The choices are incompatible. The richly developed strategies of IKEA or Southwest took years, decades to hone. Every week,subscribers are e-mailed a concise summary of a different business book. Less obviously, itâs possible to be stuck in the middle - if you try to be too many things, youâll be outflanked by cost leaders on one side (who are âjust good enoughâ) and by differentiators on the other side (who satisfy... Trade-offs are strategic forks in the road. Strategies often begin with 2 or 3 essential choices, then adding additional activities to extend the fit. For over 40 years, professionals like you have turned to Soundview Executive Book Summaries® to find the newest ideas and strategies from the best business books to overcome daily workplace challenges and thrive in their careers. Competition to be the best ultimately leads to destructive, zero sum competition.”. What Porter Said That You Should Hear. Analysts lend people towards market favourites, shareholders place pressure to imitate winner (acquisitions). Which of your customersâ needs are you going to meet? Remember Goodharts law – chasing a specific measure makes it cease to be a useful measure. 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. If strategy truly is based on one core competence, then it becomes relatively easy to replicate. First, weâll unpack why some companies are more profitable than average. Rivals arenât just competing with each other. An activity is usually a mix of people, technology, fixed assets, sometimes working capital and various types of information. Competitive Advantage introduces a whole new way of understanding what a firm does. Donât settle for 50% of your target segment - get 80%. More often, industries compete fiercely to control the one key âresourceâ - distribution channels, product portfolios - thus driving up cost. Flexibility causes an organisation that doesn’t stand for anything, a company needs direction. How’s profitability likely to be affected? This book demonstrates the reasons for his influence. The summary is written by Joan Magenta, a Bain Capital alum who worked directly with Porter. 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. The goal of every organization is to produce goods or services whose value exceeds the sum of the costs of all inputs. Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter’s revolutionary thinking. 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. ROIC tells you how well a company is using all its resources. Strategy is implicitly a bet that the chosen customers or need and the essential trade-offs for meeting at the right price will be enduring. Continuity fosters improvements in individual activities and fit; it allows an organisation to build unique capabilities and skills tailored its strategy. Understand Porter and you will see why competing to be the best sparks an inevitable race to the bottom. Porters 5 forces all effect economics of a business as they effect price and cost differently. Where many business strategies are fads that come nad go, Porterâs ideas are still widely used in management consulting and MBA programs today, 40 years after introduction. Shortform summaries help you learn 10x faster by: READ FULL SUMMARY OF UNDERSTANDING MICHAEL PORTER. The best meal? Theyâre 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. Compare your value proposition to your rivals. Can you position a company where the industry forces are weakest? Deepen your strategic position, donât broaden it. Too many companies pursue unprofitable growth that never leads to good ROIC. War and sports are unidimensional and imply one victor. Strategies often begin with 2 or 3 essential choices, then adding additional activities to extend the fit. Understanding Michael Porter Book Summary distils Michael Porters’ main ideas and explains them in easy to understand terminology. If you take one path, you cannot simultaneously take the other. There is little middle ground. In this book, the author distills Porter's core concepts and frameworks into a … It looks at relative prices and relative costs and their sustainability. Identifying competitors and seeing precisely what they are capable of is the heart of this force. Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter's revolutionary thinking. You can create a value chain which generates customer enthusiasm to reduce spending on marketing. When you try to offer something for everyone, you tend to the relax the trade-offs that underpin your competitive advantage. Basic consistency: each activity aligns with the companyâs value proposition and contributes incrementally. The industry profitability should drop as in this instance the internet has meant the power fo buyers has increased in setting prices. Wherever a company has achieved a competitive advantage, there must be differences in activities. The tool was created by Harvard Business School professor Michael Porter, to analyze an industry's attractiveness and likely profitability. It is accurate to the original Porter material. Porter’s five forces buyer power can explain how buys influence markets. Michael Porter is considered the father of modern business strategy, having originated the ideas of âFive Forcesâ industry analysis, the value chain, and competitive advantage. This is a clear departure from the (mistaken) idea of the one core competence. Strategic competition means choosing a path different from that of others. 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. “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.”. Look at your value chain, and think about the tradeoffs. Are they price sensitive? A best hamburger? What relative price will you offer? Key Question – Could you create superior value by performing activities in a distinctive way or activities competitions don’t perform? What price will provide acceptable customer value and acceptable company profitability? Relative cost: More efficient ways to create, produce, deliver, sell and support your product or service. This is a concise distillation of Michael Porter, who changed the academic business world by his insights on competition and business strategy. Prime Example: Airplane flights have been commoditised so the customer has been framed to shop for lowest price. If you see a good idea or innovation think about if it can reinforce your value chain or can be tailored to your strategy. Written … -Powerful when industries need them more than they need industry, -Industries with high fixed costs are especially vulnerable to larger buyers, -Can credibly threaten to vertically integrate into producing industry’s product itself. “Competition to be the best will results in mediocre performance. A good strategy will result in a Profit and Loss sheet better than the industry average. And market share isn’t a predictor of profitability. A clear direction allows managers to tune out the many distractions around them. Then weâll see how a unique value chain is the mechanism by which superior profits are achieved. 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. In business, your default thought should not be âhow do I win this market,â but rather âwhich segment of the industry can I service well?