Do they have high or low switching costs to competitors? Understanding Michael Porter The main outcome … It must perform different activities than rivals or perform similar activities in different ways. It looks at relative prices and relative costs, and their sustainability. Shortform summaries help you learn 10x faster by: READ FULL SUMMARY OF UNDERSTANDING MICHAEL PORTER. Each thing you do amplifies the value of the other things you do. Too many companies pursue unprofitable growth that never leads to good ROIC. Is there a distinctive value proposition? You’re just competing to the best. The essence of strategy is to create your own path. Growth or market share: the game is not to be the biggest in the industry. And if you force everybody to show progress on the same metrics, you encourage convergence and undermine strategic uniqueness. In one sense, strategy is choosing what not to do. Truck maker Paccar appeals directly to individual owner-operators through comfort and customization, rather than brands like Peterbilt that appeal to large corporate buyers... Return on sales: ignores the capital invested in the business. Define what your company will not do. Don’t feel you have to make every customer happy. If you think growing large will be a winning strategy, remember that returns to scale may be illusory and cap out sooner than you think. But, to extend my metaphor, if you really want to digest these critically important ideas, you have to be willing to chew on them before you swallow. Understanding Michael Porter will enable all leaders throughout any organization t grasp Porter… The value chain looks internally on operations. But the bigger is picture than this. Pay higher dividends and enjoy the creation of wealth. What you don’t know yet is what rivals you’ll have - new entrants, incumbents in adjacent industries. That is, how your revenues and costs stack up against your rivals’. The point of competition is not beating your rivals. Profits = Prices - Costs. Then we’ll see how a unique value chain is the mechanism by which superior profits are achieved. In business, this leads to the syndrome of “competition to be the best.”. Understanding Michael Porter will enable all leaders throughout any organization t grasp Porter… Read on the go with our iOS and Android App. Click to share on Twitter (Opens in new window), Click to share on Pocket (Opens in new window), Click to share on Facebook (Opens in new window), Click to share on LinkedIn (Opens in new window), Click to share on WhatsApp (Opens in new window), Click to share on Pinterest (Opens in new window), Click to email this to a friend (Opens in new window). And then it must develop a value metric that looks at the results achieved versus the costs required to achieve them. "Understanding Michael Porter" sets the record straight, providing the first concise, accessible summary of Porter's revolutionary thinking. Aim to be unique, not the “best.” Create unique value, don’t focus on just beating rivals. What is your unique value proposition? Understanding Michael Porter SUMMARIES.COMis a concentrated business information service. Are they concentrated or fragmented? Which customers are you going to serve? 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… This is an unsustainable strategy. (Revised August 2007.) Your activities need to be different from rivals to have a meaningful strategic difference. If you have a real competitive advantage, compared with rivals, you operate at a lower cost, command a premium price, or both. Understanding Michael Porter Summary Chapter 7: Continuity of Strategy The richly developed strategies of IKEA or Southwest took years, decades to hone. Continuity doesn’t mean an organization should stand still. In 1987, major semiconductor companies manufactured their own chips and sold excess capacity to smaller firms. McDonald’s fast and cheap hamburgers are incompatible with the needs of a health-conscious farm-to-table eater. If you have a real competitive advantage, compared with rivals, you operate at a lower cost, command a premium price, or both. Avoid the temptation to serve more customers and offer more features. The first part is attributable to the structure of the industry in which competition takes place. This is as important as defining what your company _will... Unlock the full book summary of Understanding Michael Porter by signing up for Shortform. Without tailoring, your value chain will have inefficiencies that more focused competitors will exploit. Porter’s answer can be divided into two parts. Trade-offs also make it difficult for competitors to copy what you do without compromising their own strategies. Competition is about profits, not market share. Deepen your strategic position, don’t broaden it. Summary. ROIC tells you how well a company is using all its resources. 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… The value proposition is the piece of strategy that looks outward at customers, the demand side. They hold a strategy together as they contribute to both creating and sustaining competitive advantage. Each … The collection also includes the digital edition of the popular Understanding Michael Porter: The Essential Guide to Competition and Strategy, which offers a concise, accessible summary of Porter’s revolutionary thinking and was written with Porter’s full cooperation by Joan Magretta, his former editor at Harvard Business Review. Netflix began with direct to customer movie DVDs, then switched to Internet streaming as soon as it became feasible. Rivals aren’t just competing with each other. A better analogy than war might be performing arts. For example, McDonald’s is a winner in fast food and fast burgers. "Understanding Michael Porter" sets the record straight, providing the first concise, accessible summary of Porter's revolutionary thinking. Rivalry is particularly high when there are fewer competitors, the industry itself is growing, or when consumers can easily switch to another competitive product. Written with Porter’s full cooperation by Joan … Here are examples of bad strategies that won’t lead to a viable long-term advantage. If you’re servicing the same customers, with the same needs, at the same price, you don’t have a strategy. Identify the players constituting each of the five forces and, where appropriate, segment them into groups. But while everyone in business may know Porter's name, many managers misunderstand and misuse his concepts. Nor do they typically result from even a series of independent choices. A business model highlights the relationship between your revenues and your costs. The best meal? You either serve food, or you don’t. Instead of ROIC, many companies focus on inferior metrics: Because Profits = Prices - Costs, you can achieve superior profits through increasing your relative price, or decreasing your relative cost, or both. Are they price sensitive? If an activity is over- or under-designed for its use, value will be destroyed. In the short-term, focusing on stock prices causes earnings management and encourages mimicking other companies. Scenarios in your disadvantage are usually the inverse of advantageous scenarios, so only notable alternatives will be listed. Note that every adjacent industry has its own Five Forces, so that their relative disadvantage can be your gain (e.g. Compare your value proposition to your rivals. 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… More features look for the segment that values what you do without compromising their own chips sold. Room to hone their activities and develop competitive advantage, your value proposition, there should be innovation in it’s. Competing using the same price, you will stop and think about the tradeoffs for! 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