Michael Porter on Strategy

1. What is Strategy?
The Michael Porter Perspective
Michael McDermott
www.strategycapstone.ning.com

2. Who is Michael Porter?
• He is a Harvard Business School Professor
• He is regarded as “the” guru on business
strategy
• Profile of Michael Porter
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3. What is Strategy?
• Strategy is competitive position
• And competitive position demands
determining the company’s choice of generic
strategy
• It is essential that you understand this basic
but vital concept of generic strategy
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4. Establishing Competitive Advantage
• A company can outperform rivals only if it can
establish a difference that it can preserve
• It must therefore:
1. Deliver greater value to customers; or
2. Create comparable value at lower prices; or
3. Do both
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5. Some Key Questions in Strategy
Development
Who/what are we?
The focus here is on choice of Generic Strategy
–
Where do we want to be?
The focus here is on choice of Generic Strategy
–
Why do we want to go there?
The focus here is upon strategy drivers
–
•
•
•
•
PEST Analysis
Competitor Analysis
Market Analysis
Internal Analysis
How will we get there?
–
The focus here is upon choice of Grand Strategy
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6. 1. Who/what are we?
This is our competitive position –
some would argue that this is the
essence of our strategy
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7. What is Strategy?
Competitive
Position
Strategy
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8. What is Competitive Position?
Choice of
Generic
Strategy
Competitive
Position
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9. Effectiveness vs Efficient
More
Effective
•Greater value
•Higher unit prices
More
Efficient
•Lower unit costs
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10. Competitive Strategy is
about being different!
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11. Determining Strategic Position
• Choose a different set of activities
• Perform similar activities differently
Activities • Or perform different activities
Value
• Deliver a unique mix of value
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12. Nature of Strategic Positioning
• Means performing different activities from
rivals or performing similar activities in
different ways
• Competitive advantage requires developing a
distinct strategic position
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13. Choice of Generic Strategy
Internal
Considerations
External
Considerations
• Do we compete on low cost
or differentiation?
• What is our target market?
• What industry do we
compete in?
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14. What are the Generic Strategy
Options?
Low Cost
• Niche – narrow market
focus
• Mainstream – broad
market focus
Differentiation
• Niche – narrow market
focus
• Mainstream – broad
market focus
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16. Hyundai Genesis
BMW
Volvo
Porsche
Generic Strategies and the Luxury Car Industry
But you may decide that BMW competes in the luxury car market.
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17. Choice of Generic Strategy:
Abercrombie and Fitch
Internal
Considerations
External
Considerations
• Differentiation?
• Agreed?
• Is it the clothes market?
• Or designer clothes for
mature adolescents and
young adults?
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18. Choice of Generic Strategy:
Abercrombie and Fitch
The Clothes Market
The Designer Young Adult
Market
• Then A&F competes
through focused
differentiation
• Then A&F competes
through differentiation
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19. According to Porter, Strategy
involves trade-offs.
The essence of strategy is
choosing what not to do.

20. We now get position.
But What is Strategy?

21. Strategy is the creation of a
unique and valuable position,
involving a different set of
activities.

22. “Commonly the threats to strategy are
seen to emanate from outside a
company because of changes in
technology or the behavior of
competitors. Although external changes
can be the problem, the greater threat
to strategy often comes from within”.
Michael Porter

23. Porter’s Focus is Competition
• Porter’s perspective is all about establishing a
competitive position that is different from
rivals
• Either being the cost leader
• Or offering differentiation
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24. Defining Our Present Competitive
Position
This is represented in our
Mission Statement
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25. 2. Where do we want to be?
This is future-oriented and is
addressed in our Vision
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26. 2. Where do we want to be?
1. Do we wish to
change our
Strategy or our
competitive
position?
• Or simply apply
similar more
widely?
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27. Changes in Competitive Position:
Walmart in the USA
Status
• Today you think of Walmart
and you may think low cost
• A few years ago, you would
certainly think low cost
Evaluation
• Walmart’s sales in the USA
were declining recently and
this was allegedly due to
the company’s weaker
commitment to low costs
• This company may wants us
in the future to think ‘green’
and ‘healthy’
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28. Changes in US Competitive Position:
Toyota
1960s
• Focused Low cost
1980s
• Low cost
1990s
• Differentiation (introduce Lexus offers focused differentiation)
2000
• Differentiation
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29. Changes in Competitive Position:
Singapore Airlines
1960s-1970s
• Differentiation based on Asian service – Singapore girl
• Low crew/passenger ratio due to low labor costs
1980s
• Differentiation based on above
• Plus most modern fleet of aircraft
1990s
• Differentiation based on all of above
• Plus best in-flight entertainment, cuisine etc
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30. Changes in Competitive Position:
Hyundai, Samsung, LG
1960s-1970s
1980s-90s
2000s
•Low cost
•Transition
•Differentiation
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31. Changes in Competitive Position:
Haier (Chinese producer of white goods)
2000s
2010s
• Low Cost
• Transition to differentiation
• Has it worked (as per Samsung, LG,
2020s Acer, HTC)?
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32. 3. Why do we want to go there?
1. Change(s) taking place in the external
environment?
–
–
–
The macro-environment
The competitive environment
The market
2. The internal environment – i.e. Companyrelated considerations
3. Or combination of 1 and 2 above.
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33. 4. How will we get there?
• Organic growth
– the company growing through its own development on
new products/services;
– Market Consolidation
– Market Development
– Diversification
• External growth
–
–
–
–
Mergers and Acquisitions (Married) – very costly
Joint Ventures (Engaged) – less costly
Alliances (Dating) – no ownership stake, just partners
Licensing (social acquaintance) – low risk, payments
based upon market success
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34. 5. What are our main options in terms
of Grand Strategy Choice
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35. Choice of Grand Strategy and Ansoff’s Matrix
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