 printings in English and translated into 13 languages, this second volume in Porter's landmark trilogy describes how a firm actually gains an advantage over its rivals. Competitive Advantage introduces a whole new way of understanding what a firm does. Porter's ground-breaking 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.
The essential complement to the path-breaking book Competitive Strategy, Michael E. Porter's Competitive Advantage explores the underpinnings of competitive advantage in the individual firm. With over 30 printings in English and translated into 13 languages, this second volume in Porter's landmark trilogy describes how a firm actually gains an advantage over its rivals. Competitive Advantage introduces a whole new way of understanding what a firm does. Porter's ground-breaking 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.
Now an essential part of international business thinking, Competitive Advantage takes strategy from broad vision to an internally consistent configuration of activities. Its powerful framework provides the tools to understand the drivers of cost and a company's relative cost position. Porter's value chain enables managers to isolate the underlying sources of buyer value that will command a premium price, and the reasons why one product or service substitutes for another. He shows how competitive advantage lies not only in activities relate to each other, to supplier activities, and to customer activities. Competitive Advantage also provides for the first time the tools to strategically segment an industry and rigorously assess the competitive logic of diversification.
That the phrases "competitive advantage" and "sustainable competitive advantage" have become commonplace is testimony to the power of Porter's ideas. Competitive Advantage has guided countless companies, business school students, and scholars in understanding the roots of competition. Porter's work captures the extraordinary complexity of competition in a way that makes strategy both concrete and actionable.
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Chapter 1: Competitive Strategy: The Core Concepts
Competition is at the core of the success or failure of firms. Competition determines the appropriateness of a firm's activities that can contribute to its performance, such as innovations, a cohesive culture, or good implementation. Competitive strategy is the search for a favorable competitive position in an industry, the fundamental arena in which competition occurs. Competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition.
Two central questions underlie the choice of competitive strategy. The first is the attractiveness of industries for long-term profitability and the factors that determine it. Not all industries offer equal opportunities for sustained profitability, and the inherent profitability of its industry is one essential ingredient in determining the profitability of a firm. The second central question in competitive strategy is the determinants of relative competitive position within an industry. In most industries, some firms are much more profitable than others, regardless of what the average profitability of the industry may be.
Neither question is sufficient by itself to guide the choice of competitive strategy. A firm in a very attractive industry may still not earn attractive profits if it has chosen a poor competitive position. Conversely, a firm in an excellent competitive position may be in such a poor industry that it is not very profitable, and further efforts to enhance its position will be of little benefit. Both questions are dynamic; industry attractiveness and competitive position change. Industries become more or less attractive over time, and competitive position reflects an unending battle among competitors. Even long periods of stability can be abruptly ended by competitive moves.
Both industry attractiveness and competitive position can be shaped by a firm, and this is what makes the choice of competitive strategy both challenging and exciting. While industry attractiveness is partly a reflection of factors over which a firm has little influence, competitive strategy has considerable power to make an industry more or less attractive. At the same time, a firm can clearly improve or erode its position within an industry through its choice of strategy. Competitive strategy, then, not only responds to the environment but also attempts to shape that environment in a firm's favor.
These two central questions in competitive strategy have been at the core of my research. My book Competitive Strategy: Techniques for Analyzing Industries and Competitors presents an analytical framework for understanding industries and competitors, and formulating an overall competitive strategy. It describes the five competitive forces that determine the attractiveness of an industry and their underlying causes, as well as how these forces change over time and can be influenced through strategy. It identifies three broad generic strategies for achieving competitive advantage. It also shows how to analyze competitors and to predict and influence their behavior, and how to map competitors into strategic groups and assess the most attractive positions in an industry. It then goes on to apply the framework to a range of important types of industry environments that I term structural settings, including fragmented industries, emerging industries, industries undergoing a transition to maturity, declining industries, and global industries. Finally, the book examines the important strategic decisions that occur in the context of an industry, including vertical integration, capacity expansion, and entry.
This book takes the framework in Competitive Strategy as a starting point. The central theme of this book is how a firm can actually create and sustain a competitive advantage in its industry - how it can implement the broad generic strategies. My aim is to build a bridge between strategy and implementation, rather than treat these two subjects independently or consider implementation scarcely at all as has been characteristic of much previous research in the field.
Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm's cost of creating it. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price. There are two basic types of competitive advantage: cost leadership and differentiation. This book describes how a firm can gain a cost advantage or how it can differentiate itself. It describes how the choice of competitive scope, or the range of a firm's activities, can play a powerful role in determining competitive advantage. Finally, it translates these concepts, combined with those in my earlier book, into overall implications for offensive and defensive competitive strategy, including the role of uncertainty in influencing strategic choices. This book considers not only competitive strategy in an individual industry but also corporate strategy for the diversified firm. Competitive advantage in one industry can be strongly enhanced by interrelationships with business units competing in related industries, if these interrelationships can actually be achieved.
Interrelationships among business units are the principal means by which a diversified firm creates value, and thus provide the underpinnings for corporate strategy. I will describe how interrelationships among business units can be identified and translated into a corporate strategy, as well as how interrelationships can be achieved in practice despite the organizational impediments to doing so that are present in many diversified firms.
Though the emphases of this book and my earlier book are different, they are strongly complementary. The emphasis of Competitive Strategy is on industry structure and competitor analysis in a variety of industry environments, though it contains many implications for competitive advantage. This book begins by assuming an understanding of industry structure and competitor behavior, and is preoccupied with how to translate that understanding into a competitive advantage. Actions to create competitive advantage often have important consequences for industry structure and competitive reaction, however, and thus I will return to these subjects frequently.
This book can be read independently of Competitive Strategy, but its power to aid practitioners in formulating strategy is diminished if the reader is not familiar with the core concepts presented in the earlier book. In this chapter, I will describe and elaborate on some of those concepts. The discussion of the core concepts will also provide a good means of introducing the concepts and techniques in this book. In the process, I will address some of the most important questions that arise in applying the core concepts in practice. Thus even readers familiar with my earlier book may find the review of interest.
The Structural Analysis of Industries
The first fundamental determinant of a firm's profitability is industry attractiveness. Competitive strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry's attractiveness. The ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the firm's favor. In any industry, whether it is domestic or international or produces a product or a service, the rules of competition are embodied in five competitive forces: the entry of new competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the rivalry among the existing competitors.
The collective strength of these five competitive forces determines the ability of firms in an industry to earn, on average, rates of return on investment in excess of the cost of capital. The strength of the five forces varies from industry to industry, and can change as an industry evolves. The result is that all industries are not alike from the standpoint of inherent profitability. In industries where the five forces are favorable, such as pharmaceuticals, soft drinks, and data base publishing, many competitors earn attractive returns. But in industries where pressure from one or more of the forces is intense, such as rubber, steel, and video games, few firms command attractive returns despite the best efforts of management. Industry profitability is not a function of what the product looks like or whether it embodies high or low technology, but of industry structure. Some very mundane industries such as postage meters and grain trading are extremely profitable, while some more glamorous, high-technology industries such as personal computers and cable television are not profitable for many participants.
The five forces determine industry profitability because they influence the prices, costs, and required investment of firms in an industry - the elements of return on investment. Buyer power influences the prices that firms can charge, for example, as does the threat of substitution. The power of buyers can also influence cost and investment, because powerful buyers demand costly service. The bargaining power of suppliers determines the costs of raw materials and other inputs. The intensity of rivalry influences prices as well as the costs of competing in areas such as plant, product development, advertising, and sales force. The threat of entry places a limit on prices, and shapes the investment required to deter entrants.
The strength of each of the five competitive forces is a function of industry structure, or the underlying economic and technical characteristics of an industry. Industry structure is relatively stable, but can change over time as an industry evolves. Structural change shifts the overall and relative strength of the competitive forces, and can thus positively or negatively influence industry profitability.
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Financial Times, USA
<2006-12-22 00:00>
The most influential management book of the past quarter century….A veritable goldmine of analytical concepts and tools to help companies get a much clearer grasp of how they can create and sustain competitive advantage. |
Philip Kotler (Professor of International Marketing, Northwestern University), USA
<2006-12-22 00:00>
Michael Porter has done it again. Having defined the "what" and "why" of competitive strategy in his earlier book, he now defines the "how" in Competitive Advantage. |
Mike Davis, USA
<2006-12-22 00:00>
As an active Business Consultant I'm often appaled at the lack of disregard for the importance of strategy. It's a matter of life and death (at least for your company).
