Michael Porter

Last updated

Michael Porter
Michael Porter.jpg
Porter in 2017
Born
Michael Eugene Porter

(1947-05-23) May 23, 1947 (age 76)
Ann Arbor, Michigan, US
Academic career
Alma mater
Contributions Porter hypothesis
Porter's five forces [1]
Porter's four corners model
Website www.isc.hbs.edu

Michael Eugene Porter (born May 23, 1947) [2] is an American academic known for his theories on economics, business strategy, and social causes. He is the Bishop William Lawrence University Professor at Harvard Business School, and was one of the founders of the consulting firm The Monitor Group (now part of Deloitte) and FSG, a social impact consultancy. He is credited for creating Porter's five forces analysis, which is instrumental in business strategy development at present. He is generally regarded as the father of the modern strategy field. [3] He is also regarded as one of the world's most influential thinkers on management and competitiveness as well as one of the most influential business strategists. [4] [5] His work has been recognized by governments, non governmental organizations and universities. [6]

Contents

Early life

Michael Porter's father was a civil engineer and Georgia Tech graduate who had also gone on to a career as an army officer. Michael Eugene Porter received a BSE with high honors in aerospace and mechanical engineering from Princeton University in 1969, where he graduated first in his class and was elected to Phi Beta Kappa and Tau Beta Pi. He received an MBA with high distinction in 1971 from Harvard Business School, where he was a George F. Baker Scholar, and a PhD in business economics from Harvard University in 1973.

His family moved around the United States, as well as to France and Canada, which exposed him to diverse cultures and economic environments. This nomadic lifestyle of his childhood, in combination with his academic training, led Porter to develop a keen interest in understanding the economic development of regions and countries. He was particularly intrigued by the differences in economic outcomes and competitiveness across different regions, and he sought to understand the underlying factors that contributed to these disparities.

Porter's interest in economic development led him to develop the concept of the "diamond" model of national competitive advantage, which highlights the interplay between a country's factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. This framework has been widely adopted by policymakers and businesses alike to understand the factors that contribute to a country's economic success.

In addition to his academic work, Porter has also been a consultant to numerous governments and businesses, providing them with guidance on how to improve their competitiveness and promote economic growth. He has also been involved in several initiatives aimed at promoting sustainable economic development, such as the creation of the Initiative for a Competitive Inner City, which seeks to promote economic growth in poor urban areas.

Overall, Porter's childhood experiences of moving around the world, coupled with his academic training and consulting work, have greatly influenced his interest in understanding the economic development of regions and countries. His contributions to the field of economics have had a significant impact on both theory and practice, and his work continues to shape our understanding of what drives economic growth and competitiveness.

Porter said in an interview that he first became interested in competition through sports. He was on the NCAA championship golf squad at Princeton and also played football, baseball and basketball growing up. [7]

Porter credits Harvard professor Roland "Chris" Christensen with inspiring him and encouraging him to speak up during class, hand-writing Porter a note that began: "Mr. Porter, you have a lot to contribute in class and I hope you will." Porter reached the top of the class by the second year at Harvard Business School. [7]

At Harvard, Porter took classes in industrial organization economics, which attempts to model the effect of competitive forces on industries and their profitability. This study inspired the Porter five forces analysis framework for analyzing industries. [7]

Career

Michael Porter is the author of 20 books and numerous articles including Competitive Strategy, Competitive Advantage, Competitive Advantage of Nations, and On Competition. A six-time winner of the McKinsey Award for the best Harvard Business Review article of the year, Professor Porter is the most cited author in business and economics. [8]

Porter stated in a 2010 interview: "What I've come to see as probably my greatest gift is the ability to take an extraordinarily complex, integrated, multidimensional problem and get arms around it conceptually in a way that helps, that informs and empowers practitioners to actually do things." [7]

Outside In approach also known as Market Based View/Prescriptive approach which falls under the competitive positioning schools of thought are taught through using Porter's Five Forces model, Porter's Generic Strategies and Porter's Value Chain frameworks. During his illustrious career, he has emphasized the fact that strategy should not be merely chosen based on the majority of votes in a popularity contest and instead termed the essence of strategy is about making choices. [9] [10] He has delivered public speaking based on the importance of strategy formulation and has served as a consultant to many governments and NGOs devising strategy formulations.

