Understanding Michael Porter: The Essential Guide to Competition and Strategy

In this section of chapters, we’ll cover five tests every good strategy must pass: A distinctive value proposition A tailored value chain Trade-offs different from rivals Fit across value chain Continuity over time

Two questions will tell you whether you’re dealing with a disruptive technology or not. First, to what extent does it invalidate important traditional advantages? Second, to what extent can incumbents embrace the technology without major negative consequences for their business? If you stop and ask those questions, you’ll see that true disruptions

those differences can take two distinct forms. A company can be better at performing the same configuration of activities, or it can choose a different configuration of activities. By now, of course, you recognize that the first approach is competition to be the best. And by now, we are in a better position to understand why this approach is unlike

Competitive advantage arises from the activities in a company’s value chain Porter uses the phrase operational effectiveness (OE) to refer to a company’s ability to perform similar activities better than rivals.

a business like specialty coffee retailing, for example, where entry barriers are low, Starbucks must constantly invest to refresh its stores and its menus. If it slacks off, it effectively opens the door for a new rival to join the fray.

reminder: Industry structure is always analyzed from the perspective of companies already in the industry. Because potential entrants must overcome entry barriers, this explains why an industry can be “attractive” to incumbents while at the same time not attracting new competitors.)

Remind yourself that the goal of strategy is superior profitability and that one of its two possible components is relative price—that is, you are able to charge more than your rivals charge.

Michael Porter has a name for this syndrome. He calls it competition to be the best. It is, he will tell you, absolutely the wrong way to think about competition. If you start out with this flawed idea of how competition works, it will lead you inevitably to a flawed strategy. And that will lead to mediocre performance.

This, says Porter, is competitive convergence. Over time, rivals begin to look alike as one difference after another erodes. Customers are left with nothing but price as the basis for their choices.