Competitive Advantage
(Porter)

The basis of performing above-average within an industry. Explanation of Competitive Advantage of Michael Porter.

According to the Competitive Advantage model of Porter, a competitive strategy takes offensive or defensive action to create a defendable position in an industry, in order to cope successfully with competitive forces and generate a superior Return on Investment. According to Michael Porter, the basis of above-average performance within an industry is sustainable competitive advantage.

2 basic types of Competitive Advantage

Cost Leadership (low cost)
Differentiation

Both can be more broadly approached or narrow, which results in the third viable competitive strategy:

Focus

Competitive Advantage type 1: Cost Leadership

Achieving Cost Leadership means that a firm sets out to become the low cost producer in its industry.
A cost leader must achieve parity or at least proximity in the bases of differentiation, even though it relies on cost leadership for its competitive advantage.
If more than one company try to achieve Cost Leadership, this is usually disastrous.
Often achieved by economies of scale.

Competitive Advantage type 2: Differentiation

Achieving of Differentiation means that a firm seeks to be unique in its industry along some dimensions that are widely appreciated by buyers.
A differentiator can not ignore its cost position. In all areas that do not affect its differentiation it should try to decrease cost; in the differentiation area the costs should at least be lower than the price premium it receives from the buyers.
Areas of differentiation can be: product, distribution, sales, marketing, service, image, etc.

Competitive Advantage type 3: Focus

Achieving Focus means that a firm sets out to be best in a segment or group of segments.
2 variants: Cost Focus and Differentiation Focus.

Stuck in the middle

This is usually a recipe for below-average profitability compared to the industry.
Still, attractive profits are possible if and as long as the industry as a whole is very attractive.
Manifestation of lack of choice.
Especially dangerous for Focusers that have been successful, and then start neglecting their focus. They must seek other Focus niches. Rather then compromise their focus strategy.

Overview of the Book "Competitive Strategy"

In Part I, Porter discusses the structural analysis of industries (with the five forces), the three generic competitive strategies (overall Cost Leadership, Focus, and Differentiation), offering an excellent framework for competitor analysis, competitive moves, strategy toward buyers and suppliers, structural analysis within industries (strategic groups, strategic mapping, mobility barriers), and industry evolution (life cycle, evolutionary processes).
In Part II, Porter discusses competitive strategy within various generic industry environments. Such as: fragmented industries (with no real market leader), emerging industries, mature industries, declining industries, and global industries.
In Part III, Porter discusses strategic decisions which businesses/firms can take. Such as: vertical integration (forward, backward, partnerships), capacity expansion, and entry into new industries/businesses.

Book: Michael E. Porter - Competitive Strategy -

Book: Michael E. Porter - Competitive Advantage -

Competitive Advantage Forum (20)

Focus your Efforts in Building Competitive Advantage
"In any given company, there are hundreds of fields where you can improve. The key thing to do is to determine the value of taking certain measures / developing certain strategies in various fields.
In other words: what to go for?
1. Regarding market: try to find the lose brick in the wall. Competitors aren't stupid, but there are always moves possible for you where they cannot follow that easily without destroying their business model. Try to find these lose bricks.
2. Archimedean point in an organization. Every organization is different. There are many arbitrage support points. Find the two or three ones where you can intervene with the least effort to gain maximum results and focus on these."

How Can Logistics Help to Achieve a Competitive Advantage?
"How can logistics (transport, warehousing, customer service, inventory control) contribute to a Competitive Advantage (CA) of an company? Thanks for your ideas..."

Cost and Value in Analysis of Competitive Advantage: 2 Sides of the Same Coin?
"COST and VALUE are words used to identify the same quality, but from different viewpoints. The producer/manufacturer concentrates on cost, while the consumer/customer looks at value.
From this analysis comes the amazing range of products that are, essentially, the same - from motor vehicles to orange juices.
It is important that we consider competitive advantage in the same manner - from the viewpoint of both the manufacturer and customer.
By doing this, does the quality aspect become an essential element in the identification of competitive advantage?"

What are the Risks of Each of Porter's 3 Types of Competition?
"What are the main risks associated with each of Porter's 3 types of competition: cost leadership, differentiation and focus? Thanks beforehand for sharing your ideas..."

Competitive Advantage or Die?
"To all the sharks out there who seem to have missed the point of cooperation, sharpen your swords and keep them so!"

What is Competitive Advantage?
"Is it in simple terms "to be better than your competitors"? Is this correct?"

Changing from a Cost Leadership Strategy Into Differentiation
"I'm wondering how enterprises which have a cost leadership strategy turn into a differentiation strategy. Please advise."

