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Porter'S Strategy, Value Chains and Competitive Advantage
Porter'S Strategy, Value Chains and Competitive Advantage
COMPETITIVE ADVANTAGE
Defining a strategy
A strategy means the plans and actions necessary to
achieve the goals of an organization. The manager must
consider the strengths and weaknesses on their own
organization and its competitors and to know the external
environment threats and opportunities. The most important
theory about the business strategies was elaborated by
Michael Porter in his book “Competitive strategy:
Techniques for Analyzing Industries and Competitors” in
1980. In this book Porter analyzed the various sources of
environmental threats and opportunities and described how
companies could position themselves in the marketplace.
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Porter defines business strategy as "a broad formula for
how a business is going to compete, what its goals should
be, and what policies will be needed to carry out these
goals." He recommends for strategy formation a the three-
phase process (figure1):
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Potential
Entrants
Threat of
New Entrants
Industry
Bargaining Power Competitors Bargaining Power
of Buyers of
Buyers Your organization Suppliers Suppliers
Threat of
Substitutes
Substitutes
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on defining a company position that the company can use to
maintain a competitive advantage. A position simply describes
the goals of the company and how it explains those goals to its
customers.
A competitive advantage occurs when your company can
make more profits selling its product or service than its
competitors can. The managers have to establish a long-term
competitive advantage. This provides the best possible return,
over an extended period, for the effort involved in creating a
process and bringing a product or service to market. A
company with a competitive advantage is not the largest
company in its industry, but is the one that is selling a desirable
product and is producing great profits. There are two variables
that determine a company's profitability: the industry
structure, that imposes broad constraints on what a company
can offer and charge and a competitive advantage that results
from a strategy and a well-implemented value chain that lets a
company outperform the average competitor in an industry
over a sustained period of time.
In conclusion, in Porter's books, companies that create
and sustain competitive advantage do it because they have
the discipline to choose a strategic position and then remain
concentrated on it. They gradually refine their business
processes and the fit of their activities so that their
efficiencies are very hard for competitors to follow.
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