Understanding Michael Porter: The Essential Guide to Competition and Strategy

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.

You begin to see each activity not just as a cost, but as a step that has to add some increment of value to the finished product or service.

real competitive advantage, it means that compared with rivals, you operate at a lower cost, command a premium price, or both.

The most common error of all is that competitive success comes from “being the best.” This mind-set is highly intuitive. It is also self-destructive, leading to a zero-sum race to the bottom. Only by competing to be unique can an organization achieve sustained, superior performance.

Broadly speaking, strategy is the antidote to competition. Specifically, a robust strategy is defined by its ability to pass five basic tests.

Porter’s prescription: aim to be unique, not best. Creating value, not beating rivals, is at the heart of competition.

These five forces—the intensity of rivalry among existing competitors, the bargaining power of buyers (the industry’s customers), the bargaining power of suppliers, the threat of substitutes, and the threat of new entrants—determine the industry’s structure,

when all rivals compete on the same dimension, no one gains a competitive advantage.

Typical Steps in Industry Analysis

The value chain is another Porter framework that managers refer to all the time. Most, I believe, know what a value chain is—the metaphor of a series of linked activities is intuitive. But many miss the “so what.” Why does it matter? The answer: The value chain is a powerful tool for disaggregating a company into its strategically relevant activiti