Competition among nations

Competitive Advantage

Porter wrote "The Competitive Advantage of Nations" in 1990. The book is based on studies of ten nations and argues that a key to national wealth and advantage was the productivity of firms and workers collectively, and that the national and regional environment supports that productivity. [11] He proposed the "diamond" framework, a mutually-reinforcing system of four factors that determine national advantage: factor conditions; demand conditions; related or supporting industries; and firm strategy, structure and rivalry. Information, incentives, and infrastructure were also key to that productivity. [12]

During April 2014, Porter discussed how the United States ranks relative to other countries on a comprehensive scorecard called "The Social Progress Index", an effort which he co-authored. [13] This scorecard rated the U.S. on a comprehensive set of metrics; overall, the U.S. placed 16th. [14]

Michael Porter defined the two ways in which an organization can achieve competitive advantage over its rivals: cost advantage and differentiation advantage. Cost advantage is when a business provides the same products and services as its competitors, albeit at a lesser cost. Differentiation advantage is when a business provides better products and services as its competitors. In Porter's view, strategic management should be concerned with building and sustaining competitive advantage. [15] He originally developed the Porter's Five Forces in 1979 which is still widely used as a model to analyse the industry and to estimate whether it would be profitable and ideal enough to enter the industry after carefully examining the bargaining power of buyers, bargaining power of suppliers, threat of new entrants, competition among existing firms and threat of substitutes. [16] He first wrote and published about Porter's Five Forces in a 1979 article How Competitive Forces Shape Strategy and has further explained about the Five Forces in his 1980 article Competitive Strategy: Techniques for Analyzing Industries and Competitors. [17]

Porter introduced the concept of competitive advantage in 1985 which later went onto become one of the key concepts in management science at present. [18] He also published a book titled Competitive Advantage: Creating and Sustaining Superior Performance in order to explain the concept of competitive advantage and the book which later went onto become a bestseller also focuses on value chain concept. [19]

Value chain

It was Porter who first coined and introduced the concept of value chain analysis which was another groundbreaking idea that changed the dynamics of how business activities are conducted. [20]

Healthcare

Porter has devoted considerable attention to understanding and addressing the pressing problems in health care delivery in the United States and other countries. His book, Redefining Health Care (written with Elizabeth Teisberg), develops a new strategic framework for transforming the value delivered by the health care system, with implications for providers, health plans, employers, and government, among other actors. The book received the James A. Hamilton award of the American College of Healthcare Executives in 2007 for book of the year. His New England Journal of Medicine research article, "A Strategy for Health Care Reform –Toward a Value-Based System" (July 2009), lays out a health reform strategy for the U.S. His work on health care is being extended to address the problems of health care delivery in developing countries, in collaboration with Dr. Jim Yong Kim, Dr. Kevin J. Bozic, and others at the Harvard Medical School and Harvard School of Public Health.

Consulting

In addition to his research, writing, and teaching, Porter is an advisor to business, government, and the social sector. He has been a strategy advisor to numerous U.S. and international companies, including Caterpillar, Procter & Gamble, [21] Scotts Miracle-Gro, Royal Dutch Shell, and Taiwan Semiconductor. The Instituto de Estudios Superiores de Administración of Venezuela was influenced under the guidance of Professor Porter, taught American business administration. Porter once was on two public boards of directors, those of Thermo Fisher Scientific and Parametric Technology Corporation.[ citation needed ] He also plays a role in U.S. economic policy, working with the Executive Branch and with Congress, and has led national economic-strategy programs in numerous[ quantify ] countries. As of 2009 he was working with the presidents of Rwanda and South Korea.

