In his book, “Competitive Advantage,” in 1985, Porter conceptualized the concept of competitive advantage, by looking at two key aspects. Industry attractiveness, and the company’s strategic positioning. The latter, according to Porter, can be achieved either via cost leadership, differentiation, or focus.
Quick intro do generic strategies
As Porter was trying to conceptualize and break down what determined a competitive advantage for companies, within specific industries, Porter created a framework that would stick for decades.
This framework moved along two core sub-frameworks.
As he explained in the book, “competition is at the core of the success or failure of firms.”
Industry attractiveness could be analyzed through five core forces:
Once a company had clear in mind the context and industry, it needed to make a strategic choice, that for Porter was summarized in three core moves.
Be a cost leader, differentiator, focuser or die..
Within cost leadership, a company that for several factors (spanning from economies of scale to operational efficiency) managed to sell a product at a lower price and still make good profit margins, would sustain its long-term competitive advantage, is in a good strategic position.
On the other side, based on a different context a company could still reach a competitive advantage in a broad market through differentiation.
There is one scenario, that Porter emphasized to avoid: stuck in the middle.
Getting stuck in the middle
In all the cases in which a company wouldn’t be able to execute one of the generic strategies highlighted by Porter in competitive advantage, this would result in a stuck in the middle scenario, where no competitive advantage is created.
Other strategic frameworks by Porter
Other business strategy frameworks
- Porter’s Five Forces
- Competitive Advantage
- Business Strategy Frameworks
- Blue Ocean Strategy
- BCG Matrix
- Ansoff Matrix
- Profit Margins
- Competitive Moat