Understanding Michael Porter: The Essential Guide to Competition and Strategy by Joan Magretta
Harvard professor Michael Porter is the master of competitive thinking and strategy. While choosing a unique career path must be guided by your strengths, deciding which market to enter can be a driver between success and failure. I was lucky to meet and share a lunch with Professor Porter in 2015.
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“The essence of strategy,” Porter often says, “is choosing what not to do”.
In his own words, “My frameworks provide a set of logical relationships that are really fundamental. They’re like physics – if you’re going to have higher profitability, you’ve got to have a higher price or lower cost. That industry competition is driven by the five forces. These frameworks provide basic, fundamental and I believe unchangeable relationships about the ‘matter’ of competition”
The key to competitive success – for businesses and nonprofits alike – lies in an organization’s ability to create unique value.
Porter’s prescription: aim to be unique, not best.
Creating value, not beating rivals, is at the heart of competition.
Strategy explains how an organization, faced with competition, will achieve superior performance.
How you think about competition will define the choices you make about how you are going to compete.
For Porter, strategic competition means choosing a path different from that of others. Instead of competing to be the best, companies can – and should – compete to be unique.
This concept is all about value.
The Five Forces
The real point of competition is not to beat your rivals. It’s not about winning a sale. The point is to earn profits.
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.