-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. Relative price: Sustainable premium price = unique + valuable to customer. Cutting out the fluff: you don't spend your time wondering what the author's point is. Remember –Sustainable competitive advantage comes from a different configuration of activities. "Understanding Michael Porter" sets the record straight, providing the first concise, accessible summary of Porter's revolutionary thinking. Too many companies pursue unprofitable growth that never leads to good ROIC. What price will provide acceptable customer value and acceptable company profitability? Continuity reinforces a companies identity, it builds a companies brand, its reputation and customer relationships. “Competition to be the best will results in mediocre performance. 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. What’s changing? Strategy should be economically grounded and fact based and it should aim to shift relative price or relative cost in a companies favour. Trade-offs force you to limit your value proposition. Strategy choices aim to shift relative price or relative cost in a company favour. Products or services that meet the same basic need as the industry’s in a different way, caps industry profitability. Who are the buyers in your industry? SUMMARIES.COMis a concentrated business information service. The Five Forces that matter in any industry are: The more powerful the force, the more pressure it will put on decreasing prices or increasing costs, or both. His ideas have guided economic policy worldwide, which may account for his nine honorary degrees and numerous awards. The choices are incompatible. Written with Porter’s full cooperation by Joan Magretta, his former editor at Harvard Business Review, this new book delivers fresh, … Read this summary to unlock the analytical tools that govern competition and profitability, predict competitor moves, and create a game-changing strategy. This book, by the legendary Michael Porter, has redefined how Fortune 500 companies formulate strategy and has become essential reading in top MBA programs worldwide. Shortform summaries help you learn 10x faster by: READ FULL SUMMARY OF UNDERSTANDING MICHAEL PORTER. Companies need breathing room to hone their activities and develop competitive advantage over time. There is little middle ground. 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. 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. War and sports are unidimensional and imply one victor. Thus, Porter proposes the best metric is Return on Invested Capital (ROIC). Therefore new technologies and processes can help identify opportunities in industries. Copyright © 2020 ShortForm™ | All Rights Reserved, This is a preview of the Shortform book summary of, Understanding Michael Porter by Joan Magretta. The value proposition is the piece of strategy that looks outward at customers, the demand side. Scenarios in your disadvantage are usually the inverse of advantageous scenarios, so only notable alternatives will be listed. Customer needs change making a companies core value proposition obsolete. In business, your default thought should not be “how do I win this market,” but rather “which segment of the industry can I service well?”. Finding cost drivers requires detective work. Strategy is all about making priorities clearer. But the bigger is picture than this. For Porter differentiation is where you are able charge a higher relative price. Strategy explains how an organisation, faced with competition, will achieve superior performance. This is because if you have real competitive advantage it means you operate at a lower cost, command a premium price or both. Rivalry is particularly high when there are fewer competitors, the industry itself is growing, or when consumers can easily switch to another competitive product. In the eye surgery industry. Without knowledge of competitive basis, some Porter’s description in his book is hard to be managed. 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. If you’re servicing the same customers, with the same needs, at the same price, you don’t have a strategy. So, the business model is best used as the most basic step in thinking about the viability of the company. Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter’s revolutionary thinking. Why are some industries consistently more profitable than others? Strategic competition means choosing a path different from that of others. Relative cost? Six-Force Model: A design used to show how companies or industries are affected by external factors. But while everyone in business may know Porter's name, many managers misunderstand and misuse his concepts. The pressure to grow is among the greatest threats to strategy. Slow growth of industry = increase battle for market share. 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… However, this metaphor is counterproductive when taken too far. Porter’s seminal works are two tomes, Competitive Strategy and Competitive Advantage, covering 1,000 pages of business strategy. How’s profitability likely to be affected? Understanding Michael Porter The Essential Guide to Competition and Strategy (Unknown) : Magretta, Joan : Michael Porter's contributions to the business world redefined how managers see competition and strategy, but his legendary frameworks are often misunderstood. Instead of ROIC, many companies focus on inferior metrics: If you have a real competitive advantage, compared with rivals, you operate at a lower cost, command a premium price, or both. Choices around what to do yourself and what to outsource to other people are choices every company makes. Product trade-offs: Tailoring a product to suit one need makes it less capable of servicing another need. Ultimately, all cost or price differences between rivals arise form the hundreds of activities that companies perform as they compete. Instead of creating a comprehensive reference guide to legendary strategic thinker Michael Porter, Joan Magretta encapsulates in her book, Understanding Michael Porter, the heart of Porter’s contribution. Michael Eugene Porter (born May 23, 1947) is an American academic known for his theories on economics, business strategy, and social causes. Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter’s revolutionary thinking. A distinctive value proposition answers three questions: Value propositions tend to focus on one aspect as a pillar, with the other applying to varying degrees. A clash between business titans is dramatized to the conflict between nation-states or to a national sports championship. In business, this leads to the syndrome of “competition to be the best.”. More often, industries compete fiercely to control the one key “resource” - distribution channels, product portfolios - thus driving up cost. This has led to success of price comparison sites to facilitate this new reality. The internet for example has made it easier for customers in an industry to shop around for the best price. Buyers have a wide range of needs, and different companies can exist to service those different needs without demolishing each other. A good strategy will result in a Profit and Loss sheet better than the industry average. Or services that meet the same price, you can then create a tailored configuration of activities to deliver unique... For customers in an industry holistically, consider porter’s famous five forces buyer power can explain how buys markets. 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