Michael E. Porter > Quotes

“The essence of strategy is choosing what not to do.”
― Michael Porter, What Is Strategy?

“consumers tend to be more price sensitive if they are purchasing products that are undifferentiated, expensive relative to their incomes, or of a sort where quality is not particularly important to them.”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“Competition on dimensions other than price - on product features, support services, delivery time, or brand image, for instance - is less likely to erode profitability because it improves customer value and can support higher prices. p.32”
― Michael E. Porter, HBR's 10 Must Reads on Strategy

“quality differentials have a tendency to erode as an industry matures”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“Approaches to differentiating can take many forms: design or brand image, technology, features, customer service, dealer network, or other dimensions.”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“This is analogous to the situation in which the robber says, “stick ’em up, I want your money,” and the deranged-looking victim says “If you take it, I will explode this bomb and kill us both!”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.”
― Michael E. Porter, HBR's 10 Must Reads on Strategy

“Overcoming fragmentation can be a very significant strategic opportunity. The payoff to consolidating a fragmented industry can be high because the costs of entry into it are by definition low, and there tend to be small and relatively weak competitors who offer little threat of retaliation. I have stressed earlier in this book that an industry must be viewed as an interrelated system, and this fact applies to fragmented industries as well. An industry can be fragmented because of only one of the factors listed in the previous section. If this fundamental block to consolidation can be somehow overcome, this often triggers a process by which the entire structure of the industry changes.”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“Strategy is the creation of a unique and valuable position, involving a different set of activities.”
― Michael E. Porter, HBR's 10 Must Reads on Strategy

“Empirical evidence suggests that the relationship between the profitability of larger share and smaller share depends on the industry. Exhibit 7-1 compares the rate of return on equity of the largest firms accounting for at least 30 percent of industry sales (leaders) to the rate of return on equity of the medium-sized firms in the same industry (followers). In this calculation small firms with assets less than $500,000 were excluded. Although some of the industries in the sample are overly broad, it is striking that followers were noticeably more profitable than leaders in 15 of 38 industries. The industries in which the followers’ rates of return were higher appear generally to be those where economies of scale are either not great or absent (clothing, footwear, pottery, meat products, carpets) and/or those that are highly segmented (optical, medical and ophthalmic goods, liquor, periodicals, carpets, and toys and sporting goods). The industries in which leaders’ rates of return are higher seem to be generally those with heavy advertising (soap; perfumes; soft drinks; grain mill products, i.e., cereal; cutlery) and/or research outlays and production economies of scale (radio and television, drugs, photographic equipment). This outcome is as we would expect.”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“Early entry is appropriate when the following general circumstances hold:   Image and reputation of the firm are important to the buyer, and the firm can develop an enhanced reputation by being a pioneer. Early entry can initiate the learning process in a business in which the learning curve is important, experience is difficult to imitate, and it will not be nullified by successive technological generations. Customer loyalty will be great, so that benefits will accrue to the firm that sells to the customer first. Absolute cost advantages can be gained by early commitment to supplies of raw materials, distribution channels, and so on.”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“Another key strategic concept deriving from competitor analysis is creating a situation of mixed motives or conflicting goals for competitors. This strategy involves finding moves for which retaliation, though effective, would hurt the competitor’s broader position. For example, as IBM responds to the threat of the minicomputer with its own minicomputer, it may hasten the decline in growth of its large computers and accelerate the changeover to minicomputers. Placing competitors in a situation of conflicting goals can be a very effective strategic approach for attacking established firms that have been successful in their markets. Small firms and newly entered firms often have very little legacy in the existing strategies in the industry and can reap great rewards from finding strategies that penalize competitors for their stake in these existing strategies.”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“If a firm can spot an industry in which the fragmented structure does not reflect the underlying economics of competition, this can provide a most significant strategic opportunity. A company can enter such an industry cheaply because of its initial structure. Since there are no underlying economic causes of fragmentation, none of the investment costs or risks of innovations to change underlying economic structure need be borne.”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“Understanding the competitive forces, and their underlying causes, reveals the roots of an industry’s current profitability while providing a framework for anticipating and influencing competition (and profitability) over time. P. 26”
― Michael E. Porter, HBR's 10 Must Reads on Strategy

“Strategy is making trade-offs in competing. The essence of strategy is choosing what not to do.”
― Michael E. Porter, HBR's 10 Must Reads on Strategy

“Demand for a product is affected by the cost and quality, broadly defined, of substitute products. If the cost of a substitute falls in relative terms, or if its ability improves to satisfy the buyer’s needs, industry growth will be adversely affected (and vice versa). Examples are the inroads that television and radio have made on the demand for live concerts by symphony orchestras and other performing groups; the growth in demand for magazine advertising space as television advertising rates climb sharply and prime advertising television time becomes increasingly scarce; and the depressing effect of rising prices on the demand of such products as chocolate candy and soft drinks relative to their substitutes.”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“The strongest competitive force or forces determine the profitability of an industry and become the most important to strategy formulation. The most salient force, however, is not always obvious. P. 26”
― Michael E. Porter, HBR's 10 Must Reads on Strategy

