Understanding Michael Porter’s Competitive Advantage Theory
Michael Eugene Porter: A Brief Biography
Michael Eugene Porter (born 1947) is an American economist, professor at Harvard Business School, specializing in management and business administration, and director of the Institute for Strategy and Competitiveness.
Porter earned a Bachelor of Arts in Mechanical and Aerospace Engineering from Princeton University (1969), an MBA from Harvard University (1971), and a Ph.D. in Business Economics from Harvard University (1973).
Strategic Management Theory
His main theory is that of Strategic Management, which examines how a company or a region can build a competitive advantage and develop a competitive strategy.
Monitor Group Co-Founding
In 1984, he was a co-founder of Monitor Group, a management consulting and strategy firm.
Understanding Competitiveness
Competitiveness should be understood as the ability of an organization, whether public or private, profit or non-profit, to obtain and maintain comparative advantages that enable it to achieve, sustain, and improve a specific position in the socioeconomic environment.
The comparative or competitive advantage of a company lies in its ability, resources, knowledge, and attributes, which are superior to those of its competitors, allowing it to achieve higher yields.
Often, we could replace the term ‘competitive advantage’ with ‘efficiency.’ Efficiency is the first step towards achieving competitiveness; without it, competitiveness cannot be attained.
Causes of Business Competitiveness
- The proliferation of competitors due to industrialization
- The differentiation of demand, which increasingly requires improved and specific products
- The shortening of product cycles
- The implementation of radical innovations: new technologies (microelectronics, biotechnology, genetic engineering, new materials, and new organizational ideas)
The Human Factor in Competitiveness
The human factor is constructed from the individual; if an individual is competitive, organizations will participate in the competitive landscape. Knowledge of this concept and related training is essential for any professional, as this will be subject to some form of adaptation.
Any change requires personal adjustments and modifications that occur through three ways:
- Patterns of behavior
- Personal attitudes
- Social adaptation
Demand Conditions
Demand conditions refer to the domestic demand for the product or service in the industry.
Three generic attributes of domestic demand include:
- The composition of domestic demand
- The magnitude and pattern of growth of domestic demand
- Mechanisms by which domestic preferences are transmitted to foreign markets
Composition of Internal Demand
The composition of domestic demand shapes the world in which firms perceive, interpret, and respond to the needs of buyers.
Three features of the composition of domestic demand are particularly significant for achieving national competitive advantage:
- Segmented structure of demand
- Knowledgeable and demanding buyers
- Precursor needs of buyers