Understanding Michael Porter The Essential Guide to Competition and Strategy
This week’s reading was about competitive advantage and profit and loss. I have always viewed competitive advantage as being what you or your company did better than everyone else that set you apart. According to the book, it is about creating superior value. It’s about operating at a lower cost or demanding a higher price to demand the most profit.
When trying to determine or measure competitive advantage you must compare it to like companies within the same industry. Compare companies that face the same five forces in the same industry. To truly understand the competitive advantage you must understand the activities that your company performs. These activities include producing, designing, selling and delivering. These are all part of the value chain. The value chain is how you create value in your product from start to customer or consumer. You look at each step in the value chain as adding value to the final product. The way your company looks at these steps is what can set you apart from your competitors. You may be able to perform a step the same as the competitor at a cheaper price or do the step better at the same price. Porter refers to performing a task better than your rivals operational effectiveness.
The company’s value chain is all of its value-creating and cost-generating activities. These activities are the basic units of competitive advantage. As we look at our own business, it is important to examine all the activities and possibly do them differently than our rivals, do them cheaper than our rivals, demand a higher price than our rivals, and be unique.
Magretta, J. (2012). Understanding Michael Porter: the essential guide to competition and strategy. Boston, Mass: Harvard Business Review Press.