Book Review: Understanding Michael Porter (English Version)

Title                       : Understanding Michael Porter: The Essential Guide to Competition and Strategy

Author                  : Joan Magretta

Publisher             : Harvard Business Review Press (Desember 6, 2011)

Page                      : 256 Pages

ISBN                      : 978-1422160596

Price                      : $ 24.95

Reviewer             : Yudo Anggoro, School of Business and Management, Institut Teknologi Bandung

It has been three decades since Michael Porter known as a world class expert in competition and strategy. Most of the works from this Harvard Business School (HBS) Professor –competitive advantage, value chain, five forces- have been applied in many business cases in the world. But nobody has put the entire puzzle together as an integrated framework. This concise book is the first to do that.

Joan Magretta, the author of this book, has worked with Michael Porter for almost two decades. She is now a senior associate at the Institute for Strategy and Competitiveness at HBS, a McKinsey Award winner, and was a senior partner at Bain&Co, a leading management consulting firm. Magretta wrote this book based on her observations that many Porter’s frameworks were misunderstood and misapplied. As an example, many organizations believe that competition is about being the best. This misperception will only lead to an inevitable race to the bottom. This dangerous belief reflects a zero-sum game; if we win, our competitors destroyed.

In general, this book is divided into two parts; the first part explains about competition, and the last part talks about strategy in detail. Competition needs to be discussed earlier since strategy will never exist without competition. Misconceptions in understanding competition give rise to mistakes in strategy. The most common error is that competitive success comes from “being the best”. This false mindset is highly intuitive and self-destructive as well. Porter calls this misconception as the competition syndrome. The key to competitive success lies in an organization’s ability to create unique value. Creating value, not beating rivals, is at the heart of competition. Walmart can have superior performance without destroying Target. Walmart has its own uniqueness, and so does Target. True competition is a positive-sum game.

Strategy explains how an organization has superior performance in a competition. Porter offers five indicators to assess good strategy for organization. The first indicator is creating value to customers; this is the core of strategy. Porter defines the value proposition as the answer to three fundamental questions; which customers are you going to serve? Which needs are you going to meet? And which relative price will provide acceptable value for customers and acceptable profitability for the company? (Page 96). The second indicator of strategy is having uniqueness. A strategy will never be a meaningful strategy unless the set of activities to deliver is different from the activities performed by rivals. As an example, Southwest was the first airline to offer low cost carrier strategy. Southwest was not interested in following its competitors’ strategy to offer full treatment service to their passengers. Instead, Southwest customized all its activities to deliver frequent service at the lowest cost.

The third indicator of strategy probably is the most difficult, making trade-off. This indicator requires organization to choose not to serve certain customers in order to give better service to other customers. Organizations tend to believe that “more is always better.” More customers, more products, more services mean more sales and profits. Porter argues that trade-off reflects our true identity, and competitors are hard to imitate this strategy since every organization has different characteristics. The fourth indicator is fit, how the activities in the value chain relate to one another. As an example, IKEA is famously known in paying attention to its chain of activities; from product design, production, inventory, until sales, everything should be fit from one to another (Page 143). All those chain of activities are designed to give value added to the customers. The last indicator is continuity, whereby organization is required to innovate continuously to face tight competition and unpredictable environment.

It has been three decades since Porter launched his first phenomenal book, Competitive Strategy (1980), but Porter’s frameworks are still relevant until today. This reflects the visionary thinking from this competition and strategy maestro. All the examples in this book come from many industries in various backgrounds, indicating how big the influence Porter has made from his remarkable works.

(Published in SBM ITB Newsletter, May 2012)