Michael Porter - Founder of Monitor Strategy (Harvard, HBS)

Michael Porter fleet the Institute of strategy and competitiveness at Harvard Business School

Joan Magretta worked with him for 2 decates, a Partner of Bain.

Porter is the evolution of Peter Drucker since he lived on a more competite industry moment.

Part 1: Key Strategic Insights

Part 2: What Is Strategy?

5 Tests Every Good Strategy Must Pass

1. Distinctive Value Proposition - Single ideal competitive position
2. Tailored Value Chain
3. Trade-offs Different from Rivals
4. Fit Across the Value Chain
5. Continuity Over Time

1 & 2 - Creating Value: The Core

A distinctive value proposition only translates into a meaningful strategy if the activities required to deliver it are different from those of rivals.

• The value proposition is the element of strategy that looks outward to customers (demand side), while the value chain focuses internally on operations (supply side). Strategy integrates both sides, bringing demand and supply together.
• Value propositions are typically based on customer needs that appeal to a mix of customers, often going beyond traditional demographic segmentation.

• The first test of strategy is whether your value proposition is different from your rivals'. If you are serving the same customers, meeting the same needs, and selling at the same price, then you do not have a strategy (according to Porter's definition).
• Choices in the value proposition that limit what a company will do are essential because they create the opportunity to tailor activities in ways that deliver the targeted value effectively.

3- Trade-offs: The Linchpin

The third test of strategy may be the hardest: making trade-offs means accepting limits, such as saying no to some customers in order to better serve others.

• Say no: A crucial part of strategy is being selective about what you do.
• Trade-offs are the strategic equivalent of a fork in the road—if you take one path, you cannot simultaneously take the other.
• If you have a clear strategy, you should be able to link it directly to your P&L.
• Trade-offs are choices that make strategies sustainable because they are difficult for competitors to match or neutralize.
• When you try to offer something for everyone, you tend to relax the trade-offs that underpin your competitive advantage, which can ultimately weaken your position.

4- Fit: The Amplifier

The fourth test of strategy is fit.

• Fit relates to how the different activities in the value chain are interconnected and support each other.
• Good strategies rely on the connection among various activities and on making choices that are mutually reinforcing.
• Fit means that the value or cost of one activity is influenced by how other activities are performed.
• A common mistake in strategy is choosing the same core competencies as everyone else in the industry, which reduces differentiation.

5- Continuity: The Enabler

Porter's fifth test of strategy addresses the risk of changing too much and in the wrong ways. It takes time to develop a real competitive advantage, understand the value you create, and achieve tailoring, trade-offs, and fit.

• Continuity in strategy will change your perception of change itself—it’s crucial for companies to understand that stability is key for long-term success.
• Continuity of strategy does not mean standing still; as long as there is stability in the core value proposition, there can and should be significant innovation in how it's delivered.
• Great strategies are rarely built on precise predictions of the future; they rely more on solid principles that withstand different market conditions.
• Deliberate and explicit strategy setting becomes more important, especially during times of change and uncertainty.

Formulation of Strategy

After analyzing the Five Forces, the corporate strategist can identify the company's strengths and weaknesses and create an effective plan of action, which may include:

1. Positioning the Company:
• Position the company so that its capabilities provide the best defense against the competitive forces.
2. Influencing the Balance of Forces:
• Use strategic moves to influence the balance of the forces, thereby improving the company's competitive position.
3. Anticipating Shifts:
• Anticipate shifts in factors underlying the competitive forces and create strategies to respond to these changes effectively.

Highlights:

• Unique Competition: Focus on being unique rather than just the best.
• Five Forces Framework: Analyze industry dynamics to understand profitability.
• Value Chain: Differentiate your activities to achieve competitive advantage.
• Five Tests of Good Strategy: Ensure your strategy passes tests like distinctive value, tailored value chain, and continuity.
• Trade-offs & Fit: They are critical for making strategies sustainable and impactful.