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On Competition, Updated and Expanded Edition Hardcover – September 9, 2008
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On Competition, a collection of works by Michael E. Porter, is a critical examination of the dog-eat-dog international economy. A Harvard Business School professor, Porter is one of the most respected and innovative economists of his time. Author of 15 books, he advises key elected officials and business leaders in all parts of the world. On Competition features 13 of his best articles over the past 15 years, including 2 new ones. The essence of Porter's message is that every company, country, and person must master competition to thrive in brutal international and domestic economies. Competition is the key to excellence. Worried about losing your job or your services becoming obsolete? Porter believes that a little fear is good for everyone. "Companies that value stability, obedient customers, dependent suppliers and sleepy competitors are inviting inertia and, ultimately, failure," he writes in his 1990 study and essay "The Competitive Advantage of Nations." Porter is a longtime critic of the short-term thinking on Wall Street that often stifles competition and hurts the economy. In "Capital Disadvantage: America's Failing Capital Investment System," he calls for much lower capital-gains rates for people who invest for the long term. He also urges investors and businesses to start thinking together. He contends that pension funds and institutional investors should get a greater say over the companies they own. It's wacky to have company directors with little expertise or financial interest in the company, he writes.
Porter is often unconventional and asserts that businessmen must be, too. In his essay "Green and Competitive," he shows little sympathy for businesses that complain about environmental regulations. Rules to protect the environment don't have to strangle companies--they can actually improve productivity with the right attitude and approach. Rhone-Poulenc, a French chemical and drug company, proved this when it stopped incinerating a certain byproduct and began selling it as an additive for dyes and tanning. Readable and provocative, On Competition is vital for business, government, and financial leaders as well as small-business people and investors. --Amazon.com, by Dan Ring, 1998 Review of the original edition
Twenty years of studying industry performance and competitiveness have convinced Porter, a professor at the Harvard Business School and a noted authority on competition and corporate strategy, that a successful company must not only adopt the best practices available but also differentiate itself from its rivals. In 13 essays, some of which have appeared elsewhere, Porter elegantly lays out a sophisticated analytical framework for assessing the challenges firms face in today's business environment. Although Porter offers no magic formula for success, as a starting point for developing a long-term strategy, he does recommend close scrutiny of "factor conditions," "demand conditions," other competing and supporting industries and existing strategies and structures. Porter shows how companies have bested international competitors by forging integrated global strategies, operating with a long-term outlook, investing aggressively and managing factories carefully. He has also come to see the growing importance of geographical location to specific companies and celebrates the benefits of clustersAsystems of interconnected firms and institutionsAfor increased productivity and innovation. On the societal level, Porter's work, with its emphasis on long-term planning, brings a welcome new perspective to perennially thorny policy issues such as environmental protection, inner-city development and universal access to health care. While this book requires a serious investment of time and effort, its expert dissection of a very complex phenomenon is worth it. Line drawings throughout.
Copyright 1998 Reed Business Information, Inc. --Publishers Weekly's 1998 Review of the original edition
A highly respected academic and authority on strategy and competition, Porter draws together his articles on competition, which together provide a rigorous and useful framework for bridging the gap between theory and practice. The book has three sections. The first takes on competitive strategy, evaluating strategies and weaknesses for business, while the second addresses the role of location in competition experienced by government entities. Porter notes that prosperity in both companies and countries depends on the nature of the local environment in which the competition takes place. With an understanding of domestic and international competition, part 3 offers insight into such societal issues as urban poverty, health care, and income inequality. Porter concludes that competition is certain to be evolving, unsettling, and the source of our prosperity. --Booklist's 1998 Review of the original edition
About the Author
Michael E. Porter is the Bishop William Lawrence University Professor at Harvard Business School. He is the author of seventeen books and numerous articles.
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Following his "The Five Forces that Shape Strategy" chapter, Porter continues by pointing out that many firms lose their way over time, adding product lines, product extensions, even new new businesses that make it difficult to understand what is underlying strategy is. Reconnecting can be helped by answering questions such as Which of our offerings is the most profitable, distinctive? and Which our customers are most profitable? A company's history can also be instructive - What was the founder's vision?, What were the products and customers that made the company.
Losing sight of strategy often occurs through becoming caught up in the race of operational excellence, and managers mistaking 'customer focus' to mean they must serve all customer needs or respond to every request from distributors. However, the desire to grow has the most perverse effect on strategy. Extending product lines, adding new features, making acquisitions all broaden the position. Porter points out that Maytag, for example, expanded into refrigerators and stoves and acquired other brands with disparte positions (Jenn-Air, Admiral, Magic Chef). Maytag sales grew to about 5X from '85 levels by '94, but its return on sales dropped from 8-12% to less than 1% before being was acquired by Whirlpool. (Porter notes that Maytag was faced with homogenization through shared design, distribution and/or customer service, or for-going any advantage of its acquisitions.) Similarly, Neutrogena expanded into products such as eye-makeup remover, shampoo) where it was not unique, and ended up diluting its image.
Porter conducted an extensive longitudinal analysis of large firms and their acquisitions, concluding that they mostly destroyed shareholder value. The most obvious instances involved acquisitions in weak industries with low records of return on investment. An even more obvious strategy doomed to fail - paying a premium. Reasons for making acquisitions include obtaining a market premium for stabilizing earnings (if accomplished), taking advantage of restructuring opportunities (a 1-time benefit), transferring expertise (G.M.'s rationale for buying Hughes Aircraft and its electronic skills), or sharing activities (eg. distribution). It would have been particularly interesting to learn Porter's thoughts on recent auto acquisitions (Mercedes-Benz of Chrysler, Ford of Jaguar and Volvo, G.M. of Hummer, Saab), but this section preceding those happenings.
A likely surprise for new CEOs is learning that they cannot run the firm's day-to-day operations. Symptoms include becoming buried in meetings, becoming a bottleneck, people using the CEO's name to validate positions (eg. "Chuck thinks . . ."), staff overly trying to please the CEO.
The updates, while not qualifying as a total re-write, definitely freshened and extended the material in important ways. Chapters 7 (Clusters and Competition: New Agendas for Companies, Government, and Institutions) and 8 (Competing Across Locations: Enhancing Competitive Advantage Through a Global Strategy) were especially good in their explication of the implications of clusters and their impact on competitive advantage.
The material in Parts III (Competitive Solutions to Social Problems) and IV (Strategy, Philanthropy, and Corporate Social Responsibility) was new to me and I found it to be extremely worthwhile. These chapters reflect what I think of as essential Porter, which is applying his deep understanding of competition rooted in economics to complex problems and coming up with innovative solutions.
In summary, whether you have read Michael Porter's earlier books or not, you should read this book. Michael Porter's writing is, to use Deming's term, "profound knowledge" on competition that everyone should be familiar with.