Competitive Strategy by Michael E. Porter

Competitive Strategy by Michael E. Porter; Competitive Advantage by Michael E. Porter Review by: William B. Gartner The Academy of Management Review, Vol. 10, No. 4 (Oct., 1985), pp. 873-875 Published by: Academy of Management Stable URL: http://www.jstor.org/stable/258056 . Accessed: 20/03/2014 14:31 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp

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agement Function Fails. California Management Review, 26(4), 95-110.

ing the deterministic influences of the population ecology perspective (Aldrich, 1979; McKelvey, 1982). Porter conceived his ideas within the context of industrial economics. He presents these ideas in a manner that is easy to understand. There are no mathematical formulas, no supply and demand curves, and he always provides an example from an actual business situation to support a point of view. Since Porter does not engage in the flights of obtuseness of most microeconomists, or overburden the reader with references to the academic literature in industrial economics, he develops some very interesting and compelling ideas about industry structure and the nature of competition and makes a powerful case for the usefulness of his ideas for strategic decision makers. At the center of each book is a framework upon which Porter builds more complicated and elaborate ideas about industries and competition among firms. An industry is defined loosely as "the group of firms producing products that are close substitutes for each other" (p. 5). In Conmpetitive Strategy, where he addresses the question of industry structure and its influence on profitability of firms, Porter describes a framework of the structure of an industry comprised of five competitive forces: suppliers, buyers, substitutes, potential entrants, and industry rivals. Industry attractiveness, that is, the profitability of all the firms competing in the industry, will be a product of the influences of the five forces. Porter analyzes how particular characteristics of each of the five forces will influence industry attractiveness. For example, suppliers to an industry will exert powerful influences on an industry's attractiveness if the suppliers do not have to contend with other substitute products for sale to the industry. Porter identifies three generic strategies (overall cost leadership, differentiation, and focus) by which firms in an industry may attempt to gain a competitive advantage over their rivals. He presents various techniques for using the industry framework for analyzing industries and for determining competitive moves of industry rivals, recognizing market signals, identifying strategic groups, and recognizing changes in an industry's structure over time (industry evolution).

Miles, R. E., & Snow, C. C. (1984) Designing Strategic Human Resources Systems. Organizational Dynamics, 13, 36-52. Mintzberg, H. (1973) A new look at the chief executive's job. Organizational Dynamics, 1(3), 20-30. Peters, L. H., & O'Connor, E. J. (1980) Situational constraints and work outcomes: The influences of a frequently overlooked construct. Academy of Management Review, 5, 391-397. Snell, S. A., & Wexley, K. N. (1985, April) Performance diagnosis: Identifying the causes of poor performance. Personnel Administrator, 117-127.

Competitive Strategy, by Michael E. Porter. New York: Free Press, 1980, 396 pp., $19.95 cloth. Competitive Advantage, by Michael E. Porter. New York: Free Press, 1985, 557 pp., $23.95 cloth. Reviewed by William B. Gartner, Georgetown University, School of Business Administration, Washington, D.C. Two central questions underlie the choice of competitive strategy. The first is the attractiveness of industries for long term profitability and the factors that determine it. Not all industries offer equal opportunity for sustained profitability, and the inherent profitability of its industry is one essential ingredient in determining profitability of a firm. The second central question in competitive strategy is the determinants of relative competitive position within an industry. In most industries, some firms are much more profitable than others, regardless of what the average profitability of the industry may be. (Porter, 1985, pp. 1-2).

These two questions are the focus of Porter's books. While it was Porter's intention to orient the books toward the practitioner, they both offer many theories about the nature of strategic choice in an environmental context and should be of great interest to scholars in strategic management, organizational theory and behavior, particularly those individuals who believe that strategic choice exists (Child, 1972) while also recogniz873

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corporate strategies for firms diversified into many different industries, and offensive and defensive strategies. Both books are rich in ideas. The appeal and power of the books come from Porter's frameworks, which can hold on to so many different ideas in a coherent manner and show their interrelations. The frameworks are highly useful tools for organizing our thoughts and experiences about competition of firms within industries. The frameworks will continue to gain in strength as both practitioners and scholars work with them. One will find it very helpful to think through and assimilate the concepts in both books by using Porter's case book (Porter, 1983). The case book provides details for most of the excellent examples which Porter uses in the other two books. The teaching manual, particularly, presents an excellent "logic in process" and shows how Porter thinks through his ideas and how they help to clarify specific situations in industry. Both books make accessible some of the ideas originating in the industrial economics literature, though Porter does not provide references to ground his ideas in the literature. Readers who want an introduction to industrial economics should look at Greer (1984) and Scherer (1980). Porter's books overflow with ideas which cry out to be borrowed and put to further use. These ideas (given proper recognition) should be copied, modified, revised, and expanded. The ideas are not systematically supported, that is, the examples and illustrations are selected to support the ideas Porter provides. A suspicion is that other examples might be found to make the counterargument and this could lead to some excellent studies. And ideas presented in each chapter of Porter's books could become the bases of many dissertation topics. Starting with Porter's propositions about the behavior of firms and industries, one could build expert systems to assist in generating competitive strategies for specific industry and firm situations. For example:

