Understanding Michael Porter

Posted on September 12, 2012 ยท Posted in Competitive Strategy

Joan Magretta, the author of Understand Michael Porter has created an essential guide to competition and strategy based on the key advancements of Michael Porter.  Her book is divided into two parts dealing first with competion and second with strategy.

The competition section begins with a better understanding of the differences between "being the best" and being "unique."  If you think "being the best" is best you find it only leads to a zero sum game.  Magretta does a grand job of describing Porter's five forces (threat of entry, supplier power, buyer power, substitutes and rivalry) which are key to competing for profits in the home building industry and many others.  Competitive advantage is created between the value you create, and how you create it which ultimately increases performance (return on capital.)  A unique postion is not unique unless it is created by a unique value chain.

Within the strategy section Magretta again focuses on the unique value chain (unique set of activities) which are truly needed to create a unique position.  Such unique activities are a barrier to copycat rivals in that rivals must compromise their own strategies to follow yours.

Finally Magretta confirms Porter's focus on the two challenges successful companies face — changing too little and changing too much — continuity of strategy can actually improve a company's ability to adapt and innovate.

Much of Michael Porter seems antithetical — read Magretta's book to more easily understand the powerful challenges of competition and strategy which are so much a part of Michael Porter's brilliance.