“Whereas penetration most often means that industry demand will level off, for durable goods, achieving penetration can lead to an abrupt drop in industry demand. After most potential customers have purchased the product, its durability implies that few will buy replacements for a number of years. If industry penetration has been rapid, this situation may translate into several very lean years for industry demand. For example, industry sales of snowmobiles, which underwent very rapid penetration, fell from 425,000 units per year in the peak year (1970-1971) to 125,000 to 200,000 units per year in 1976-1977.6 Recreational vehicles underwent a similar though not quite so dramatic decline. The relation between the growth rate after penetration and growth before penetration will be a function of how fast penetration has been reached and the average time before replacement, and this figure can be calculated.”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“The more competitors perceive the prospect of dogged, bitter retaliation to the point of severely hurting everyone’s profits, the less likely they are of initiating the chain of events in the first place. This is analogous to the situation in which the robber says, “stick ’em up, I want your money,” and the deranged-looking victim says “If you take it, I will explode this bomb and kill us both!”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“Strategy is about making choices; it's about deliberately choosing to be different.”
― Michael E. Porter

“Managers must clearly distinguish operational effectiveness from strategy.”
― Michael E. Porter, HBR's 10 Must Reads on Strategy

“Finding a situation that catches the key competitor or competitors with conflicting goals is at the heart of many company success stories. The slow Swiss reaction to the Timex watch provides an example. Timex sold its watches through drugstores, rather than through the traditional jewelry store outlets for watches, and emphasized very low cost, the need for no repair, and the fact that a watch was not a status item but a functional part of the wardrobe. The strong sales of the Timex watch eventually threatened the financial and growth goals of the Swiss, but it also raised an important dilemma for them were they to retaliate against it directly. The Swiss had a big stake in the jewelry store as a channel and a large investment in the Swiss image of the watch as a piece of fine precision jewelry. Aggressive retaliation against Timex would have helped legitimize the Timex concept, threatened the needed cooperation of jewelers in selling Swiss watches, and blurred the Swiss product image. Thus the Swiss retaliation to Timex never really came. There are many other examples of this principle at work. Volkswagen’s and American Motor’s early strategies of producing a stripped-down basic transportation vehicle with few style changes created a similar dilemma for the Big Three auto producers. They had a strategy built on trade-up and frequent model changes. Bic’s recent introduction of the disposable razor has put Gillette in a difficult position: if it reacts it may cut into the sales of another product in its broad line of razors, a dilemma Bic does not face.4 Finally, IBM has been reluctant to jump into minicomputers because the move will jeopardize its sales of larger mainframe computers.”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“But history tells us that monopolies that are truly benevolent and effective are rare.”
― Michael E. Porter, Redefining Health Care: Creating Value-based Competition on Results

“Operational effectiveness: necessary but not sufficient Operational effectiveness and strategy are both essential to superior performance, which, after all, is the primary goal of any enterprise. But they work in very different ways. A company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at a lower cost, or do both. The arithmetic of superior profitability then follows: delivering greater value allows a company to charge higher average unit prices; greater efficiency results in lower average unit costs. Ultimately, all differences between companies in cost or price derive from the hundreds of activities required to create, produce, sell, and deliver their products or services, such as calling on customers, assembling final products, and training employees. Cost is generated by performing activities, and cost advantage arises from performing particular activities more”
― Michael E. Porter, HBR's 10 Must Reads on Strategy

“A strategy is an internally consistent configuration of activities that distinguishes a firm from its rivals.”
― Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance

“High rivalry limits the profitability of an industry P.32”
― Michael E. Porter, HBR's 10 Must Reads on Strategy

“Substitutes are always present, but they are easy to overlook because they may appear to be very different from the industry’s product p.31”
― Michael E. Porter, HBR's 10 Must Reads on Strategy

“In essence, the job of the strategist is to understand and cope with competition. P. 25”
― Michael E. Porter, HBR's 10 Must Reads on Strategy

“A firm may achieve differentiation, yet this differentiation will usually sustain only so much of a price differential. Thus if a differentiated firm gets too far behind in cost due to technological change or simply inattention, the low cost firm may be in a position to make major inroads. For example, Kawasaki and other Japanese motorcycle producers have been able to successfully attack differentiated producers such as Harley-Davidson and Triumph in large motorcycles by offering major cost savings to buyers.”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors

“Once a competitor’s move has occurred, the denial of an adequate base for the competitor to meet its goals, coupled with the expectation that this state of affairs will continue, can cause the competitor to withdraw. New entrants, for example, usually have some targets for growth, market share, and ROI, and some time horizon for achieving them. If a new entrant is denied its targets and becomes convinced that it will be a long time before they are met, then it may withdraw or deescalate. Tactics for denying a base include strong price competition, heavy expenditures on research, and so on. Attacking new products in the test-market phase can be an effective way to foretell a firm’s future willingness to fight and can be less expensive than waiting for the introduction to actually occur. Another tactic is using special deals to load customers up with inventory, thereby removing the market for the product and raising the short-run cost of entry. It can be worth paying a substantial short-run price to deny a base if a firm’s market position is threatened. Essential to such a strategy, however, is a good hypothesis about what a competitor’s performance targets and time horizon are. An example of such a situation may be Gillette’s withdrawal from digital watches. Although claiming it had won significant market shares in test markets, Gillette bowed out, citing the substantial investments required to develop technology and margins lower than those available in other areas of its business. Texas Instruments’ strategy of aggressive pricing and rapid technological development in digital watches probably had a substantial impact on this decision.”
― Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors