Competitive Advantage

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The basis of performing above-average within an industry. Explanation of the CA (CA) model by Michael Porter.

Contents

  1. Summary
  2. Forum
  3. Best Practices
  4. Expert Tips
  5. Resources
  6. Print

According to the CA model of Porter, a competitive strategy takes offensive or defensive action to create a defendable position in an industry, in order to cope successfully with competitive forces and generate a superior Return on Investment. According to Michael Porter, the basis of above-average performance within an industry is sustainable CA.


2 basic types of CA

  1. Cost Leadership (low cost)
  2. Differentiation

Both can be more broadly approached or narrow, which results in the third viable competitive strategy:

  1. Focus

CA type 1: Cost Leadership

  • Achieving Cost Leadership means that a firm sets out to become the low cost producer in its industry.
  • A cost leader must achieve parity or at least proximity in the bases of differentiation, even though it relies on cost leadership for its CA.
  • If more than one company try to achieve Cost Leadership, this is usually disastrous.
  • Often achieved by economies of scale.

CA type 2: Differentiation

  • Achieving of Differentiation means that a firm seeks to be unique in its industry along some dimensions that are widely appreciated  by buyers.
  • A differentiator can not ignore its cost position. In all areas that do not affect its differentiation it should try to decrease cost; in the differentiation area the costs should at least be lower than the price premium it receives from the buyers.
  • Areas of differentiation can be: product, distribution, sales, marketing, service, image, etc.

CA type 3: Focus

  • Achieving Focus means that a firm sets out to be best in a segment or group of segments.
  • 2 variants: Cost Focus and Differentiation Focus.

Stuck in the middle

  • This is usually a recipe for below-average profitability compared to the industry.
  • Still, attractive profits are possible if and as long as the industry as a whole is very attractive.
  • Manifestation of lack of choice.
  • Especially dangerous for Focusers that have been successful, and then start neglecting their focus. They must seek other Focus niches. Rather then compromise their focus strategy.

Overview of the Book "Competitive Strategy"

  • In Part I, Porter discusses the structural analysis of industries (with the five forces), the three generic competitive strategies (overall Cost Leadership, Focus, and Differentiation), offering an excellent framework for competitor analysis, competitive moves, strategy toward buyers and suppliers, structural analysis within industries (strategic groups, strategic mapping, mobility barriers), and industry evolution (life cycle, evolutionary processes).
  • In Part II, Porter discusses competitive strategy within various generic industry environments. Such as: fragmented industries (with no real market leader), emerging industries, mature industries, declining industries, and global industries.
  • In Part III, Porter discusses strategic decisions which businesses/firms can take. Such as: vertical integration (forward, backward, partnerships), capacity expansion, and entry into new industries/businesses.

Book: Michael E. Porter - Competitive Strategy -

Book: Michael E. Porter - Competitive Advantage -


Competitive Advantage Forum
  Why are Firms Different? Why Successful Firms Differ?
It is an obvious fact that firms differ. However, ...
     
 
  What are the Risks of a Differentiation Strategy?
What are the risks involved when using differentia...
     
 
  Successful Companies: Only Three Rules Needed?
Raynor and Ahmed did a statistical study of a larg...
     
 
  Focus your Efforts in Building Competitive Advantage
In any given company, there are hundreds of fields...
     
 
  Cost and Value in Analysis of Competitive Advantage: 2 Sides of the Same Coin?
COST and VALUE are words used to identify the same...
     
 
  Competitive Advantage or Die?
To all the sharks out there who seem to have misse...
     
 
  Case studies in "Cost Leadership"
Are there any recent case studies to demonstrate h...
     
 
  Competitive Advantage in a Monopolistic Market?
Can Porter's competitive advantage work in monopol...
     
 
  Life Cycle Approach to Competitive Advantage
Rita Gunther McGrath and Ian C. MacMillan in MITSl...
     
 
  Health/Fitness Club Industry Analysis
I am the Marketing consultant of a Health & fitnes...
     
 
  4 Stages of Hypercompetition
D'Aveni argues sustainable competitive advantage i...
     
 
  Knowledge Management more important than CA
An authentic -that means, in simple words: not eas...
     
 

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Best Practices - Competitive Advantage Premium
  Weaknesses of Porter's Three Basic Types of Competitive Advantage
Mouillot (2013) argues that although Porter's thre...
     
 
  How Can Logistics Help to Achieve a Competitive Advantage?
How can logistics (transport, warehousing, custome...
     
 
  What is Competitive Advantage?
Is it in simple terms "to be better than your comp...
     
 
  Changing from a Cost Leadership Strategy Into Differentiation
I'm wondering how enterprises which have a cost le...
     
 
  10 Routes to Competitive Advantage
In todays lean, time starved world, competitive ad...
     
 
  Competition versus Cooperation
Porter has undermined society with his over-emphas...
     
 
  Competitive Advantage in Tough Times
Does need to change, in tough times, imply that on...
     
 
  Stuck in the Middle?
Why is getting stuck in the middle (=mixing the 3 ...
     
 

Expert Tips - Competitive Advantage Premium
 

Sustained Competitive Advantage

As claimed by M. Porter the only way to sustain...
Usage (application): Industry Competitiveness
 
 
 

Not Generic Strategies...:

All the following categeories are NOT generic s...
Usage (application): Pseudo Strategies!
 
 
 

Differentiation and 5 Forces

A differentiation strategy usually requires consis...
Usage (application): Influence of Differentiation
 
 
 

Low-Cost Strategy

The main Risks of a Low-Cost Strategy are:<...
Usage (application): Pitfalls
 
 
 

Focus Strategy

The main Risks of a Focus Strategy are:
...
Usage (application): Pitfalls
 
 
 

Differentiation Strategy

Differentiation strategies tend to work best in fo...
Usage (application): When to apply
 
 
 

Extreme Customer Trust as a Source of Competitive Advantage

Many companies are already highlighting the import...
Usage (application): Competitive Advantage, CRM, Customer Loyalty, Customer Intimacy
 
 
 

The Key Role of Strategists in Creating Competitive Advantage

Most organizational performance theories assume th...
Usage (application): Business Strategy, Corporate Strategy, Competitive Advantage, Strategy Education
 
 
 

Knowledge as Competitive Advantage

In an interview of Tomas Friedman to Hani Iskander...
Usage (application): The New Form of Advantange
 
 
 

Factors to Create a Sustainable Competitive Advantage

In HBR article “What is strategy”, Nov-Dec 1996, M...
Usage (application): Porter's SCA Factors
 
 

Resources - Competitive Advantage Premium

How to Sustain Competitive Advantage?

This presentation is about the question how a comp...
Usage (application): Business Strategy, Sustaining Competitive Advantage, Sustainable Competitive Advantage,
 

The Role of Value Chain Functions, Quality Management and Innovation in Competitive Advantage

This presentation firstly presents the role of ...
Usage (application): Value Chain Management, Quality Management, Innovation, Operational Excellence
 

How Businesses can Use Information Technology (IT) in Strategic Ways

This presentation looks at Information Technology ...
Usage (application): Strategic Management, Information Technology
 

Competitor Analysis

Presentation by G.M.H. Broekema about competitor a...
Usage (application): External Strategic Analysis
 

Introduction to Competitive Strategy: The 3 Circle Model

Prof. Joe Urbany goes to the heart of Competitive ...
Usage (application): Initial Understanding of Competitive Strategy
 

Porter's Industrial Organization Versus Barney's Resource Based View

This presentation compares Porter's competitive ad...
Usage (application): Business Strategy, Value Chain Management
 

Developing a (Sustainable) Competitive Advantage

This presentation outlines how to develop a busine...
Usage (application): Competitive Advantage, Sustainable Competitive Advantage, SCA, CA
 

Porter: Misconceptions about Strategy and Competitive Advantage

Prof. M. Porter mentions some big mistakes when pe...
Usage (application): Understanding Strategy and (Sustainable) Competitive Advantage
 

Competitive Advantage Diagram

Download and edit this 12manage PowerPoint graphic...
Usage (application): Strategy
 
 

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Compare with CA: Value Chain  |  Value Disciplines  |  Parenting Advantage  |  Positioning  |  Core Competence  |  Rule of Three  |  Strategic Types  |  Delta Model  |  BCG Matrix  |  Growth Phases  |  Distinctive Capabilities  |  Acquisition Integration Approaches  |  Diamond Model  |  Relative Value of Growth  |  Experience Curve  |  Twelve Principles of the Network Economy  |  Blue Ocean Strategy


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