Competitive Advantage

The success or failure of any firm depends on competitive power — delivering the product at lower cost or offering unique benefits to the buyer that justifies a premium price. But exactly how does a company achieve cost leadership? And how does it differentiate itself from its rivals?

In an earlier book, Competitive Strategy, Michael E. Porter introduced his acclaimed techniques for analyzing industries and competitors. Now, in Competitive Advantage, Porter begins where Competitive Strategy left off. He describes how forms can actually create and sustain a competitive advantage in their industry. Competitive Advantage shows managers how to evaluate their competitive position and implement the specific action steps necessary to improve it.

This definitive work presents the concepts and the tools needed to create a competitive advantage in cost or differentiation. It shows how the choice of competitive scope — the breadth of a firm's activities — plays a leading role in creating competitive advantage. It also describes how corporate strategy can work in tandem with business-unit strategy to enhance competitive advantage by coordinating strategies for competing in related industries.

Competitive Advantage introduces a powerful tool that the strategist needs in order to diagnose and enhance competitive advantage: the value chain. Value-chain analysis allows the manager to separate the underlying activities a firm performs in designing, producing, marketing, and distributing its product or service. It is these activities from which competitive advantage ultimately stems. By showing how all the firm's activities can be examined in this integrated way, Porter provides a new and practical perspective on competitive strategy.

Using value-chain analysis, Porter shows:

• how to understand the behavior of costs, and how to create and sustain a cost advantage
• how to identify what creates value for the buyer and hence differentiation, and how to carry out a successful differentiation strategy
• how to choose a technological strategy that reflects the significance of the firm's technologies for competitive advantage as well as the benefits and costs of being a technological leader
• how to improve a firm's competitive position by identifying "good" and "bad" competitors, and to decide what market share and mix of competitors optimizes long-term profitability
• how to segment an industry, and formulate profitable and sustainable focus strategies based on that segmentation
• how to analyze the substitution threat in an industry and encourage or defend against substitution
• how to create competitive advantage through corporate strategy by harnessing interrelationships among related industries
• how to manage a diversified firm so that the resistance to achieving strategic interrelationships among business units can be overcome
• how to cope with strategic uncertainty, using industry scenarios to illuminate the range of possible future competitive environments
• how to defend a firm's competitive position when challenged, and how and when to attack an industry leader

Today's increasingly competitive business environment has already made Porter's Competitive Strategy required reading in top business schools and one of the best-selling business books of recent years. For managers who want to stay one step ahead, and who want specific guidelines for developing sound strategies and putting them into practice, Competitive Advantage is an indispensible reference for the 1980s.