â. Strategies often emerge through a process of discovery that can trade years of trial and error. Competitive rivalry is all about the number of current competitors to a business’s products or services in the marketplace. Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter’s revolutionary thinking. Fit means that the whole matters more than any individual part. Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter’s revolutionary thinking. ROIC (return on invested capital) is best measure for competitive success. Focus on certain activity to differentiate. How Business models differ from Strategy: Decisive Book Summary – Chip and Dan Heath, The Culture Code Book Summary – Daniel Coyle. There is no glory in growth if itâs profitless. What is it? Rule of Thumb for identifying good strategy — There should always be a concise and memorable way to explain your strategy. Written with Porter’s full cooperation by Joan Magretta, his former editor at Harvard Business Review, this new book delivers fresh, … Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter's revolutionary thinking. Both are winners in their own right. 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. -Expensive relative to other costs or income, -Inconsequential to their own performance. Consistency – so each activity is aligned, Substitution – choice substitutes need for something. These differences can take two forms, a company can be better at performing the same configuration of activities, or it can choose a different configuration of activities. 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. 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. Relative price? His theories are widely used in most business schools and companies in the world. Strategy is integrative, bringing supply and demand sides together. The internet for example has made it easier for customers in an industry to shop around for the best price. Do they have high or low switching costs to competitors? – What real strategy is and how to apply it to improve your business. But business is multidimensional. For Porter differentiation is where you are able charge a higher relative price. Likewise, Southwest didnât serve meals at a time when most airlines did. Switching strategies too often is value destroying, causing whiplash in the org and dismantling of value... At the end of the book, the author sits down with Michael Porter to discuss commonly asked questions about strategy. For example, in contrast to hub-and-spoke models, Southwest uses a direct-flight model. Likewise, a company can focus on a demographic and serve most of their needs. By throwing multiple obstacles in the path of would-be imitators, fit lowers the odds that a strategy can be copied. Buyers have a wide range of needs, and different companies can exist to service those different needs without demolishing each other. Products or services that meet the same basic need as the industry’s in a different way, caps industry profitability. UNDERSTANDING MICHAEL PORTER. In reality, strong strategies are built on many unique activities that fit together to deliver the unique value proposition. Strategy choices aim to shift relative price or relative cost in a company favour. Innovation of all sorts can serve to invalidate the essential trade-offs on which strategy relies. Theyâre each playing their own sport. Porter was involved in the production of the book and an interview with him concludes the book. Think about it, there is simply no such things as ‘the best’ as there is difference in needs and wants. Discover which forces influence your success the most. Porter, Michael E. "Understanding Industry Structure." – The forces that impact a industries profitability. Overall, how strong is this force? Strategy explains how an organisation, faced with competition, will achieve superior performance. Understanding Michael Porter. Growth chasing tends to undermine competitive advantage. 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. Read full summary of Understanding Michael Porter. You can apply core design elements used elsewhere. Weâll examine each force in turn, considering scenarios in your advantage as an incumbent. What is your unique value proposition? What makes information technology so stereotypically profitable, while airlines are a cutthroat, low-margin grind? The essential complement to the pathbreaking Competitive Strategy, Michael E. Porter's Competitive Advantage explores the underpinnings of competitive advantage in the individual firm. 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. A business model highlights the relationship between your revenues and your costs. SUMMARIES.COMis a concentrated business information service. Disruptive technology is compelling as a metaphor, but managers need to be rigorous about what’s creating the disruption. Generic activities are activities that can’t be meaningfully tailored to a companies position (outsource?). (Revised August 2007.) 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… Suboptimal choices in one area can optimise the whole. Slow growth of industry = increase battle for market share. For more than three decades, Harvard Professor Michael Porter has been developing and refining the essential frameworks that explain how competition works and its implications for strategy in business, government, and society. Market share tends to be a vanity project and doesn’t necessarily translate into larger profits. A technological or managerial breakthrough can completely trump a companies existing value proposition. Product trade-offs: Tailoring a product to suit one need makes it less capable of servicing another need. 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. To what extent does it invalidate important traditional advantages? In this summary, Magretta explains the relationship between porters 5 forces and profitability, the way to avoid competition and value chains create competitive advantage. Strategy goes a step further. Competition is full of economic trade-offs, these lie at the very heart of strategy. This book, Understanding Michael Porter is an accessible distillation of the core principles. Therefore all business profitability comes from price and cost variables. There is no âbestâ in any industry, just like there is no âbest performance artist.â There are different buyer needs, and there can be multiple winners. 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. Good strategies depend on the connection many things, on making interdependent choices. Never copy another company. To see an industry holistically, consider Porterâs famous Five Forces. Learn from it and see how it can be modified to reinforce your strategy. This is because if you have real competitive advantage it means you operate at a lower cost, command a premium price or both. Buyers most likely to exercise their negotiating leverage if they are price sensitive. Understanding Michael Porter Summary Chapter 7: Continuity of Strategy The richly developed strategies of IKEA or Southwest took years, decades to hone. Understanding Michael Porter. Good strategies depend on the connection among many things. 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