How Business models differ from Strategy: Decisive Book Summary – Chip and Dan Heath, The Culture Code Book Summary – Daniel Coyle. Don’t take massive risks growing beyond the capacity of your strategy and industry structure. How’s profitability likely to be affected? Written with Porter’s full cooperation by Joan Magretta, his former editor at Harvard Business Review, this new book delivers fresh, … Discover which forces influence your success the most. If you see a good idea or innovation think about if it can reinforce your value chain or can be tailored to your strategy. In the eye surgery industry. This book, Understanding Michael Porter is an accessible distillation of the core principles. Do they have high or low switching costs to competitors? Return on sales: ignores the capital invested in the business. The six-force model expands on Harvard Business School professor Michael Porter… Analysts lend people towards market favourites, shareholders place pressure to imitate winner (acquisitions). To what extent can incumbents embrace the technology without major negative consequences for their business? A distinctive value proposition, and a tailored value chain to deliver it, are the foundation of... Unlock the full book summary of Understanding Michael Porter by signing up for Shortform. 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. Perform SAME activities as rivals, execute better, Meet different needs and or same needs at lower cost, Sustainably higher prices and/or lower costs. Which customers are you going to serve? Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter’s revolutionary thinking. If you’re pursuing a different positioning, then different metrics will be relevant. 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. There’s no such thing as best value proposition for an industry. Written … Consistency – so each activity is aligned, Substitution – choice substitutes need for something. 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. Creating and visualising you value chain helps you identify each activity as adding some increment of value to the finished product or service. Good strategies depend on the connection many things, on making interdependent choices. Once something becomes a commodity power shifts to customer. Note that every adjacent industry has its own Five Forces, so that their relative... Study the Five Forces in your industry to understand its overall profitability. In this summary, Magretta explains the relationship between porters 5 forces and profitability, the way to avoid competition and value chains create competitive advantage. The industry profitability should drop as in this instance the internet has meant the power fo buyers has increased in setting prices. Flexibility causes an organisation that doesn’t stand for anything, a company needs direction. (Revised August 2007.) If you take one path, you cannot simultaneously take the other. Remember Goodharts law – chasing a specific measure makes it cease to be a useful measure. Michael Porter is considered the father of modern business strategy, having originated the ideas of “Five Forces” industry analysis, the value chain, and competitive advantage. Michael Porter is famous for his idea of competitive strategy. Growth chasing tends to undermine competitive advantage. Understanding Michael Porter. 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. You either serve food, or you don’t. But In-N-Out deliberately focuses on slow burgers, with non-processed meat and fresher ingredients. Remember – Industry structure is dynamic not static. They’re each playing their own sport. Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter’s revolutionary thinking. This is a clear departure from the (mistaken) idea of the one core competence. Without knowledge of competitive basis, some Porter’s description in his book is hard to be managed. Understanding Michael Porter Summary Chapter 7: Continuity of Strategy The richly developed strategies of IKEA or Southwest took years, decades to hone. 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. Continuity reinforces a companies identity, it builds a companies brand, its reputation and customer relationships. What limiting factors might be overcome to capture more of the value you create? What is it? The summary is written by Joan Magenta, a Bain Capital alum who worked directly with Porter. Which of your customers’ needs are you going to meet? What makes information technology so stereotypically profitable, while airlines are a cutthroat, low-margin grind? Which of your customers’ needs are you going to meet? Aim to be unique, not the “best.” Create unique value, don’t focus on just beating rivals. Put Simply– More efficiently using capital. Porter was involved in the production of the book and an interview with him concludes the book. Porter, a professor at the Harvard Business School, is the author of 16 books, and a leading authority on competitive strategy and economic development. First, we’ll unpack why some companies are more profitable than average. Industry structure determines profitability much more than growth (industry) tech etc.. Porter, Michael E. "Understanding Industry Structure." Competition is about profits, not market share. – What disruptive innovation really is and how to identify it. So, basically a disruptive technology is one that invalidates important competitive advantages. By throwing multiple obstacles in the path of would-be imitators, fit lowers the odds that a strategy can be copied. Target a customer group overlooked or avoided by the industry. Price competition most damaging caused by undifferentiated products. Rule of Thumb for identifying good strategy — There should always be a concise and memorable way to explain your strategy. A good strategy will result in a Profit and Loss sheet better than the industry average. Can this competency or ability be applied elsewhere? Strategy is integrative, bringing supply and demand sides together. Competition to be the best ultimately leads to destructive, zero sum competition.”. His theories are widely used in most business schools and companies in the world. Market share tends to be a vanity project and doesn’t necessarily translate into larger profits. You can apply core design elements used elsewhere. ROIC tells you how well a company is using all its resources. – The forces that impact a industries profitability. What’s popping up? Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter’s revolutionary thinking. There is little middle ground. 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. But while everyone in business may know Porter's name, many managers misunderstand and misuse his concepts. Strategic competition means choosing a path different from that of others. Long-term ROIC tells you how well a company is using its resources. Relative cost? Understanding Michael Porter sets the record straight, providing the first concise, accessible summary of Porter’s revolutionary thinking. Competitive Advantage introduces a whole new way of understanding what a firm does. The choices are incompatible. Don’t worry too much about the differences in the new market. It is accurate to the original Porter material. Read full summary of Understanding Michael Porter. The sequence of activities your company performs to design, produce, sell, deliver, and support its products is called the value chain. Disruptive technology is compelling as a metaphor, but managers need to be rigorous about what’s creating the disruption. Therefore new technologies and processes can help identify opportunities in industries. Activities are discreet economic functions or processes, such as operating a sales force or developing product or delivery them to a customer. ... — Michael Porter, Interview with Joan Magretta, Understanding Michael Porter. Strategy explains how an organisation, faced with competition, will achieve superior performance. A clear direction allows managers to tune out the many distractions around them. What Porter Said That You Should Hear. Thus, Porter proposes the best metric is Return on Invested Capital (ROIC). Suboptimal choices in one area can optimise the whole. When assessing buyer power the channels through which products are delivered can be as important as the end users. When activities are inconsistent, they cancel each other out. 