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Friday, January 04, 2008

The Competitive Strategy

I am a big Michael Porter fan. Porter returns to reaffirm and extend this classic work of strategy formulation, which includes new sections showing how to put his analysis into practice. In the last few years, Michael Porter has brought economic rigor to the study of competitive strategy for corporations, regions, nations, and, more recently, health care and philanthropy. “Porter’s five forces” have shaped a generation of academic research and business practice. Porter contends, if the competitive forces are intense, as they are in such industries as airlines, textiles, and hotels, almost no company earns attractive returns on investment. If the forces are benign, as they are in industries such as software, soft drinks, and toiletries, many companies are profitable. How else do we explain the fact that some fast-growth businesses, such as personal computers, have been among the least profitable industries in recent years. A narrow focus on growth is one of the major causes of bad strategy decisions.
He anchors his premise on industry structure that drives competition and profitability, not whether an industry produces a product or service, is emerging or mature, high tech or low tech, regulated or unregulated. While a myriad of factors can affect industry profitability in the short run—including the weather and the business cycle—industry structure, manifested in the competitive forces, sets industry profitability in the medium and long run. Over two decades, Michael Porter has remained consistent as well as developmental – avoiding the standing still syndrome. With competitive strategy , Porter extended the competitive forces analysis to the point of view of industry itself going beyond looking through the prism of markets or of organizational capabilities. Porters framework , after more than two decades since it got into mainstream thinking on competition and strategy.

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