In 1983, Porter co-founded the Monitor Group, a strategy-consulting firm. Deloitte Consulting acquired the Monitor Group in 2013 through a structured bankruptcy proceeding. [22]

Non-profit

Michael Porter has founded four major non-profit organizations: Initiative for a Competitive Inner City – ICIC, founded in 1994, [23] and which he still chairs, [24] which addresses economic development in distressed urban communities; the Center for Effective Philanthropy, which creates rigorous tools for measuring foundation effectiveness; FSG Social Impact Advisors, a leading non-profit strategy firm which he co-founded with Mark Kramer, [25] serving NGOs, corporations, and foundations in the area of creating social value; and International Consortium for Health Outcomes Measurements (ICHOM), which he co-founded in 2012 with Stefan Larsson and Martin Ingvar. ICHOM supports the key strategic agenda items in Porter's Value-Based Health Care Delivery framework by working with patients and leading healthcare providers to create a global standard for measuring health outcomes. [26] He also currently serves on the Board of Trustees of Princeton University.

Honors and awards

In 2000, Michael Porter was appointed Bishop William Lawrence University Professor at Harvard, the university's highest recognition awarded to Harvard faculty. [27]

Criticisms

Porter's work has received critique from peers within academia for inconsistent logical argument in his assertions. [28] Porter's conclusions have been critiqued as "lacking in empirical support" and as "justified with selective case studies". In these analysis of his work it is asserted that Porter fails to credit original creators of his postulates originating from pure microeconomic theory. [8] [29] [30] [31]

Legacy

He has written numerous books on modern competitive strategy for business. [32] His research work in strategic management has often been an important subject matter as far as the university system is concerned. His concepts and theories with regards to strategic management are given utmost priority in universities and colleges where his theories such as Porter's Five Forces, Porter's Diamond model, Porter's Generic Strategies and Porter's Value Chain are taught by lecturers and professors to the students. The assignments delegated to students often test how Porter's Five Forces and Porter's Diamond model can be used practically in making effective decisions when implementing appropriate and well thought out strategies.

Work

Competitive strategy

US political competitiveness

Domestic health care

Global health care

Books and commentaries

See also

Related Research Articles

Strategy is a general plan to achieve one or more long-term or overall goals under conditions of uncertainty. In the sense of the "art of the general", which included several subsets of skills including military tactics, siegecraft, logistics etc., the term came into use in the 6th century C.E. in Eastern Roman terminology, and was translated into Western vernacular languages only in the 18th century. From then until the 20th century, the word "strategy" came to denote "a comprehensive way to try to pursue political ends, including the threat or actual use of force, in a dialectic of wills" in a military conflict, in which both adversaries interact.

In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization operates. Strategic management provides overall direction to an enterprise and involves specifying the organization's objectives, developing policies and plans to achieve those objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision-making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models can include a feedback loop to monitor execution and to inform the next round of planning.

In business, a competitive advantage is an attribute that allows an organization to outperform its competitors.

Competitive analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats. Profiling combines all of the relevant sources of competitor analysis into one framework in the support of efficient and effective strategy formulation, implementation, monitoring and adjustment.

<span class="mw-page-title-main">Porter's five forces analysis</span> Framework to analyse level of competition within an industry

Porter's Five Forces Framework is a method of analysing the operating environment of a competition of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness of an industry in terms of its profitability. An "unattractive" industry is one in which the effect of these five forces reduces overall profitability. The most unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit levels. The five-forces perspective is associated with its originator, Michael E. Porter of Harvard University. This framework was first published in Harvard Business Review in 1979.

<span class="mw-page-title-main">SWOT analysis</span> Business planning and analysis technique

SWOT analysis is a strategic planning and strategic management technique used to help a person or organization identify Strengths, Weaknesses, Opportunities, and Threats related to business competition or project planning. It is sometimes called situational assessment or situational analysis. Additional acronyms using the same components include TOWS and WOTS-UP.

