wisdom to win

 Wisdom to Win
search bar left
search bar right

Michael Porter (1947- )Michael Porter


American Harvard Business School professor and leading expert on strategy and the competitive advantage of companies and countries (pictured right).


Key books


Competitive Strategy (1980)


Successful companies achieve “competitive advantage” (better value than competitors) by concentrating on one of three “generic strategies”:


Michael Porter

1. Cost leadership

Selling to a mass market with lower costs and prices than competitors.


2. Differentiation

Selling to a mass market at a high price with a product perceived by customers as unique and superior to competitors.


3. Focus

Selling to a particular customer category (a market segment or niche e.g.rich or poor).

This segmentation strategy will concentrate on:

  • cost leadership (cost focus), or
  • differentiation (differentiation focus).


An organization will fail, when it is “stuck in the middle” - having a strategy that isn't focused on one of the generic strategies outlined above.

Such a company will only make profits if its:

  • competitors are also stuck in the middle, or
  • industry structure is highly profitable


Causes of a highly profitable industry structure 

Michael Porter


1. High entry barriers

Deterring new competitors because of your:

  • low costs.
  • product differentiation.
  • patents (for inventions).


2. Low competitive rivalry

(because of a high industry growth rate, minimizing competition for market share).


3. Low buyer power

(due to a superior product, or a monopoly).


4. Low supplier power

(the company is big relative to the supplier like supermarkets).


5. Little or no threat of substitutes

(due to good value relative to price).


These five factors are now referred to as Porter’s five forces model.


Competitive analysis is also important which analyses competitors' strengths and weaknesses (so that strengths can be avoided and weaknesses exploited).

A company must respond to competitors' market signals indicating their strategic intentions.


Porter summarized the book’s message in a 1996 Harvard Business Review article, What Is Strategy? -

“Competitive strategy is about being different”, he said.


Key quote on industry analysis

All five competitive forces jointly determine the intensity of industry competition and profitability.


Key quote on strategy

Competitive strategy involves positioning a business to maximize the value of the capabilities that distinguish it from its competitors.



Competitive Advantage (1985)

 (see for more detail Competitive Advantage in the Business Books section)


Successful companies have “sustainable competitive advantage” (perpetually better value than competitors).

This requires:

  • a generic strategy (as described in Competitive Strategy)
  • maximizing value to customers at each stage of the company’s “value chain”:


The value chain has five primary activities:

 Michael Porter

1. Inbound logistics

The receipt, storage and distribution of supplies (or inputs) required for operations.


2. Operations

Converting inputs into the final product.


3. Outbound logistics

The collection, storage and distribution of products to buyers.


4. Marketing and sales

Persuading people to buy the products and making it easier for them to do so.


5. Service

After-sales support.


These  primary activities are supported by four support activities:


 1. Human resource management

Hiring and motivating employees.


2. Procurement



3. Technology development

Research and development.


4. Firm infrastructure

Support managerial functions like finance and planning.


Within each primary and secondary activity, there are three further activities:

  • direct (directly creating customer value).
  • indirect (helping to create value).
  • quality assurance (getting quality right).


Key quotes on competitive advantage

Competition is at the core of the success or failure of firms.

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.


Key quote on business success

The first fundamental determinant of a firm’s profitability is industry attractiveness.



The Competitive Advantage of Nations (1990)

 (see for more detail The Competitive Advantage of Nations in the Business Books section)


A diamond model is used to describe four interrelated factors which (in addition to chance and government action) will decide whether or not a country achieves international success in a particular industry:

 Michael Porter

1. Factor conditions

Relating to factors of production, for example: 

  • knowledge.
  • physical resources.
  • capital.
  • the quality and quantity of labour.
  • infrastructure (like transport and education).


2. Demand conditions

The popularity of the industry’s product with customers.


3. Related and supporting industries

The international competitiveness of suppliers and associated industries.


4. Firm strategy, structure and rivalry

The competitiveness of domestic companies that will spur them to improve and compete globally.


Key quotes on economic growth

Productivity is the prime determinant in the long run of a nation’s standard of living.

Incentives, effort, perseverance, innovation and especially competition are the source of economic progress in any nation and the basis for productive, satisfied citizens.


Free Newsletter
Enter your name and e-mail address to receive our free newsletter with analysis of business issues and new business books