Understanding Michael Porter will enable all leaders throughout any organization t grasp Porter's seminal ideas about competition and strategy and deploy them to achieve competitive success. Too many companies pursue unprofitable growth that never leads to good ROIC. A Distillation of The Most Important Business Thinking of Our Time Michael Porter’s groundbreaking ideas on competition and strategy have unfolded over three decades and are spread across a dauntingly long list of publications. Strategies often emerge through a process of discovery that can trade years of trial and error. “A disruptive technology is one that invalidates a value chain configuration and product configurations in a way that allows one company to leap above another.”. The tool was created by Harvard Business School professor Michael Porter, to analyze an industry's attractiveness and likely profitability. It identifies a whole world of relationships previously invisible to you. By definition strategy is about something unique, making a set of choices that nobody else has made. You can create a value chain which generates customer enthusiasm to reduce spending on marketing. What limiting factors might be overcome to capture more of the value you create? Porters 5 forces all effect economics of a business as they effect price and cost differently. Once something becomes a commodity power shifts to customer. War and sports are unidimensional and imply one victor. Without knowledge of competitive basis, some Porter’s description in his book is hard to be managed. Growth chasing tends to undermine competitive advantage. Six-Force Model: A design used to show how companies or industries are affected by external factors. Analysts lend people towards market favourites, shareholders place pressure to imitate winner (acquisitions). How does it impact the value chain? Don’t take massive risks growing beyond the capacity of your strategy and industry structure. Competition is full of economic trade-offs, these lie at the very heart of strategy. Where many business strategies are fads that come nad go, Porter’s ideas are still widely used in management consulting and MBA programs today, 40 years after introduction. For example, focusing on a particular customer need can blur traditional demographic bounds. But while everyone in business may know Porter's name, many managers misunderstand and misuse his concepts. You’re either hub-and-spoke, or you’re direct-flight. His theories are widely used in most business schools and companies in the world. A good strategy will result in a Profit and Loss sheet better than the industry average. Key Question – Could you create superior value by performing activities in a distinctive way or activities competitions don’t perform? His ideas have guided economic policy worldwide, which may account for his nine honorary degrees and numerous awards. Understanding Michael Porter While Michael Porter’s work on strategy and competition is widely known, it is sometimes misunderstood. There is little middle ground. Understanding Michael Porter Summary Chapter 7: Continuity of Strategy The richly developed strategies of IKEA or Southwest took years, decades to hone. Michael Porter is considered the father of modern business strategy, having originated the ideas of “Five Forces” industry analysis, the value chain, and competitive advantage. What is it? In a situation with strong trade-offs, your competitors’ activities, tailored to their value proposition, are incompatible with your activities. If the answer is no, why would it make any more sense in your industry? Understanding Michael Porter - Understanding Michael Porter audiobook, by Joan Magretta... A Distillation of The Most Important Business Thinking of Our Time Michael Porter’s groundbreaking ideas on competition and strategy have unfolded over three decades and are spread across a dauntingly long list of publications. Rivalry is particularly high when there are fewer competitors, the industry itself is growing, or when consumers can easily switch to another competitive product. But In-N-Out deliberately focuses on slow burgers, with non-processed meat and fresher ingredients. This book demonstrates the reasons for his influence. If you see a good idea or innovation think about if it can reinforce your value chain or can be tailored to your strategy. Understand Porter and you will see why competing to be the best sparks an inevitable race to the bottom. Here's a preview of the rest of Shortform's Understanding Michael Porter summary: Business is often compared to sports or war because of dramatic appeal. Strategy explains how an organisation, faced with competition, will achieve superior performance. The structure of any industry is heavily influenced by some underlying economics. Therefore new technologies and processes can help identify opportunities in industries. In this summary, Magretta explains the relationship between porters 5 forces and profitability, the way to avoid competition and value chains create competitive advantage. Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter’s revolutionary thinking. Strategic competition means choosing a path different from that of others. Zero in on the price drivers in your business model. Price competition most damaging caused by undifferentiated products. And if possible try to make choices that are incompatible with competitors value chains. Strategy should be economically grounded and fact based and it should aim to shift relative price or relative cost in a companies favour. Strategy choices aim to shift relative price or relative cost in a company favour. What you will learn from reading Understanding Michael Porter. Overall, how strong is this force? So, the complete definition of competitive advantage is: a difference in relative price or relative costs that arises because of differences in the activities being performed. Consistency – so each activity is aligned, Substitution – choice substitutes need for something. Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter’s revolutionary thinking. Every week,subscribers are e-mailed a concise summary of a different business book. Porter’s five forces buyer power can explain how buys influence markets. However, this metaphor is counterproductive when taken too far. Generic activities are activities that can’t be meaningfully tailored to a companies position (outsource?). Who are the buyers in your industry? Strategic competition means choosing a path different from that of others. The richly developed strategies of IKEA or Southwest took years, decades to hone. For Example an eye surgery used ford assembly line design – standardisation of activities and specialisation of labour and equipment to create a high volume production line that doesn’t stop. Continuity helps supplies, channels and other outside parties to contribute. Written with Porter’s full cooperation by Joan Magretta, his former editor at Harvard Business Review, this new book delivers fresh, clear examples to illustrate and update Porter’s ideas. A distinctive value proposition, and a tailored value chain to deliver it, are the foundation of... Unlock the full book summary of Understanding Michael Porter by signing