The follow up to the classic book Competitive Strategy by Michael Porter is the equally influential Competitive Advantage: Creating And Sustaining Superior Performance.
I first read it 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 Competitive Strategy and wanted to understand more about how you create competitive advantage through:
- Cost leadership
The Big Ideas In Competitive Advantage Have Been Very Influential
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 they are misrepresented, partly because the author doesn’t appear to have read this 500+ page book or because it creates controversy to criticise the ideas of Michael Porter because they have been so widely adopted.
I’d go as far to say that any expert in business strategy – a strategy consultant, a strategy coach, an executive specialising in strategy or an academic in business strategy or marketing strategy must read Competitive Advantage and probably should read it regularly.
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.
How Is Competitive Advantage Structured?
Competitive Advantage is split into four parts and 15 chapters
Chapter 1 – Competitive Strategy: The Core Concepts
This is a quick summary of the contents of Michael Porter’s first book Competitive Strategy and it helps to set the scene for the future chapters.
Michael Porter Competitive Advantage Part 1 – Principles of Competitive Advantage
Chapter 2 – The Value Chain and Competitive Advantage
Michael Porter makes the essential point that competitive advantage from the activities done in a business or in its supply chain which 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 by Michael Porter. If inbound and outbound logistics aren’t an important issue – because they don’t provide an opportunity for differentiation or cost advantage – then ignore them.
For more in-depth analysis of the value chain, please see:
Chapter 3 Cost Advantage
This is 50 pages on costs, cost drivers and dynamics and how you can establish and sustain a cost advantage.
You’ll have guessed from the title of my blog that I believe a better way for success in most businesses is to differentiate rather than to try to be the lowest cost operator but 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 differentiation.
Chapter 4 Differentiation
In this chapter Michael Porter uses the value chain as the way to create differentiation working down from what customers value through their purchase criteria. Again this is essential reading.
Chapter 5: Technology and Competitive Advantage
I must admit that I’m not big on technology. I don’t understand it and I tend to steer away from high tech solutions. To my mind leading edge can all to easily become the bleeding edge.
Michael Porter examines the role of technology in the value chain and how it influences competitive advantage and industry structure. He then identifies the issues involved with being the technology leader or follower.
Chapter 6 Competitor Selection
When I re-read this Competitive Advantage book, the idea of good competitors tends to catch me by surprise. I get so used to thinking of competitors as the enemy who we’re fighting against that I forget that good competitors can be helpful and should be nurtured.
Michael Porter Competitive Advantage Part 2 – Competitive Scope With An Industry
Chapter 7 Industry Segmentation and Competitive Advantage
If technology is unnatural to me, then segmentation, focus and niching is very natural to me. I think differentiation is hard for the broad market but gets easier to see when you target particular types of customers and their special needs.
Chapter 8 Substitution
The threat of substitutes is one of the five forces from the Competitive Strategy book but the issues are very relevant to the competitive advantages or your products or services in the battle to win buyer preferences.
Michael Porter Competitive Advantage Part 3 – Corporate Strategy and Competitive Advantage
My employment history and consultancy work with bigger groups gives me a jaundiced view of corporate strategy which is why I prefer to work at the business unit level and focus on competitive strategy and the creation of competitive advantage.
It’s a tough task to achieve synergies across business units when you’ve established profit responsibilities at business units although these three chapters are useful for identifying where synergies can be achieved.
Chapter 9 Interrelationships among Business Units
Chapter 10 Horizontal Strategy
Chapter 11 Achieving Interrelationships
These chapters do 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. I’ve been in too many transfer pricing, ordering and delivery discussions where as a group customer I’ve had far less influence than I would as a third party customer.
Michael Porter Competitive Advantage Part 4 Implications For Offensive and Defensive Competitive Strategy
One of my criticisms of strategic planning in practice is the lack of focus on strategy dynamics and how it is a game of action and reaction with competitors who also want to increase profit and often have a goal to increase market share.
Chapter 13 Industry Scenarios and Competitive Strategy under Uncertainty
I like the idea of scenario planning but unless there is a clear and fundamental division of possible futures, I think that it is too time consuming for small businesses.
Chapter 14 Defensive Strategy
A topic that is often ignored in the desire to find ways to grow but it’s a useful reminder that to move forward you need to gain more than you lose. For more thoughts on defensive strategy please see
Chapter 15 Attacking An Industry Leader
An interesting topic that is the reverse of the defensive strategies but also reminds you how tough it can be to take share from a well entrenched market leader.
Overall Thoughts On Competitive Advantage by Michael Porter
Competitive Advantage is rightly regarded as another classic book from Michael Porter.
An essential read for an expert in business strategy.
But I don’t think it’s a book to read from front to back cover for:
- Business owners
- Business managers
- General business consultants and coaches.
You have to draw the line somewhere between a generalist and a specialist. The key points are summarised in many other books on strategy.
It may be OK as a book to dip in to and read the relevant chapter. It’s how I use it most although my notes from the book are extensive. It’s useful to go back to the original source but I’ve had the benefit of reading the book a number of times and this is my specialist area.
A Strategy Book Even Better Than Competitive Advantage?
A book that I think is even better than either Competitive Advantage or Competitive Strategy by Michael Porter is Competitive and Corporate Strategy. Where you are a business owner, manager or student of strategy, you should try to get yourself a copy of this overlooked classic.
Paul Simister is a business strategy coach who helps small business owners to profit from differentiating their businesses, by being distinctive in the eyes of their customers and standing out in a crowded marketplace…. in other words, by building a business to be proud of.