1. Competitive Strategy: The Core Concepts
• The Structural Analysis of Industries
• Industry Structure and Buyer Needs
• Industry Structure and the Supply/Demand Balance
• Generic Competitive Strategies
• Cost Leadership
• Differentiation
• Focus
• Stuck in the Middle
• Pursuit of More Than One Generic Strategy
• Sustainability
• Generic Strategies and Industry Evolution
• Generic Strategies and Organizational Structure
• Generic Strategies and the Strategic Planning Process
• Overview of this Book
• Part I: Principles of Competitive Advantage
2. The Value Chain and Competitive Advantage
• The Value Chain
• Identifying Value Activities
• Defining the Value Chain
• Linkages within The Value Chain
• Vertical Linkages
• The Buyer's Value Chain
• Competitive Scope and the Value Chain
• Segment Scope
• Vertical Scope
• Geographic Scope
• Industry Scope
• Coalitions and Scope
• Competitive Scope and Business Definition
• The Value Chain and Industry Structure
• The Value Chain and Organizational Structure
3. Cost Advantage
• The Value Chain and Cost Analysis
• Defining the Value Chain for Cost Analysis
• Assigning Costs and Assets
• First Cut Analysis of Costs
• Cost Behavior
• Cost Drivers
• The Cost of Purchased Inputs
• Segment Cost Behavior
• Cost Dynamics
• Cost Advantage
• Determining the Relative Cost of Competitors
• Gaining Cost Advantage
• Sustainability of Cost Advantage
• Implementation and Cost Advantage
• Pitfalls in Cost Leadership Strategies
• Steps in Strategic Cost Analysis
4. Differentiation
• Sources of Differentiation
• Differentiation and The Value Chain
• Drivers of Uniqueness
• The Cost of Differentiation
• Buyer Value and Differentiation
• Buyer Value
• The Value Chain and Buyer Value
• Lowering Buyer Cost
• Raising Buyer Performance
• Buyer Perception of Value
• Buyer Value and the Real Buyer
• Buyer Purchase Criteria
• Identifying Purchase Criteria
• Differentiation Strategy
• Routes to Differentiation
• The Sustainability of Differentiation
• Pitfalls in Differentiation
• Steps in Differentiation
5. Technology and Competitive Advantage
• Technology and Competition
• Technology and The Value Chain
• Technology and Competitive Advantage
• Technology and Industry Structure
• Technology Strategy
• The Choice of Technologies to Develop
• Technological Leadership or Followership
• Licensing of Technology
• Technological Evolution
• Continuous Versus Discontinuous Technological Evolution
• Forecasting Technological Evolution
• Formulating Technological Strategy
6. Competitor Selection
• The Strategic Benefits of Competitors
• Increasing Competitive Advantage
• Improving Current Industry Structure
• Aiding Market Development
• Deterring Entry
• What Makes a "Good" Competitor?
• Tests of a Good Competitor
• "Good" Market Leaders
• Diagnosing Good Competitors
• Influencing the Pattern of Competitors
• Damaging Good Competitors in Battling Bad Ones
• Changing Bad Competitors into Good Ones
• The Optimal Market Configuration
• The Optimal Competitor Configuration
• Maintaining Competitor Viability
• Moving toward the Ideal Competitor Configuration
• Maintaining Industry Stability
• Pitfalls in Competitor Selection
• Part II: Competitive Scope Within an Industry
7. Industry Segmentation and Competitive Advantage
• Bases for Industry Segmentation
• Structural Bases for Segmentation
• Segmentation Variables
• Finding New Segments
• The Industry Segmentation Matrix
• Relationships among Segmentation Variables
• Combining Segmentation Matrices
• Industry Segmentation and Competitive Strategy
• The Attractiveness of a Segment
• Segment Interrelationships
• Segment Interrelationships and Broadly-Targeted Strategies
• The Choice of Focus
• The Feasibility of New Segments to Focus On
• The Sustainability of A Focus Strategy
• Pitfalls and Opportunities for Focusers and Broadly-Targeted Competitors
• Industry Segmentation and Industry
• Definition
8. Substitution
• Identifying Substitutes
• The Economics of Substitution
• Relative Value/Price
• Switching Costs
• Buyer Propensity to Substitute
• Segmentation and Substitution
• Changes in the Substitution Threat
• Substitution and Overall Industry Demand
• Substitution and Industry Structure
• The Path of Substitution
• Segmentation and the Substitution Path
• Substitution Forecasting Models
• Substitution and Competitive Strategy
• Promoting Substitution
• Defense Against Substitutes
• Industry Versus Firm Substitution Strategy
• Pitfalls in Strategy Against Substitutes
• Part III: Corporate Strategy and Competitive Advantage
9. Interrelationships among Business Units
• The Growing Importance of Horizontal Strategy
• Interrelationships among Business Units
• Tangible Interrelationships
• Sharing and Competitive Advantage
• The Costs of Sharing
• Difficulty of Matching
• Identifying Tangible Interrelationships
• Intangible Interrelationships
• Competitor Interrelationships
• Multipoint Competitors in Unrelated Industries
• Multipoint Competition in Related Industries
• Competitors with Different Patterns of Interrelationships
• Forecasting Potential Competitors
10. Horizontal Strategy
• The Need for Explicit Horizontal Strategy
• Formulating Horizontal Strategy
• Interrelationships and Diversification Strategy
• Diversification Based on Tangible Interrelationships
• Diversification Through Beachheads
• Diversification and Corporate Resources
• Pitfalls in Horizontal Strategy
• Pitfalls in Ignoring Interrelationships
• Pitfalls in Pursuing Interrelationships
11. Achieving Interrelationships
• Impediments To Achieving Interrelationships
• Sources of Impediments
• Interrelationships and Equity
• Differences in Impediments among Firms
• Organizational Mechanisms for Achieving
• Interrelationships
• Horizontal Structure
• Horizontal Systems
• Horizontal Human Resource Practices
• Horizontal Conflict Resolution Processes
• The Corporate Role in Facilitating Interrelationships
• Interrelationships and the Mode of Diversification
• Managing Horizontal Organization
• Promising Examples
• Japanese Firms and Interrelationships
• A New Organizational Form
12. Complementary Products and Competitive Advantage
• Control Over Complementary Products
• Competitive Advantages From Controlling Complements
• Problems of Controlling Complements
• Control Over Complements and Industry Evolution
• Identifying Strategically Important Complements
• Bundling
• Competitive Advantages of Bundling
• Risks of Bundling
• Bundled Versus Unbundled Strategies
• Bundling and Industry Evolution
• Strategic Implications of Bundling
• Cross Subsidization
• Conditions Favoring Cross Subsidization
• Risks of Cross Subsidization
• Cross Subsidization and Industry Evolution
• Strategic Implications of Cross Subsidization
• Complements and Competitive Strategy
• Part IV: Implications for Offensive and Defensive Competitive Strategy
13. Industry Scenarios and Competitive Strategy under Uncertainty
• Scenarios as a Planning Tool
• Industry Scenarios
• Constructing Industry Scenarios
• Identifying Industry Uncertainties
• Independent Versus Dependent Uncertainties
• Identifying a Set of Scenarios
• Consistency of Assumptions
• Analyzing Scenarios
• Introducing Competitor Behavior Into Scenarios
• The Number of Scenarios to Analyze
• Attaching Probabilities to Scenarios
• Summary Characteristics of Industry Scenarios
• Industry Scenarios and Competitive Strategy
• Strategic Approaches Under Scenarios
• Combined and Sequenced Strategies
• The Choice of Strategy Under Industry Scenarios
• Scenario Variables and Market Intelligence
• Scenarios and The Planning Process
• Corporate Role in Constructing Industry Scenarios
• Industry Scenarios and Creativity
14. Defensive Strategy
• The Process of Entry or Repositioning
• Defensive Tactics
• Raising Structural Barriers
• Increasing Expected Retaliation
• Lowering the Inducement for Attack
• Evaluating Defensive Tactics
• Defensive Strategy
• Deterrence
• Response
• Response to Price Cutting
• Defense or Disinvest
• Pitfalls in Defense
15. Attacking an Industry Leader
• Conditions for Attacking a Leader
• Avenues for Attacking Leaders
• Reconfiguration
• Redefinition
• Pure Spending
• Alliances to Attack Leaders
• Impediments To Leader Retaliation
• Signals of Leader Vulnerability
• Industry Signals
• Leader Signals
• Attacking Leaders and Industry Structure

A classical work. Worth reading for the techniques that are taught.