Professor Michael Porter's ideas on strategy are the foundation for modern strategy courses, and his work is taught at the Harvard Business School and at virtually every business school in the world.
Professor Porter’s current course at Harvard is a University-wide graduate course, Microeconomics of Competitiveness, which is also taught in partnership with more than 65 other universities from every continent using curriculum, video content and instructor support developed at the Institute.
Who is Michael Porter
Michael E. Porter is the Bishop William Lawrence University Professor, based at Harvard Business School.
A University professorship is the highest professional recognition that can be awarded to a Harvard faculty member.
In 2001, Harvard Business School and Harvard University jointly created the Institute for Strategy and Competitiveness, dedicated to furthering Professor Porter’s work.
Professor Porter, the author of 17 books and over 125 articles, is a leading authority on competitive strategy and the competitiveness and economic development of nations, states, and regions.
He received a B.S.E. with high honours in aerospace and mechanical engineering from Princeton University in 1969, where he was elected to Phi Beta Kappa and Tau Beta Pi.
He received an M.B.A. with high distinction in 1971 from the Harvard Business School, where he was a George F. Baker Scholar, and a Ph.D. in Business Economics from Harvard University in 1973.
Professor Michael Porter was born in Ann Arbor, Michigan, and has lived and travelled throughout the world as the son of a career Army officer.
He was an all-state high school football and baseball player.
At Princeton, he played intercollegiate golf and was named to the 1968 NCAA Golf All-American Team.
After graduating from college, Professor Porter served through the rank of captain in the U.S. Army Reserve. He maintains a long-time interest in the esthetics and business of music and art, having worked on the problems of strategy with arts organizations and aspiring musicians.
Professor Michael Porter serves as a trustee of Buckingham, Browne & Nichols, an independent school located in Cambridge, Massachusetts.
Professor Porter and his two daughters reside in Brookline, Massachusetts.
What Strategy is according to M Porter
Contribution to the Study of Strategy
Porter's 5 forces analysis is a framework for industry analysis and business strategy development developed by Michael E. Porter in 1979 of Harvard Business School.
It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the competitive intensity and therefore attractiveness of a market.
Porter referred to these forces as the microenvironment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace.
Strategy consultants use Porter's five forces framework when making a qualitative evaluation of a firm's strategic position. The framework is textbook material for modern business studies and therefore widely known.
Porter's Five forces include three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers, bargaining power of customers.
Global Competitiveness Report 2007 - Michael Porter
Interview with Professor Michael Porter for the World Economic Forum's Global Competitiveness Report 2007-2008
Each of these forces has several determinants:
The threat of substitute products
The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases (high elasticity of demand).
buyer propensity to substitute
relative price performance of substitutes
buyer switching costs
perceived level of product differentiation
The threat of new entrants
Profitable markets that yield high returns will draw firms. The results is many new entrants, which will effectively decrease profitability. Unless the entry of new firms can be blocked by incumbents, the profit rate will fall towards a competitive level (perfect competition).
the existence of barriers to entry (patents, rights, etc.) economies of product differences
switching costs or sunk costs
access to distribution
absolute cost advantages
learning curve advantages
expected retaliation by incumbents
The intensity of competitive rivalry
For most industries, this is the major determinant of the competitiveness of the industry. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc.
number of competitors
rate of industry growth
intermittent industry overcapacity
diversity of competitors
informational complexity and asymmetry
fixed cost allocation per value added
level of advertising expense
The Five Competitive Forces that Shape Strategy
An Interview with Michael E. Porter, Professor, Harvard University.
The bargaining power of customers
Also described as the market of outputs. The ability of customers to put the firm under pressure and it also the customer's affects the sensitivity to price changes.
buyer concentration to firm concentration ratio
buyer switching costs relative to firm switching costs
buyer information availability
ability to backward integrate
availability of existing substitute products
buyer price sensitivity
price of total purchase
The bargaining power of suppliers
Also described as market of inputs. Suppliers of raw materials, components, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for unique resources.
supplier switching costs relative to firm switching costs
degree of differentiation of inputs
presence of substitute inputs
supplier concentration to firm concentration ratio
threat of forward integration by suppliers relative to the threat of backward integration by firms
cost of inputs relative to selling price of the product
This 5 forces analysis is just one part of the complete Porter strategic models. The other elements are the value chain and the generic strategies.
Competitiveness Index: Where America Stands" is the flagship report of the Council on Competitiveness, which marked its 20th anniversary in 2006. The Index is unique because it evaluates two-decades worth of economic data, and offers the first in-depth assessment of the American competitiveness landscape since the terrorist attacks of September 11, 2001.