Michael E. Porter. 1&1 . This book takes the framework in Competitive Strategy as a start ing point. The central theme of this book is how a firm can actually. This presentation draws on ideas from Professor Porter's books and recording, or otherwise—without the permission of Michael E. Porter. Books by Michael E. Porter. The Competitive Advantage of Nations (). Competitive Advantage: Creating and Sustaining Superior. Pe$ormance ().
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This study inspired the Porter five forces analysis framework for ana- lyzing industries.. Career. Michael Porter is the author of 18 books and numerous. Michael Porter - Competitive wm-greece.info - Ebook download as PDF File .pdf), Text File .txt) or read book online. Harvard Business School professor Michael E. Porter is the author proach to . fuller treatment in my book, The Competitive Advan- changed over time.
An example of a company that has adopted this model is Ford. Its founder, Henry Ford, became known for the invention of the production line assembly that allowed mass production at low cost. Ford said you could have a Ford of any color, as long as it was black, to keep its process and its costs under control. Your products can be differentiated by design, by creating your brand, by your customer service and sales model, or even by your unique technologies.
One car manufacturer that invested in differentiation was Mercedes Benz, which was designed as synonymous with luxury vehicles unparalleled compared to the rest of the other manufacturers.
Differentiation acts by reducing the alternatives of consumer buying, and this causes that one can charge more for the products, thus generating more profits. Pepsi, for example, is a case of a company that has managed to restructure itself by adopting a strategic focus. She cut her product lines to focus on only two segments: Drinks Pepsi Cola and snacks, snacks Frito-Lay.
This focus has allowed the company to grow to become the second largest packaged food company in the world regarding revenues. Analyze Your Position In The Market Before The Competition To predict competition movements and strategically plan based on their differences, Michael Porter proposed a model of analysis that has become one of the most popular tools for contemporary management.
By having clarity about this, it is simpler to predict whether your competitors are comfortable in their current positions or if you are a threat.
Also, knowing the goals of your competitors helps you evaluate potential collision points in the future. Understanding what they expect from you can help you create plans and derive a better competitive strategy.
They may find you want to dominate a particular segment, fight for prices, or invest in differentiation. That helps you anticipate what is possible and what next strategic steps you can expect.
Although at first, this analysis seems challenging, Porter teaches how to get this information in the market. Send Signals To Gain Competitive Advantage At all times, the market and the competitors give signs of their strategy and the good manager must be able to read these signals accurately.
When your competitor announces new investments, products, market expansions or new features, they do so to communicate a message to consumers and in some cases to confuse competition. Therefore, it is essential to be aware of all this information and from them try to anticipate if your competitors will give you a spin that can catch you by surprise.
Large companies like Apple announce new products even before they are available on the market. Rumors are also formed throughout the specialized press.
These signs cause euphoria in the market, after all, customers tend to expect a new improved product before making a purchase.
If you understand the dynamics of these signals, you can also use them to confuse competition or respond to potential threats. New Markets Bring New Challenges At all times, new industries and markets are emerging based on innovations introduced to the consumer. In a new industry, it takes longer for the rules of competition to be clear, and this gives companies a range of experimental competitive strategies.
In emerging industries, companies have only limited information on competitors, most often coming only from customer reviews and trading conditions. However, there are some things we can know for sure about emerging markets. They have high upfront costs and businesses need capital to establish themselves. In a new market, the volume of production is small, and this generates high costs, besides the need for training of inexperienced employees.
It must perform different activities from rivals, or perform similar activities in different ways. If the activities reinforce each other, imitating them all is difficult. If they involve trade-offs, your activities may contradict those of competitors, making it difficult for them to plunge in.
Creating Value: The Core The value proposition is the piece of strategy that looks outward at customers, the demand side. The value chain looks internally on operations. Strategy is integrative, bringing supply and demand sides together.
A distinctive value proposition answers three questions: Which customers are you going to serve? Which needs are you going to meet? What relative price will provide acceptable value for customers and acceptable profitability for the company? Value propositions tend to focus on one aspect as a pillar, with the other applying to varying degrees.
For example, focusing on a particular customer need can blur traditional demographic bounds. Likewise, one can focus on a demographic and serve most of their needs. Compare your value proposition to your rivals. Avoid the temptation to serve more customers and offer more features. Your value proposition may also imply advantages based on the five forces. Examples: Serving a distinctive demographic Walmart began by servicing small towns with populations below 10k, which other discount retailers deliberately stayed away from.
These towns could usually support only one store, increasing barrier of entry. Progressive Insurance began by servicing higher risk customers that other insurance companies rejected.
With few alternatives, they had lower bargaining power. Serving distinctive customer needs Hertz provided cars at airports to business and leisure travelers. Enterprise focused on short-term rentals for city residents eg car needing repairs, so insurance companies make up a third of revenues.
In turn, Zipcar offered even shorter rental periods of hours, and extreme convenience of location, booking, and simple pricing. Focusing on a distinctive price point Focus on customers who are currently underserved by building a premium offering , or overserved by stripping away a premium offering.
