Episode 12: Michael Porter
Porter suggested that there were just three generic strategies
for managers to choose from if they wanted to gain competitive
advantage, something that he believed was the underlying
purpose of every business.
You could make things as cheaply as possible and become the lowest
cost producer in a market.
Alternatively you could offer something special or different which
would allow you to command a premium price.
Or, thirdly, you could choose to be what he called a focused producer,
looking to dominate in a niche market, so that others would
find it too difficult to challenge you.
To help you choose which strategy to adopt, Porter says you
need to decide which of five types of industry you are in:
Then, he says, you need to examine the five forces of competition:
the threat of substitute products
the threat of new entrants
the bargaining power of suppliers
the bargaining power of buyers
the state of rivalry among existing companies
Always try to do things in ways that are hard for other companies
to copy. Finding that unique position isn't always obvious, in the
end, says Porter, it comes down to creativity and insight - and
strong leadership, the willingness to make hard choices and to
take a stand against the conventional wisdom of the industry.
In 'The Competitive Advantage of Nations', published in 1990, Porter
moved his attention from the problems of competition in business
to the issues of competing nations. Globalisation, it seems, does
not mean that everything is the same everywhere. National differences
There are four factors, Porter suggested, that help to make a nation
tough domestic rivalry
country infrastructure (including the educational quality of its
the cluster phenomenon
A cluster is a critical mass, in one geographical space,
of similar businesses, all supported by their specialist suppliers
and services that are tied to that industry. You can stay small,
in other words, and still have the advantage of being big.
In my next and final talk we'll meet Fons
Trompenaars and Charles Hampden-Turner.
Read Michael Porter's