Management And Accounting Web

Porter, M. E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. The Free Press.

Preface, Introduction, and Links to Chapter Summaries 1-16

Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

Strategy Main Page | Balanced Scorecard Main Page

Note: The following summaries should be useful to anyone interested in learning more about competitive strategy, and particularly useful to CMA's who want to obtain IMA's new CSCA (Certified in Strategy and Competitive Analysis).

Preface

Porter explains how the book grew out of his research and teaching at the Harvard Business School, the motivation for the book, and also mentions the groups and individuals who helped make the book possible. His motivation for the book was essentially the lack of research addressed to the concerns of business managers and the subsequent need for more information and analytical techniques to help practitioners and scholars understand competition and competitive strategy.

Introduction

Wheel of Competitive Strategy

Every firm has a competitive strategy although some strategies are implicit rather than explicit. However, there are significant benefits available to firms that engage in the explicit process of developing a strategy. This book presents a comprehensive framework for analyzing a firm's industry, its competitors, and its own position so that it can develop a competitive strategy.

Part I provides a framework for analyzing the structure of an industry (five competing forces), and its competitors.

Part II shows how to develop a competitive strategy using the framework described in Part I.

Part III completes the framework by examining various types of strategic decisions such as vertical integration, capacity expansion, and entering new businesses.

Porter provides four figures to illustrate and review the classic approach to the formulation of strategy. Figure 1-1, shows what he refers to as the wheel of competitive strategy. The hub shows the firm's goals, mission, or objectives. The spokes represent the firm's key operating policies. Like a wheel, the policies (spokes) must be connected to each other and reflect the goals of the firm (the hub).

Figure 1-2 includes the four factors that determine what the firm can successfully accomplish. On the left hand side, the firm's strengths and weaknesses are related to its assets and skills. These together with the personal values of the firm's key members (implementers) determines the limits to competitive strategy from an internal perspective. On the right-hand side, the industry environment together with broad societal factors (government policy, social concerns, etc.) determines the firm's external limits.

Context in which Competitive Strategy is Formulated

Figure 1-3 provides a list of questions to test the firm's goals and policies for internal consistency (e.g., Are the goals mutually achievable?), environmental fit (e.g., Do the goals and policies exploit industry opportunities), resource fit (e.g., Do the goals and policies match the resources available to the firm relative to competitors), and communication and implementation (Are the goals well understood by the key implementers?).

Figure 1-4 provides three main groups of questions related to the process of formulating a competitive strategy.

Group A: What is the business doing now? (Identification, and assumptions).

Group B: What is happening in the environment? (Industry, competitors, societal, and strengths and weaknesses).

Group C: What should the business be doing? (Test assumptions and strategy, strategy alternatives, strategic choice).

The purpose of the book is to show how to answer these questions.

Part I. General Analytical Techniques

Chapter 1: The Structural Analysis of Industries. (Summary).

Chapter 2: Generic Competitive Strategies (Summary).

Chapter 3: A Framework for Competitor Analysis (Summary)

Chapter 4: Market Signals (Summary)

Chapter 5: Competitive Moves (Summary)

Chapter 6: Strategy Toward Buyers and Suppliers (Summary)

Chapter 7: Structural Analysis Within Industries (Summary)

Chapter 8: Industry Evolution (Summary)

Part II: Generic Industry Environments

Chapter 9: Competitive Strategy in Fragmented Industries (Summary)

Chapter 10: Competitive Strategy in Emerging Industries (Summary)

Chapter 11: The Transition to Industry Maturity (Summary)

Chapter 12: Competitive Strategy in Declining Industries (Summary)

Chapter 13: Competition in Global Industries (Summary)

Part III: Strategic Decisions

Chapter 14: The Strategic Analysis of Vertical Integration (Summary)

Chapter 15: Capacity Expansion (Summary)

Chapter 16: Entry into New Businesses (Summary)

Appendix A: Portfolio Techniques in Competitor Analysis

Porter discusses the key elements of two portfolio analysis techniques: The growth/share matrix, and the position/industry attractiveness screen.

Appendix B: How to Conduct an Industry Analysis

A discussion related to collecting and analyzing two kinds of data about industries: Published data, and data gathered from interviews.

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