Traditional airlines focused on expansive service between any point A to point B, with perks like food built in. Southwest offered low-cost fares with no frills. It saw its competition as cars and buses, not other airlines.
Unique Value Chain A good strategy delivers distinctive value through a distinctive value chain. Also, if the same value chain can deliver the same value proposition, it has no strategic relevance. Even if the product looks identical, there are many opportunities along the value chain for differentiation — delivery, disposal, support, financing.
When finding a new position, starting with a value proposition is intuitive, but starting with the value chain is equally valid.
This is what companies do when they identify their strengths. Examples: How could Progressive make high-risk customers work financially, where others had failed? They further segmented groups to find pockets of lower risk — motorcycle riders over 40 years old; drivers with accident history who have children. They also cost of accidents by by having inspectors issue checks on the spot, thus decreasing lawsuits.
Enterprise leased locations in the city rather than airport rental areas, which were more convenient for their customers and also cheaper. Their target customers were less picky about cars, allowing Enterprise to stock budget, older vehicles.
It marketed to insurance companies and car dealerships, rather than expensive consumer ads. Southwest made a host of changes to support their lower prices. Where traditional airlines serviced every point A to point B through a hub and spoke model, Southwest offered fewer routes but flew direct. They flew from secondary airports that were often more convenient to cities and also lower cost for the airline.
Southwest cut out frills like food and higher class seats. They decreased plane turnaround time through a first-come first-serve boarding process, reducing meals, and standardizing their fleet.
Finally, where airlines jumped to travel booking sites like Expedia, Southwest adamantly maintained its own website, preventing price comparison.
Trade-Offs: The Linchpin Trade-offs are strategic forks in the road. If you take one path, you cannot simultaneously take the other. The choices are incompatible. Trade-offs force you to limit your value proposition. Without tailoring, your value chain will have inefficiencies that more focused competitors will exploit.
Trade-offs also make it difficult for competitors to copy what you do without compromising their own strategies.
For example, in contrast to hub-and-spoke models, Southwest uses a direct-flight model. There is little middle ground. Trade-offs arise in 3 ways: Product trade-offs: Tailoring a product to suit one need makes it less capable of servicing another need. In , major semiconductor companies manufactured their own chips and sold excess capacity to smaller firms.
These smaller firms feared that the major companies would steal their IP. Home Depot innovated with huge warehouses with well-trained associates to appeal to DIYers and contractors, mostly male.
Operational trade-offs: Activities that deliver one kind of value are less efficient at producing another kind of value. If an activity is over- or under-designed for its use, value will be destroyed.
A value chain for deliveries that optimizes cheap shipping that arrives in weeks requires different activities from fast shipping that arrives in hours. Brand trade-offs: Muddling the brand identity compromises why fans support the brand. Robust strategies incorporate multiple trade-offs. The best strategies have trade-offs at almost every step in the value chain. Willfully ignoring large segments of customers feels like leaving growth on the table. Product designers want their products to do more to get more users.
Financial analysts want every company to look like the market favorite. Short-term stock traders put pressure on companies to enact change, while strategy takes years to build.
These itches push companies to straddle their trade-offs, matching the benefits of a different successful position while maintaining its existing position. This can mean designing a product or value chain that services contradictory needs. This leads to inefficiencies, creating openings for focused rivals to deliver superior value or lower prices to customers.
Example: BA started a low-cost airline Go Fly as an independent subsidiary. But Go Fly retained features from BA that were hard to remove, like seat assignments and food service.
It sold Go Fly to a private equity firm, which was able to make more of it. The subsidiary will tend not to be as aggressive as a fully independent competitor that actively seeks to harm its rivals. Otherwise, you risk doing a poor job of serving any customers and needs. Deliberately make some customers unhappy. Enduring companies have been surprisingly adamant about not compromising their original mission, willfully forsaking short-term growth and defending its key trade-offs against many attacks.
Instead of broadening your strategic position, deepen and extend it. Applied to Blockbuster in , this approach would suggest, "Your value chain is focused on in-store rentals. Trying to service mail rentals will compromise your advantage. We need to preserve this advantage. During the s, Japanese car manufacturers created manufacturing systems that increased quality and decreased cost relative to American manufacturers.
Southwest has low prices, but it also provides customer value in convenience. Fit: The Amplifier Good strategies depend on the connection among many things. This is a clear departure from the mistaken idea of the one core competence.
If strategy truly is based on one core competence, then it becomes relatively easy to replicate. For a rival to achieve the same advantage, they would need to replicate all the activities, which becomes exponentially harder with each activity. As a simplistic example, say there are 5 activities that give a company a competitive advantage.
Activities with fit make it easier to see where the weak link in the chain is. If you do not receive an email within 10 minutes, your email address may not be registered, and you may need to create a new Wiley Online Library account. If the address matches an existing account you will receive an email with instructions to retrieve your username. Strategic Management Journal Volume 2, Issue 1.
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