I first read this book in 1990 when I realised strategy was the subject that combined (and reconciled) my interest in finance and marketing. I'd be so impressed with his book, "Competitive Strategy" and wanted to understand more about how you create competitive advantage through cost leadership, differentiation and focus.
The main ideas in Competitive Advantage come through in just about every book on strategy in terms of the generic strategies and the main tool introduced in the book, the value chain. Often I find his ideas are misrepresented, perhaps because the author hasn't read this 500+ page book or because it creates controversy to criticise the Porter's ideas.
I own both the original 1985 book and a revised edition, but it's only been revised with a new introduction from Michael Porter. The rest of the book has stood the test of time remarkably well although the examples are old. I'd love to see a genuine update for the 2010s.
The book is split into four parts and 15 chapters
First there is a quick summary of the contents of the author's first book Competitive Strategy which helps to set the scene for the future chapters.
He makes the essential point that competitive advantage arise from the activities done in a business or in its supply chain and these either create a cost advantage or differentiate the business in a way that creates buyer preference for either a broad or narrow market.
The Value Chain is the main tool for analysing these activities and isolating differences in approach and relative cost. I've seen criticism that the value chain is too much based on a model of a manufacturing business but that misses the point. You should adapt the value chain to fit your business and not slavishly follow the categories specified. When you look at your own business, you'll quickly see that there are some activities that are directly involved in the process of providing value to customers while other activities are there to support the business.
The book then looks in detail at using the value chain to review costs, cost drivers and their dynamics and how you can establish and sustain a cost advantage. While I believe a better way for success in most businesses is to differentiate rather than to try to be the lowest cost operator, even a firm which is well differentiated should be cost aware and aim to be lean and mean in areas that don't impact on the desired differentiation strategy.
In the next chapter, he uses the value chain to create differentiation working down from what customers value through their purchase criteria to what the business and its suppliers do. Again this is essential reading.
Then he examines the role of technology in the value chain and how it influences competitive advantage and industry structure. He identifies the issues involved with being the technology leader or follower.
The next section looks at competitors, industry segmentation and substitute products. This links back to his five forces model.
Then he focuses on competitive advantage and their impact on corporate strategy and vice-versa through interrelationships and horizontal strategies. These chapters have interesting ideas for small private groups with related business units under common ownership. The bigger the group and the wider the scope, the more difficult it is to get the businesses working well together.
The final section looks at the implications for offensive and defensive competitive strategy.
This is rightly regarded as another classic book from Michael Porter and is an essential read for anyone claiming to be expert in business strategy. It's not however a book to read from front to back cover for most business owners, managers or general business consultants and coaches because it's a challenging read and densely packed with information. You have to draw the line somewhere between a generalist and a specialist and the key points are summarised in many other books on strategy.
Paul Simister, a business coach who helps business owners who are stuck, get unstuck.
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