"Vision without action is a daydream. Action without vision is a nightmare." - Japanese proverb
Competitive Advantage is all about creating a successful, sustainable strategy (aka Vision). Technology and globalization culminated in ferocious competition for virtually all industries. To be competitive in today's world, you must understand that all value is derived from the customer. Therefore, you will do well to delve deep into how to create value for the customer. Second, in Porter's landmark trilogy, Competitive Advantage describes how a firm actually gains an advantage over its rivals. Additionally he introduces a whole new way of understanding what a firm does through his groundbreaking concept of the value chain.
Competitive Advantage consists of four parts:
Part I) Principles of Competitive Advantage
Introduces the concept of the value chain, which is a general framework for thinking about the activities involved in any business and assessing their relative costs and role in differentiation. Porter then explains the impact of the value chain on cost advantage, differentiation, technology and competitors.
Part II) Competitive Scope within an Industry
Discusses industry segmentation and substitution.
Part III) Corporate Strategy and Competitive Advantage
Explains the interrelationships among business units and their impact on horizontal strategy, achievement of interrelationships, and complementary products.
Part IV) Implications for Offensive and Defensive Competitive
Strategy. Reviews industry scenarios under uncertainty, defensive
strategy, and attacks on industry leaders.
In summary, Competitive Advantage is a must read for any Aspiring Entrepreneur. To lead your company into the future you must create and capture value. Reading this book will help you better understand the value creation process and how value is what buyers are willing to pay for. Ultimately, the difference between value and the cost of delivering value is profit. |
Peter Leerskov, Denmark
<2006-12-22 00:00>
Michael Porter is the founding father for strategies in a competitive context. This pioneering book represents some of his best thoughts on business and corporate strategy.
Chapter 1 is a summary of his first landmark book - Competitive Strategy. So if you just want to buy one of his bestsellers, then buy Competitive Advantage.
The book's most important contribution is the concept of the Value Chain. Today, you won't find an MBA who doesn't know this idea. This book gives you all the details on the value chain. And it even tells you exactly how the value chain is translated into his two generic strategies: Cost Leadership and Differentiation. Most strategy books devote a separate chapter to this idea. If you want to get a more than a superficial understanding of the value chain, you simply have to read Porter's book.
This book also gets to the core of how synergies are created and when diversification might work. Curiously, Porter chooses the term interrelationships for synergies (you know, a term for a nice idea that rarely occurred in practice...).
Being a business development manager, I have strategic thinking as part of my key areas. This book is still a reference guide for me. Obviously though, Porter's views cannot stand-alone.
If you're looking for critical views on Porter's ideas, then consider buying Hamel & Prahalad's Competing for the Future (1994) or Kim & Mauborgne's Blue Ocean Strategy (2005).
Beware: You have to read Porter's Harvard Business review article "What is Strategy" from 1996, if you want his own response to the critics.
Warning: You cannot work seriously with strategy without having understood Michael Porter's core concepts. And the superficial introduction by most - even advanced - strategy books won't make you competent enough to apply his ideas skillfully. Let me give you two examples:
Cost Structure:
Most MBAs have learned about the value chain and cost structure analysis. But in real life I've seen very few who combine these two concepts proficiently. The real beauty in benchmarking cost structures is when you skillfully apply it to the value chain. This book tells you exactly how to do this. In practice, I've seen this approach applied very few times (except advanced strategy consultants). It may be because people often use Porter's concepts too casually...
Cost Drivers:
Most strategy books are on drivers of differentiation - the preferred strategy choice by management gurus. And Porter does indeed help you on this issue. More importantly, this book is one of the few to tell you about the cost drivers. How many books have you read on Cost Leadership? Porter elaborates on 10 cost drivers, such as economies of scale, learning, linkages, synergies, pattern of capacity utilization, integration, timing, policies, and location.
Strategy is about being different. Start out personally by reading the real thing... it's a bargain. |
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