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Competitive Strategy by Michael Porter – 5 Stars

The full title of this classic strategy book by Michael E. Porter is

Competitive Strategy: Techniques for Analyzing Industries and Competitors“.

In my review posted at Amazon.co.uk, I gave this book a rating of Five Stars. This means I think it is Excellent.

Here is my book review.

A classic strategy book that goes well beyond the five forces model

This is a classic business strategy text and is essential reading for anybody who has a serious interest in business strategy.

The book is written in three sections:
1 – General Analytical Techniques
2 – Generic Industry Environments
3 – Strategic Decisions

Part I General Analytical Techniques – this section introduces two of Michael Porter’s most famous ideas:

  • The five forces of competition.
  • Generic competitive strategies – he has been criticised for saying that failure to choose means that businesses would be “stuck in the middle” and condemn themselves to inadequate performance. There are some special cases which Michael Porter has addresses in this book which make it possible to have a differentiation advantage and a cost advantage at the same time.

Less well known but equally valuable is guidance on how to prepare a competitor analysis so that you can understand what your competitors are trying to achieve, their likely moves and how they are likely to react to your moves.

Other items covered in this first section of the book are:

  • Signalling to competitors – there are some great game theory applications on this that aren’t covered in the book but are fascinating – look for details on the prisoner’s dilemma and chicken.
  • Competitive moves.
  • Strategies towards buyers and suppliers.
  • Structural forces within industries which introduces the concept of strategic groups of competitors who have broadly similar strategies.
  • Industry evolution and movements through the product life cycle.

Part II Generic Industry Environments

Different industries develop different structures.

  • Fragmented industries – local suppliers, no competitor dominates. Michael Porter looks at why industries stay fragmented and at the opportunities for a dynamic competitor to consolidate and acquire a critical competitive advantage.
  • Emerging industries – some new products are so innovative that they create new industries. For example before mobile cell phones, who was aware of Nokia but it rapidly became a household name. Michael Porter explains the underlying forces which determine industry evolution as the new product becomes more established.
  • Industry maturity – after a new industry goes through a rapid growth stage, the industry matures which presents new challenges for management.
  • Declining industries – some industries are able to constantly renew themselves within the existing technology eg the motor industry but others find their technology and product offerings obsolete or only appealing to a small number of die-hards. In this chapter Michael Porter looks at the issues of how you can decide whether you exit a declining industry early or stay around to reap “last man standing” profit.
  • Global industries – Michael Porter turned much more of his attention to the forces for globalisation later in his career but this is still a great source of the strategic drivers which determine why some industries do become global.

Part III – Strategic Decisions

Porter looks at the factors that would help you to make key strategic decisions:

  • Vertical integration – moving forward into your customers’ markets or backwards to compete with suppliers.
  • Capacity expansion – you sell more, you want to expand but over-capacity is one of the most destructive contributors to intense competition in an industry as competitors get greedy and want more of the market or mis-read the market growth prospects, perhaps because they haven’t recognised the threat of an up and coming substitute.
  • Entry into new businesses – this may be through internal development or acquisition but Michael Porter examines the factors to establish whether diversification makes sense.

This is an outstanding book.

Yes it was written in 1980 and it shows sign so of age, especially in the stories and examples. The lessons are still relevant in many of today’s marketplaces. It’s at its weakest in industries that change rapidly and are high unpredictable. These are often technology based and developments happened at a slower pace in 1980. It’s well worth reading the book “Your Strategy Needs A Strategy” to understand the different environments that differ from this classical approach.

My only other criticism is that it is quite a dry read and you will probably not want to read it from start to finish in a concentrated burst. Provided you become familiar with the five forces analysis technique, you will find that the book is quite easy to dip in and out as your needs change.

It is available to buy from Amazon.co.uk and Amazon.com.

There are many thousand of business books, you can see the full list of my reviews at Business Books Reviews by Paul Simister. I’ve also narrowed these down to a list of the 12 Best Business Books For Business Owners & Entrepreneurs.

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