Book Review: Competitive Strategy

by Michael Porter

The Teak Yew Business Book of the month for June 2010 is Competitive Strategy, by Michael Porter

Michael Porter’s Competitive Strategy, first published in 1980, has become a classic of the management literature. It provides a framework for analysis of competition within industries, and for formulation of strategy to compete within the given environment.

In my strategy work, I’m constantly surprised by how many business people choose to ignore their competitors, or even more surprisingly, think they have no competitors. Every business has competitors. To compete effectively in your chosen market, you need to know who these competitors are, how they operate, and how you can outperform them.

At the core of Porter’s model are the Five Forces of competition, which apply in any industry. By analysing these five forces, a company can determine which competitive threats it is vulnerable to and design a strategy to overcome these. Porter then proposes three generic strategies that businesses can use to compete. Whether you choose to compete on price, to differentiate yourself across your industry, or to specialise in a focussed market niche, diluting your strategy with a mixed approach is unlikely to be successful.

Because competition happens within industries, Porter also provides a framework for analysing your industry and classifying your industry according to five generic industry environments. Finally Porter provides tools for strategy formulation, given the specifics of your industry and the competitive forces at play within it.

Understanding competitive strategy is essential for any business decision maker, and Michael Porter’s Competitive Strategy is an invaluable resource for anyone in business.

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