Porter's generic strategies describe how a company pursues competitive advantage across its chosen market scope. There are three/four generic strategies, either lower cost, differentiated, or focus. A company chooses to pursue one of two types of competitive advantage, either via lower costs than its competition or by differentiating itself along dimensions valued by customers to command a higher price. A company also chooses one of two types of scope, either focus or industry-wide, offering its product across many market segments. The generic strategy reflects the choices made regarding both the type of competitive advantage and the scope. The concept was described by Michael Porter in 1980.

Marketing strategy is an organization's promotional efforts to allocate its resources across a wide range of platforms and channels to increase its sales and achieve sustainable competitive advantage within its corresponding market.

In strategic management, situation analysis refers to a collection of methods that managers use to analyze an organization's internal and external environment to understand the organization's capabilities, customers, and business environment. The situation analysis can include several methods of analysis such as the 5C analysis, SWOT analysis and Porter's five forces analysis.

A strategic group is a concept used in strategic management that groups companies within an industry that have similar business models or similar combinations of strategies. For example, the restaurant industry can be divided into several strategic groups including fast-food and fine-dining based on variables such as preparation time, pricing, and presentation. The number of groups within an industry and their composition depends on the dimensions used to define the groups. Strategic management professors and consultants often make use of a two dimensional grid to position firms along an industry's two most important dimensions in order to distinguish direct rivals from indirect rivals. Strategy is the direction and scope of an organization over the long term which achieves advantages for the organization while business model refers to how the firm will generate revenues or make money.

Global strategy as defined in business terms is an organization's strategic guide to globalization. Such a connected world, allows a business's revenue to not be to be confined by borders. A business can employ a global business strategy to reap the rewards of trading in a worldwide market.

The resource-based view (RBV), often referred to as the "resource-based view of the firm", is a managerial framework used to determine the strategic resources a firm can exploit to achieve sustainable competitive advantage.

Within international business, the diamond model, also known as Porter's Diamond or the Porter Diamond Theory of National Advantage, describes a nation's competitive advantage in the international market. In this model, four attributes are taken into consideration: factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. According to Michael Porter, the model's creator, "These determinants create the national environment in which companies are born and learn how to compete."

Hypercompetition, a term first coined in business strategy by Richard D’Aveni, describes a dynamic competitive world in which no action or advantage can be sustained for long. Hypercompetition is a key feature of the new global digital economy. Not only is there more competition, there is also tougher and smarter competition. It is a state in which the rate of change in the competitive rules of the game are in such flux that only the most adaptive, fleet, and nimble organizations will survive. Hypercompetitive markets are also characterized by a “quick-strike mentality” to disrupt, neutralize, or moot the competitive advantage of market leaders and important rivals.

Richard A. D'Aveni is an American academic, thought leader, business consultant, bestselling author and the Bakala Professor of Strategy at the Tuck School of Business at Dartmouth College. He is best known for creating a new paradigm in business strategy and coining the term “hypercompetition” which led Fortune to liken him to a modern version of Sun Tzu.

Competitive heterogeneity is a concept from strategic management that examines why industries do not converge on one best way of doing things. In the view of strategic management scholars, the microeconomics of production and competition combine to predict that industries will be composed of identical firms offering identical products at identical prices. Deeper analyses of this topic were taken up in industrial organization economics by crossover economics/strategic-management scholars such as Harold Demsetz and Michael Porter. Demsetz argued that better-managed firms would make better products than their competitors. Such firms would translate better products or lower prices into higher levels of demand, which would lead to revenue growth. These firms would then be larger than the more poorly managed competitors.

