Daily Archives: March 21, 2020

Week 1 Ent 610

“Understanding Michael Porter” (2012) is a synopsis of his work over the years.  Already it has me intrigued and wishing to dig deeper not just into this book, which is an overview, but into his other work.  In the first couple of chapters, the author discusses “Porter’s Five Forces” and “Value Chain Analysis.”  Porter’s Five Forces is a tool to analyze the competitive situation of a business.  At the center of the five forces is existing competition.  Some companies are trying to be better than the competition by comparing similar products and services.  This reminds me of the old saying, “the definition of insanity is doing the same thing over and over.”  Generally, competition based on “being the best” leads to profit margin erosion.  By trying to be the best, a company will most likely reduce their profits because most of the time, products and services are similar.  Price is the only differentiating factor.  The other forces are “threats from new entries, bargaining power of suppliers, bargaining power of buyers, and substitutes.”

It is said that Michael Porter coined the term competitive advantage.  Being different from the competition is the method businesses use to differentiate themselves from other companies truly.  Value delivered to the customer is what will increase profit margins.  Whereas the five forces analyze a particular industry, value chain analysis discovers facts about the inner workings of a business to strategize a competitive advantage.

This is in stark contrast to the last book I read, “Blue Ocean Strategy” (2015).  Magretta references “Blue Ocean Strategy” in her book as not being similar to what Porter is proposing.  “Blue Ocean Strategy” suggests that a business needs to redefine the industry in which they are competing.  Changing an industry is a great strategy but not always practical.  Porter’s “Value Chain Analysis” finds ways to create profit in existing industries rather than reshape the business.  

The business I am researching is drone photography.  Being an emerging industry, using Porter’s methods of analysis, should reveal a lot of reading interesting information!

Magretta, J. (2012) Understanding Michael Porter, Harvard Business Review Press, Boston, MA

Kim, C. And Mauborgne, R. (2015), Blue Ocean Strategy, Harvard Business Review Press, Boston, MA