10 Routes to Competitive Advantage
"In todays lean, time starved world, competitive advantage is the way forward. I have produced the following 10 routes to competitive advantage to simplify the process especially for the small business owner. 1. People. 2. Method. 3.Procurement. 4. Design. 5. Exploit Technology. 6.Continuous Improvement. 7. Location. 8. Service. 9. Brand. 10, You. For further reference see advantee.com "

Case studies in "Cost Leadership"
"Are there any recent case studies to demonstrate how firms can compete on the basis of cost leadership?"

Competitive Advantage in a Monopolistic Market?
"Can Porter's competitive advantage work in monopolistic markets, such as utility companies where the product they sell is unique (water or electricity) and can't be sold by other parties?"

Competition versus Cooperation
"Porter has undermined society with his over-emphasis on competition. Co-operation should be the driver of business and progressive companies are seeing this and ditching competition and Porter."

Life Cycle Approach to Competitive Advantage
"Rita Gunther McGrath and Ian C. MacMillan in MITSloan Management Review Vol 50 No 3 mention the term Transient Competitive Advantage. I looked up the term "transient" and it means "valid for a limited time". The authors see Competitive Advantage not as an ON/OFF phenomenon (in which you either have a competitive advantage or you don't) but as a wave following a kind of product life cycle, with following phases: Launch, Ramp up, Exploitation and Erosion.
During the wave your competitive advantage varies in strength: it is weak in the beginning (launch and ramp up) then strong (exploitation) and then declining again (erosion)."

Health/Fitness Club Industry Analysis
"I am the Marketing consultant of a Health & fitness club in Maseru, the capital city of Lesotho. Within a radius of about 10 kilomitres, there are two more fitness clubs. I would like to get the guidelines on how to conduct my analysis as I want my club to remain the market leader!"

Competitive Advantage in Tough Times
"Does need to change, in tough times, imply that one has to do things different or different things? In times of tough business circumstances, the core of change mgt is best translated in a return to basics, to your USP’s: Make all co-workers aware of what you are best in; re-invent core competences; be critical on all activities that add no value for your customers: cut these costs; be sure that you provide a product, service that is unmistakable appreciated by your customers: provide clear above average price-performance; communicate without reserve your added values to all your business relations and your staff.
This approach of change mgt in tough times, is core to CUSOE: improve customer satisfaction & operate excellent. It implies that smart and effective work are mainstream, that customer value = return on investment is leading, that operational excellence = efficient work processes and minimized defects result in both cost savings and a positive effect on satisfaction for employees.
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Porter's Generic Strategy
"I believe that the idea being propounded by Porter can work to a very large extent. It can also promote the growth of many companies but I believe such research should be conducted on the African terrain to help emerging African businessmen especially those of us in the universities. The prices of the books makes it difficult for those of us in Africa to have access to them. I believe online access too should be provided in the African sub-region."

4 Stages of Hypercompetition
"D'Aveni argues sustainable competitive advantage is not really possible. He shows a mechanism that causes faster and faster erosion of competitive positions. D'Aveni's four stages of hypercompetition:
1) Advantage based on differentiation (quality) > gets eroded and price wars begin;
2) Advantage based on raising barriers to entry > gets eroded by outflanking and niching by more flexible competitors;
3) Advantage based on know-how > eventually gets eroded as technology moves on (Schumpeter);
4) Advantage based on deep pockets (mergers, acquisitions, market power) > eventually fails as pockets get emptied in the attempt to fend off aggressive competition."

Stuck in the Middle?
"Why is getting stuck in the middle (=mixing the 3 types of competitive advantage) so problematic? Could an intelligent mix of these 3 be preferable?"

Sustainable Competitive Advantage
"Competitive advantage is distinct from sustainable competitive advantage!
The latter persists because it is hard to imitate."

Knowledge Management more important than CA
"An authentic -that means, in simple words: not easy to be copied- Competitive Advantage in the contemporary -that means: complex and continously changing- environment can be only achieved by the continuous Development of Knowledge in every organizational level. Hence the main duty of managers is to contribute to the creation of the proper conditions that allow this Knowledge to be developed. The willingness of managers to learn new things is the first, and most essential, step. Porter's Competitive Advantage Model is a simple theoretical construction, with little use. From the point of view that if every firm in an industry follows his model, then every kind of competition will disappear."

Quotes Competitive Advantage
"Do you know some deep, famous or funny quotes on Competitive Advantage? Quotations? Proverbs? Please share them as a reaction to this posting and mention the author. To get started, here's my favorite: 'Advantage is a better soldier than rashness.' - William Shakespeare 1564-1616, English dramatist"

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