Porter uses the industry framework and the generic strategies to develop many interesting ideas about what he terms the "generic industry environments": fragmented industries, emerging industries, mature industries, declining industries, and global industries. He goes on to discuss three important strategic choices facing firms: vertical integration, capacity expansion, and entry into new businesses. The framework and the methods for analyzing industries provide powerful conceptual techniques that many individuals have found useful. For example, Kiechel (1981) found: Businessmen are already making use of Porter's notions. Indeed, when an executive at a truckmanufacturingconcern was asked recently about the plans for his company, he replied simply, 'Read Chapter 12 of Porter's book.' Its title: 'Competitive Strategy in Declining Industries.' The advice: attain a leadership position and encourage others to leave, or else be ready to liquidate your investment quickly. (p. 184) Appendix B, "How to Conduct an Industry Analysis," is especially useful for applying many of the ideas in Competitive Strategy, particularly as a guide for directing students in analyzing industries. Competitive Advantage uses the industry framework from Competitive Strategy as a jump off point for developing ideas about how firms attain competitive positions within an industry. Porter posits that a firm's competitive position, its competitive advantage, is the "value a firm is able to create for its buyers that exceeds the firm's cost of creating it" (p. 3). He presents a new framework for analyzing a firm's comparative advantage labeled "the value chain," which is comprised of the primary activities of: inbound logistics, operations, outbound logistics, marketing and sales, and service; and the support activities of: firm infrastructure, human resource management, technology development, and procurement which span across all five of the primary activities. Using the value chain framework, he then goes on to explore how firms use the three generic strategies (overall cost leadership, differentiation, focus) to create and sustain a comparative advantage. The remainder of the book is a melding of the industry framework ideas and the value chain framework ideas to address such issues as: the role of competitor selection, industry segmentation, determinants of substitution,

A buyer group is powerful if the following circumstances hold true: It is concentrated or purchases largevolumes relative to seller sales. . . The products it purchases from the industry represent a significant fraction of the buyer's costs or purchases.. . The products it purchases from the industry are standardor undifferentiated.... The 874

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industry's product is unimportant to the quality of the buyers' products or services. .. It faces few

Child, J. (1972) Organizational structure, environment and performance: The role of strategic choice. Sociology, 6, 1-22.

switching costs. (Porter, 1980, pp. 24-25.)

Since the propositions are a series of "if-then" statements that are somewhat causally linked to each other in a complex fashion, these "rules" for competitive behavior could be modeled and tested (Hayes-Roth, Waterman, & Lenat, 1983). A single disappointment with both of these books is their somewhat myopic or selective view of the strategic management literature. No recognition of other views of strategic typologies was given, though many thoughtful, empirically generated studies have been undertaken (Miller and Friesen, 1984; Miles and Snow, 1978). Given that the books are practitioner oriented, one might excuse this as simply a decision to omit lengthy or boring discussion of the academic literature. Yet Porter does discuss the literature generated by the Harvard Business School, and he does this very much to the exclusion of the literature developed at other schools, inclusion of which could have improved these books. This is particularly the case for Chapter 13 in Competitive Advantage, "Industry Scenarios and Competitive Strategy under Uncertainty." Porter presents some rather weak scenario building strategies, yet he had only to look across the Charles River to see that M.I.T. has been studying scenario building (system dynamics) for the last twenty years, and has developed a very rich literature on this subject. As an introduction to scenario building for industry settings, readers might look at Forrester (1961) and Lyneis (1980). A very good example of applying system dynamics to understanding complex situations is Hall's analysis of the Saturday Evening Post (Hall, 1976). A simple yet powerful methodology for building scenarios for policy issues is available in Hall (1978). Yet, even though there are few specified connections (a couple of footnotes would have sufficed) to the strategic management and industrial economics literature, Porter's two frameworks (industry structure and value chain), will become central methods by which we explore the nature of organization behavior in environmental contexts.

Forrester, J. W. (1961) Industrial dynamics. Cambridge, MA: The MIT Press. Greer, D. F. (1984) Industrial organization and public policy. (2nd ed.). New York: Macmillan. Hall, R. I. (1976) A system pathodology of an organization: The rise and fall of the old Saturday Evening Post. Administrative Science Quarterly, 21, 185-211. Hall, R. I. (1978) Simple techniques for constructing explanatory models of complex systems for policy analysis. Dynamics,

4, 101-114.

Hayes-Roth, F., Waterman, D. A., & Lenat, D. B. (Eds.) (1983) Building expert systems. Reading. MA: Addison-Wesley. Kiechel, W. III. (1981) Three (or four, or more) ways to win. Fortune, 104 (8), 181-188. Lyneis, J.M. (1980) Corporate planning and policy design: A system dynamics approach. Cambridge, MA: The MIT Press. McKelvey, B. (1982) Organizational systematics. Berkeley, CA: University of California Press. Miles, R. E., & Snow, C. C. (1978) Organizational strategy, structure, and process. New York: McGraw-Hill. Miller, D., & Friesen, P. (1984) Organizations: A quantum view. Englewood Cliffs, NJ: Prentice-Hall. Porter, M. E. (1983) Cases in competitive strategy. New York: The Free Press. Scherer, F. M. (1980) Industrial market structure and economic performance (2nd ed.). Boston: Houghton Mifflin.

Strategic Management of Industrial R&D, edited by Barry Bozeman, Michael Crow, and Albert Link. Lexington, MA: Lexington Books, 1984, 227 pp., $25.00. Reviewedby WarrenB. Brown,GraduateSchool of Management,Universityof Oregon,Eugene, Oregon. The managementof industrial technology clearlyhas become a majorarea of interestfor academicsandpracticingmanagersalike.A wide varietyof currentconcernslie behind this phenomenon,all connectedto technologicaldevelopments:for example, the increasedattention paid to economicdevelopmentand job creation at the nationallevel; the increasedcompetition frominternational firms;thefrequentproductand marketshiftsbuffetingindividualfirms;and the

References Aldrich, H. E. (1979) Organizations and environ-nents. Englewood Cliffs, NJ: Prentice-Hall.

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