up for Shortform. Growth or market share: the game is not to be the biggest in the industry. What activities are generic and which are tailored? If strategy truly is based on one core competence, then it becomes relatively easy to replicate. Slow growth of industry = increase battle for market share. If you’re servicing the same customers, with the same needs, at the same price, you don’t have a strategy. Understanding Michael Porter Book Summary Understanding Michael Porter Book Summary distils Michael Porters’ main ideas and explains them in easy to understand terminology. You either serve food, or you don’t. Which of your customers’ needs are you going to meet? Basic consistency: each activity aligns with the company’s value proposition and contributes incrementally. Cutting out the fluff: you don't spend your time wondering what the author's point is. The internet for example has made it easier for customers in an industry to shop around for the best price. Good strategies depend on the connection many things, on making interdependent choices. Strategy isn’t a stir fry, it’s a stew - it takes time for the flavors and textures to develop. A long-time editorial collaborator but not an employee of Porter’s, Magretta also clearly explains why his work was … Industrial structure takes a long time to change and remains fairly stable. We’ll examine each force in turn, considering scenarios in your advantage as an incumbent. Understanding Michael Porter will enable all leaders throughout any organization t grasp Porter's seminal ideas about competition and strategy and deploy them to achieve competitive success. There is no glory in growth if it’s profitless. What’s popping up? Vital questions to ask about Industry Structure: The five forces framework explains the industry’s average prices and costs, and therefore the average industry profitability you are trying to beat. This is because if you have real competitive advantage it means you operate at a lower cost, command a premium price or both. Industry structure is an exponentially more powerful and objective tool for understanding the dynamics of competition. Target a customer group overlooked or avoided by the industry. So, the business model is best used as the most basic step in thinking about the viability of the company. By Joan Magretta (Harvard Business School Press, 236 pages, $24.95) ... Now there's a handy solution, distilling his work into a book-length executive summary. By throwing multiple obstacles in the path of would-be imitators, fit lowers the odds that a strategy can be copied. Discover which forces influence your success the most. Strategy is integrative, bringing supply and demand sides together. In business, this leads to the syndrome of “competition to be the best.”. In the eye surgery industry. Since its publication in 1979, it has become one of the most popular and highly regarded business strategy tools.Porter recognized that organizations likely keep a close watch on their rivals, but he encouraged them to look beyond the actions of their competitors and examine what other factors could impact the business environment. The Five Forces analysis suggests the profitability of an industry, but it does not automatically suggest how you should operate in the industry to maximize profits. Porter, Michael E. "Understanding Industry Structure." They’re also engaged in a struggle for profits with all the other players in the ecosystem - like customers, who would always like to pay less and get more, and are eager to substitute a product for a better alternative. Continuity strengthens a company’s position in three ways: It takes years to implement a strategy. This is a concise distillation of Michael Porter, who changed the academic business world by his insights on competition and business strategy. They’re also engaged in a struggle for profits with all the other players in the ecosystem – like customers, who would always like to pay less and get more, and are eager to substitute a product for a better alternative. Thus, Porter proposes the best metric is Return on Invested Capital (ROIC). Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter’s revolutionary thinking. Scenarios in your disadvantage are usually the inverse of advantageous scenarios, so only notable alternatives will be listed. Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter’s revolutionary thinking. In reality, strong strategies are built on many unique activities that fit together to deliver the unique value proposition. Powerful suppliers will charge higher prices or insists on more favourable terms, lowering industry profitability. The best meal? By thinking in terms of value chains, 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. If you take one path, you cannot simultaneously take the other. For some readers, Porter’s books are too professional to read and understand. Written with Porter’s full cooperation by Joan Magretta, his former editor at Harvard Business Review , this new book delivers fresh, … Disruptive technology is compelling as a metaphor, but managers need to be rigorous about what’s creating the disruption. It is also, Porter points out, the only measure that matches the multi-dimensional nature of competition: creating value for customers, dealing with rivals and using resources productively. Good strategies depend on the connection among many things. There’s only best at meeting a particular need at a particular price. Identifying competitors and seeing precisely what they are capable of is the heart of this force. It looks at relative prices and relative costs and their sustainability. How’s profitability likely to be affected? Learn from it and see how it can be modified to reinforce your strategy. Harvard Business School Background Note 707-493, December 2006. Trade-offs force you to limit your value proposition. Trade-offs are choices that make strategies sustainable because they are not easy to match or neutralise. There is no “best” in any industry, just like there is no “best performance artist.” There are different buyer needs, and there can be multiple winners. Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter's revolutionary thinking. Innovation of all sorts can serve to invalidate the essential trade-offs on which strategy relies. Therefore all business profitability comes from price and cost variables. Long-term ROIC tells you how well a company is using its resources. Which customers are you going to serve? Written … Don’t worry too much about the differences in the new market. Understand Porter and you will see why competing to be the best sparks an inevitable race to the bottom. Strategy goes a step further. Relative cost: More efficient ways to create, produce, deliver, sell and support your product or service. Understanding Michael Porter will enable all leaders throughout any organization to grasp Porter's seminal ideas about competition and strategy and deploy them to achieve competitive success. To understand competitive advantage it is crucial to zoom in on activities, which are narrow then functions such as marketing, logistics etc…. Put Simply– More efficiently using capital. 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