Creating shared value (CSV) is a business concept first introduced in a 2006 Harvard Business Review article, Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility. The concept was further expanded in the January 2011 follow-up piece entitled Creating Shared Value: Redefining Capitalism and the Role of the Corporation in Society. Written by Michael E. Porter, a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School, and Mark R. Kramer, of the Kennedy School at Harvard University and co-founder of FSG, the article provides insights and relevant examples of companies that have developed deep links between their business strategies and corporate social responsibility (CSR). Porter and Kramer define shared value as "the policies and practices that enhance the competitiveness of a company while simultaneously advancing social and economic conditions in the communities in which it operates", while a review published in 2021 defines the concept as "a strategic process through which corporations can turn social problems into business opportunities".

Capability management is the approach to the management of an organization, typically a business organization or firm, based on the "theory of the firm" as a collection of capabilities that may be exercised to earn revenues in the marketplace and compete with other firms in the industry. Capability management seeks to manage the stock of capabilities within the firm to ensure its position in the industry and its ongoing profitability and survival.

<span class="mw-page-title-main">Jay Barney</span> American professor (born 1954)

Jay B. Barney is an American professor in strategic management at the University of Utah.

<span class="mw-page-title-main">Strategic competitiveness</span>

Strategic competitiveness is accomplished when a firm successfully integrates a value-creating strategy. The key to having a complete value-creating strategy is to adopt a holistic approach that includes business strategy, financial strategy, technology strategy, marketing strategy and investor strategy. The objective of the firm has to be based on creating value in an efficient way because it is the starting point for all businesses and it will generate profit after cost. Eric Beinhocker, the Executive Director of the Institute for New Economic Thinking at the Oxford Martin School, University of Oxford, says in his book The Origin of Wealth that the origin of wealth is knowledge. Knowledge does not have to be perceived as an assumption, or as an external factor. It has to be in the heart of the business. For this reason, the value-creating strategy must include a thorough knowledge of each area of the company in order to develop a competitive advantage.