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. The essential complement to the pathbreaking Competitive Strategy, Michael E. Porter's Competitive Advantage explores the underpinnings of competitive advantage in the individual firm. Buyers most likely to exercise their negotiating leverage if they are price sensitive. If you have a real competitive advantage, your ROIC will be sustainably higher than the industry average. Without tailoring, your value chain will have inefficiencies that more focused competitors will exploit. 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. Copyright © 2020 ShortForm™ | All Rights Reserved, This is a preview of the Shortform book summary of, Understanding Michael Porter by Joan Magretta. It identifies a whole world of relationships previously invisible to you. What price will provide acceptable customer value and acceptable company profitability? What you will learn from reading Understanding Michael Porter. A best hamburger? What is your unique value proposition? Both are winners in their own right. Industry structure is an exponentially more powerful and objective tool for understanding the dynamics of competition. With trade-offs, your activities can be tailored/optimized to your value proposition. Likewise, Southwest didn’t serve meals at a time when most airlines did. Are they concentrated or fragmented? There are limited number of structural forces at work in every industry they systematically impact profitability in a predictable direction. Trade-offs also make it difficult for competitors to copy what you do without compromising their own strategies. Companies need breathing room to hone their activities and develop competitive advantage over time. Ultimately, all cost or price differences between rivals arise form the hundreds of activities that companies perform as they compete. For example, focusing on a particular customer need can blur traditional demographic bounds. You’re just competing to the best. Market share says we just want to be big, we don’t care if we make money doing it. Six-Force Model: A design used to show how companies or industries are affected by external factors. Pay higher dividends and enjoy the creation of wealth. Deepen your strategic position, don’t broaden it. Shortform summaries help you learn 10x faster by: READ FULL SUMMARY OF UNDERSTANDING MICHAEL PORTER. Connecting You To The Best Minds In Business. 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. 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. If you have a real competitive advantage, compared with rivals, you operate at a lower cost, command a premium price, or both. 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. This has led to success of price comparison sites to facilitate this new reality. By thinking in terms of value chains, you begin to see each activity not just as a cost, but as a step that has to add some increment of value to the finished product or service. Rivals aren’t just competing with each other. 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?”. 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… Example: many of Southwest’s activities are directionally pointed toward lowering cost and increasing convenience. Trade-offs force you to limit your value proposition. Expand geographically. 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. Commoditisation combined with the internet has increased the power of buyers as they can shop around for the best price. Activities complement or reinforce each other: real synergy. Contact the customer directly instead of through a distributor. How does it impact the value chain? Written with Porter’s full cooperation by Joan Magretta, his former editor at Harvard Business Review, this new book delivers fresh, … Strategy isn’t a stir fry, it’s a stew - it takes time for the flavors and textures to develop. Choices around what to do yourself and what to outsource to other people are choices every company makes. 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. Never copy another company. You’re either hub-and-spoke, or you’re direct-flight. There’s no such thing as “the best.” Is there a best car? -Expensive relative to other costs or income, -Inconsequential to their own performance. Intense rivalries mean companies compete away the value they create. Continuity helps supplies, channels and other outside parties to contribute. This is because if you have real competitive advantage it means you operate at a lower cost, command a premium price or both. Are they price sensitive? Understand Porter and you will see why competing to be the best sparks an inevitable race to the bottom. "Understanding Michael Porter" sets the record straight, providing the first concise, accessible summary of Porter's revolutionary thinking. Products or services that meet the same basic need as the industry’s in a different way, caps industry profitability. Companies performance has two sources: Industry structure and relative position. An activity is usually a mix of people, technology, fixed assets, sometimes working capital and various types of information. You can then create a tailored configuration of activities to deliver the unique outcome you want. For example, McDonald’s is a winner in fast food and fast burgers. When trying to find an answer, it’s tempting to focus on the competition between rivals. And if possible try to make choices that are incompatible with competitors value chains. How do you grow without compromising your strategy? Key Question – Could you create superior value by performing activities in a distinctive way or activities competitions don’t perform? So, the business model is best used as the most basic step in thinking about the viability of the company. When you do Industry analysis, you are taking a snapshot of the industry at this point in time, but you are also assessing trends in the five forces. There is no “best” in any industry, just like there is no “best performance artist.” There are different buyer needs, and there can be multiple winners. Porter’s five forces buyer power can explain how buys influence markets. If you identify these leverage points in an industry, there is a lot to gain. Relative cost: More efficient ways to create, produce, deliver, sell and support your product or service. The tool was created by Harvard Business School professor Michael Porter, to analyze an industry's attractiveness and likely profitability. Strategy choices aim to shift relative price or relative cost in a company favour. A clash between business titans is dramatized to the conflict between nation-states or to a national sports championship. However, this metaphor is counterproductive when taken too far. 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