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Competitive Advantage

Competitive Advantage

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Published by: anu ranjan on Oct 02, 2009
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Michael Porter's Competitive Advantage
and Business History
Robert E. Ankli 1
University f Guelph
Strategicplanningas a formal discipline riginated n the 1960sand
early 1970s. t soon becamea fad, but faded equallyquicklywhen the
promisedsuccessesid not materialize See 3, 13, 14, and 17 for recent
examples]. apaneseuccessid not seem o depend n planning smuchas it did on quality, orporate ndnational ulture,and managementtself 12]. Yet the need or planning emains,or, asPeter Druckerremindsus:
Managementhas no choicebut to anticipate he future, toattempt o mold it, and to balanceshort-range nd long-rangegoals....The dea behind long-range planning is that [the
question] Whatshouldour business e?"can and shouldbe
worked n anddecided y tself, ndependentf thethinking n
"What is our business?" and "What will it be?" There is some
sense o this. It is necessaryn strategicplanning o startseparately ith all threequestions.What s thebusiness? hat
will it be? What should it be? These are, and should be
separateconceptual pproaches.With respect o "WhatshouM
our business e?" he first assumptionmustbe that it will be
Long-range lanning hould reventmanagersrom uncriticallyextending resent rends nto the future, from assuminghattoday's roducts, ervices, arkets, nd echnologiesill be the
products, ervices,markets, nd technologiesf tomorrow,and
aboveall, from dedicatingheir resources nd energieso the defense f yesterday2, pp. 121-2].As businessistoriansouwould,of course, greewith the lastsentence, ut
you might be wonderingwhy I think it necessaryo even repeat it.
Nevertheless do so for goodreason.1Iwouldike o thank risnwoodnd amesnghamorhelpfulomments.
BUSINESS AND ECONOMIC HISTORY, Second eries, olume wenty-one,992.
Copyright c) 1992by the Business istoryConference. SSN 0849-6825.
My interest n businessnd businessistory ollows he questionhat
Peter Drucker asks, Whatdo we have o do today o prepare or tomorrow?"Part of what we have to do is to understand ow we got to where we are
todayand herein iesmy interest n history, ut, like manyof you, am also deeply nterestedn the future and so try to read the current iterature nthis area. Thus, find MichaelPorter'swork useful. It mightseemstrange that a person ike myselfwouldbe giving ucha papersinceeachyear there are severalpeoplehere eachyear from Harvard who havebeen students and/or have workedwith Porter. Yet in the past coupleof years, haveasked everalnon-Harvard) eopleat thesemeetingsf theyhadread Porter andmost epliednegatively. think hat s a shame ecause e providesmany
tools for the business historian.
What ntriguesme aboutstrategic lannings that oneplans n a world in whichoutcomesre not certain, et manyof uswrite history s f we know
the outcome.Ghemawat,however,makes he commonsensebservationhat
successactors re a shaky oundationor strategy3, pp. 5-6]. The same
casecanbe made or writinghistory.Of course,we do know he outcomen
a certain sense,but, unlesswe are very careful, we will miss intriguingpossibilities r leadsbecausewe alreadyhave our hypothesis. With this explanationet us go on to look at Porter'swork.
Michael Porter is one of the hottest international)consultantsobusinessarms ndgovernments. is latestbook TheCompetitivedvantage of Nations10]hasbeencalled brilliant" y some nd"nothing ew"by others. While the mplicationsor present olicywill continueo be debated, orter's workdoesprovide he businessistorianwith a powerful aradigm ndsetof tools or consideringusinessn history.Why are some irmssuccessfulnd
othernot? Why do somenations eem o specializen certain ndustries ith lots of competitors, hile othernationsdo not seem o know hat an industry
exists?Porterprovides aysof thinking bout hese ypesof questions.This
paperwill look at his three books: Competitivetrategy11], Competitive
Advantage9], and The Competitivedvantage f Nations 10].
Porter's farst book Competitive trategy,published n 1980, is an
exhaustiveook at strategy.His contexts the worldof the late 1970s, ut the structurehat he setsout is a veryuseful vehicle or the businessistorian.
"Theessencef formulating ompetitivetrategys relating companyo its
environment"11,p. 3]. This s exactlywhat he businessistorian hould e
doing.2Theeasonsre hat t isusuallyifficulto dentifyuccessactorselevantoa particular
situation. Second, even when a success actor has been diagnosed o be relevant, theimplications or the leversmanagersmustpull are not completely oncrete. Third, the success
factor approach lacks generality because t implicitly assumes hat success actors areundervalued.Finally, n view of its other defects,t would be reassuringf the successactor
approach to strategy containedsome self-justification: a reason why strategic thinking is
necessaryn the first place. It doesnot2
The structuralanalysisof industriesncludesdescriptions f rivalry
among xisting ompetitors,he hreatof newentrants,he threatof substitute productor services,he bargaining owerof suppliers, nd the bargaining power of buyers.Figure 1 illustratesheserelationships. tartingwith the threat of new entrants,Porter considers arriers to entry which includeeconomies f scale,productdifferentiation, apital equirements, witching
costs, ccesso distribution hannels, ostdisadvantagesndependent f scale,
government olicy,and expectedetaliation.
The intensity f rivalryamongexisting ompetitors epends n thebalance f competitors,ndustry rowth,he sizeof fixedor storage osts,he
amountof differentiation r switching osts,he minimumsizeof investment,
the typesof competitors,he strategic takes, nd the size and type of exit
barriers. Substitute roducts ffer alternativesnd imit the sizeof profits.
Substituteslsodependon priceand the easeof switching osts.
The bargaining owerof buyers epends n the volumeof purchases
relative o the sellers apacity,he fractionof cost he purchaseepresents,he degreeof standardizationf the purchase,he level of switching osts, he
levelof profits, he threatof backwardntegration,ndthe importance f its
quality. The bargaining owerof suppliers irrors hat of buyers. Susan
Helper's "Competitive upplierRelations n the U.S. and JapaneseAuto

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