References

  1. ↑ Porter, Michael (January 1, 2008). "The Five Competitive Forces That Shape Strategy" . Harvard Business Review.
  2. ↑ date & year of birth, full name according to LCNAF CIP data
  3. ↑ Ascend, H. B. R. (September 21, 2017). "The job of a leader is just to keep learning, says Harvard's Michael Porter". mint. Retrieved October 10, 2022.
  4. ↑ Schawbel, Dan. "Michael E. Porter on Why Companies Must Address Social Issues". Forbes. Retrieved October 10, 2022.
  5. ↑ Weinreb, James Epstein-Reeves and Ellen (September 25, 2013). "Michael Porter: coining vital business strategies for sustainability". the Guardian. Retrieved October 10, 2022.
  6. ↑ "Michael E. Porter - Faculty & Research - Harvard Business School". www.hbs.edu. Retrieved October 10, 2022.
  7. 1 2 3 4 Kiechel, Walter (2010). The Lords of Strategy. Harvard Business Press. ISBN   978-1-59139-782-3.
  8. 1 2 Aktouf, Omar (January 24, 2008). "The False Expectations of Michael Porter's Strategic Management Framework". Gestão & Planejamento – G&P. 1 (11). Retrieved January 27, 2019– via revistas.unifacs.br.
  9. ↑ Warsia, Noor Fathima. "The Essence Of Strategy Is Making Choices: Michael E Porter". BW Businessworld. Retrieved October 10, 2022.
  10. ↑ Denning, Stephanie. "The Collapse Of Strategy And Its Implications". Forbes. Retrieved October 10, 2022.
  11. ↑ Porter, Michael E. (March 1, 1990). "The Competitive Advantage of Nations". Harvard Business Review. ISSN   0017-8012 . Retrieved October 10, 2022.
  12. ↑ Porter, Michael E. Porter (1990). The Competitive Advantage of Nations. Free Press. ISBN   978-0-684-84147-2.
  13. ↑ "Michael Porter on GPS: Is the U.S. #1?" . Retrieved January 27, 2019.
  14. ↑ "2018 Social Progress Index". 2018 Social Progress Index. Retrieved January 27, 2019.
  15. ↑ Porter, Michael E. (1985). Competitive Advantage. Free Press. ISBN   978-0-684-84146-5.
  16. ↑ "Analyzing the Competition with Porter's Five Forces - businessnewsdaily.com". Business News Daily. Retrieved October 10, 2022.
  17. ↑ "'Five Forces' That Make or Break Consumer Brands". Practical Ecommerce. August 26, 2021. Retrieved October 10, 2022.
  18. ↑ Francis, Abey (March 18, 2016). "Market-Based and Resource-Based Theories of Competitive Advantage". MBA Knowledge Base. Retrieved October 10, 2022.
  19. ↑ Porter, Michael E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press. ISBN   978-0-02-925090-7.
  20. ↑ "What Is Value Chain Analysis and How Do You Use It?". Business News Daily. Retrieved October 10, 2022.
  21. ↑ Playing to Win: How Strategy Really Works. Harvard Business Review Press. February 5, 2013.
  22. ↑ Compare: Prasad, Sakthi (November 8, 2012). "Monitor Company files for Chapter 11; Deloitte to buy assets". Market news. Reuters. Reuters. Retrieved June 17, 2018. U.S. consulting and advisory firm Monitor Company Group and its affiliates filed for Chapter 11 bankruptcy protection, court documents showed, and said it has agreed to sell its assets to global consultancy firm Deloitte.
  23. ↑ "Initiative for a Competitive Inner City".
  24. ↑ Initiative for a Competitive Inner City, Board, accessed 9 December 2019
  25. ↑ FSG, Our People, accessed 10 December 2019
  26. ↑ "Affiliated organizations institutions".
  27. ↑ Colvin, Geoff (October 29, 2012). "There's No Quit in Michael Porter". Fortune . 166 (7): 162–166.
  28. ↑ Sharp, Byron; Dawes, John (1996), "Is Differentiation Optional? A Critique of Porter's Generic Strategy Typology," in Management, Marketing and the Competitive Process, Peter Earl, Ed. London: Edward Elgar.[ ISBN missing ]
  29. ↑ Speed, Richard J. (1989), "Oh Mr Porter! A Re-Appraisal of Competitive Strategy," Marketing Intelligence and Planning, 7 (5/6), 8–11.
  30. ↑ Yetton, Philip, Jane Craig, Jeremy Davis, and Fred Hilmer (1992), "Are Diamonds a Country's Best Friend? A Critique of Porter's Theory of National Competition as Applied to Canada, New Zealand and Australia," Australian Journal of Management, 17 (No. 1, June), 89–120.
  31. ↑ Allio, Robert J. (1990), "Flaws in Porter's Competitive Diamond?," Planning Review, 18 (No. 5, September/October), 28–32.
  32. ↑ Porter, Michael (October 7, 2013), The case for letting business solve social problems , retrieved October 10, 2022
  33. ↑ Bedeian, Arthur G.; Wren, Daniel A. (Winter 2001). "Most Influential Management Books of the 20th Century" (PDF). Organizational Dynamics. 29 (3): 221–25. doi:10.1016/S0090-2616(01)00022-5.
  34. ↑ Magretta, Joan (2011). Understanding Michael Porter: The Essential Guide to Competition and Strategy. Harvard Business Review Press. ISBN   978-1422160596.
  35. ↑ Kiechel, Walter (2010). The Lords of Strategy: The Secret Intellectual History of the New Corporate World. Harvard Business Review Press. ISBN   978-1591397823.
  36. ↑ Cho, Dong-Sung (2013). From Adam Smith to Michael Porter: Evolution of Competitiveness Theory. World Scientific Publishing Company. ISBN   978-9814407540.
Listen to this article (15 minutes)
Sound-icon.svg
This audio file was created from a revision of this article dated 25 January 2016 (2016-01-25), and does not reflect subsequent edits.
(Audio help  · More spoken articles)
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.