Understanding Michael Porter: The Essential Guide to Competition and Strategy

competitive advantage means you have created value for customers and you are able to capture value for yourself because the positioning you have chosen in your industry effectively shelters you from the profit-eroding impact of the five forces.

A company can sustain a premium price

Product design. IKEA’s furniture is modular and ready to assemble. The traditional retailer sells fully assembled pieces. That’s a critical either-or trade-off. Either a piece of furniture is fully assembled or it isn’t. Unlike most other companies in its industry, IKEA designs its own products; this choice then allows IKEA to make all kinds of cri

Properly understood, competitive advantage allows you to follow the precise link between the value you create, how you create it (your value chain), and how you perform (your P&L). Competitive advantage is commonly understood as the weapon you use to trounce rivals. For Porter, it’s fundamentally about creating value, and about doing so differe

Industries with high fixed costs (e.g., telecommunications equipment and offshore drilling) are especially vulnerable to large buyers.

It is hard to tell one rival’s offerings from another (the problem of competitor convergence we saw in chapter 1) and buyers have low switching costs.

If rivalry is intense, companies compete away the value they create, passing it on to buyers in lower prices or dissipating it in higher costs of competing.

Porter’s solution to this problem requires some courage: the only way to know if you are achieving the ultimate goal of creating economic value is to be brutally honest about the true profits you’ve earned and all the capital you’ve committed to the business.

Third, industry structure is surprisingly sticky.