Five Forces Model Based Upon Michael E. Porter’s Work Contents 1 Michael Porter 1 1.1 Early life .................................................. 1 1.2 Career ................................................... 1 1.2.1 Competition among nations .................................... 1 1.2.2 Healthcare ............................................ 2 1.2.3 Consulting ............................................. 2 1.2.4 Non-profit ............................................. 2 1.3 Honors and awards ............................................ 2 1.4 Criticisms ................................................. 2 1.5 Works ................................................... 2 1.6 See also .................................................. 3 1.7 References ................................................ 3 1.8 External links ............................................... 4 2 Porter five forces analysis 5 2.1 Five forces ................................................ 5 2.1.1 Threat of new entrants ...................................... 5 2.1.2 Threat of substitute products or services ............................. 6 2.1.3 Bargaining power of customers (buyers) ............................. 6 2.1.4 Bargaining power of suppliers .................................. 6 2.1.5 Intensity of competitive rivalry .................................. 7 2.2 Usage ................................................... 7 2.3 Criticisms ................................................. 7 2.4 See also .................................................. 7 2.5 References ................................................. 8 2.6 Further reading .............................................. 8 3 Porter’s generic strategies 9 3.1 Concept .................................................. 9 3.2 Origins ................................................... 10 i ii CONTENTS 3.3 Cost Leadership Strategy ......................................... 10 3.4 Differentiation Strategy .......................................... 11 3.4.1 Variants on the Differentiation Strategy .............................. 11 3.5 Focus strategies .............................................. 11 3.6 Recent developments ........................................... 12 3.7 Criticisms of generic strategies ...................................... 12 3.8 See also .................................................. 13 3.9 References ................................................. 13 4 Competitive advantage 14 4.1 Overview ................................................. 14 4.2 Generic competitive strategies ....................................... 14 4.2.1 Cost leadership strategy ...................................... 14 4.2.2 Differentiation strategy ...................................... 15 4.2.3 Innovation strategy ........................................ 15 4.2.4 Operational effectiveness strategy ................................. 15 4.3 See also .................................................. 15 4.4 References ................................................. 15 4.5 Further reading .............................................. 16 4.6 External links ............................................... 16 5 Value chain 17 5.1 Firm-level ................................................. 17 5.1.1 Primary activities ......................................... 18 5.1.2 Support activities ......................................... 18 5.1.3 Physical, virtual and combined value chain ............................ 18 5.2 Industry-level ............................................... 18 5.3 Global value chains (GVCs) ....................................... 19 5.3.1 Cross border / cross region value chains ............................. 19 5.3.2 Global value chains (GVCs) in development ........................... 19 5.4 Significance ................................................ 19 5.5 Use with other Analysis Tools ...................................... 20 5.6 SCOR ................................................... 20 5.7 Value Reference Model .......................................... 20 5.8 See also .................................................. 20 5.9 References ................................................. 21 5.10 Further reading .............................................. 21 5.11 External links ............................................... 21 5.12 Text and image sources, contributors, and licenses ............................ 22 CONTENTS iii 5.12.1 Text ................................................ 22 5.12.2 Images .............................................. 23 5.12.3 Content license .......................................... 23 Chapter 1 Michael Porter For the American wrestling ring announcer, see Michael inspired the Porter five forces analysis framework for ana- Porter (professional wrestling). For the Australian rules lyzing industries.[3] footballer, see Michael Porter (footballer). For the English footballer, see Mick Porter. Michael Eugene Porter (born May 23, 1947)[2] is the 1.2 Career Bishop William Lawrence University Professor at The Insti- tute for Strategy and Competitiveness, based at the Harvard Business School. He is a leading authority on competitive Michael Porter is the author of 18 books and numerous strategy and the competitiveness and economic develop- articles including Competitive Strategy, Competitive Advan- ment of nations, states, and regions. Michael Porter’s work tage, Competitive Advantage of Nations, and On Competi- is recognized in many governments, corporations and aca- tion. A six-time winner of the McKinsey Award for the demic circles globally. He chairs Harvard Business School’s best Harvard Business Review article of the year, Professor [4] program dedicated for newly appointed CEOs of very large Porter is the most cited author in business and economics. corporations. Porter stated in a 2010 interview: “What I've come to see as probably my greatest gift is the ability to take an extraordi- narily complex, integrated, multidimensional problem and 1.1 Early life get arms around it conceptually in a way that helps, that in- forms and empowers practitioners to actually do things.”[3] Michael Eugene Porter received a BSE with high honors in aerospace and mechanical engineering from Princeton Uni- versity in 1969, where he graduated first in his class and was elected to Phi Beta Kappa and Tau Beta Pi. He received an 1.2.1 Competition among nations MBA with high distinction in 1971 from Harvard Business School, where he was a George F. Baker Scholar, and a PhD Porter wrote “The Competitive Advantage of Nations” in in business economics from Harvard University in 1973. 1990. The book is based on studies of ten nations and ar- gues that a key to national wealth and advantage was the Porter said in an interview that he first became interested in productivity of firms and workers collectively, and that the competition through sports. He was on the NCAA cham- national and regional environment supports that productiv- pionship golf squad at Princeton and also played football, [3] ity. He proposed the “diamond” framework, a mutually- baseball and basketball growing up. reinforcing system of four factors that determine national Porter credits Harvard professor Roland “Chris” Chris- advantage: factor conditions; demand conditions; related tensen with inspiring him and encouraging him to speak up or supporting industries; and firm strategy, structure and ri- during class, hand-writing Porter a note that began: “Mr. valry. Information, incentives, and infrastructure were also Porter, you have a lot to contribute in class and I hope you key to that productivity.[5] will.” Porter reached the top of the class by the second year [3] During April 2014, Porter discussed how the United States at Harvard Business School. ranks relative to other countries on a comprehensive score- At Harvard, Porter took classes in industrial organization card called “The Social Progress Index”, an effort which he economics, which attempts to model the effect of compet- co-authored.[6] This scorecard rated the U.S. on a compre- itive forces on industries and their profitability. This study hensive set of metrics; overall, the U.S. placed 16th.[7] 1 2 CHAPTER 1. MICHAEL PORTER 1.2.2 Healthcare foundations in the area of creating social value. He also currently serves on the Board of Trustees of Princeton Uni- Porter has devoted considerable attention to understanding versity. and addressing the pressing problems in health care delivery in the United States and other countries. His book, Redefin- ing Health Care (written with Elizabeth Teisberg), devel- 1.3 Honors and awards ops a new strategic framework for transforming the value delivered by the health care system, with implications for In 2000, Michael Porter was appointed a Harvard Univer- providers, health plans, employers, and government, among sity Professor, the highest professional recognition that can other actors. The book received the James A. Hamilton be awarded to a Harvard faculty member.[10] In 2009, he award of the American College of Healthcare Executives was awarded an honorary degree from McGill University. 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 1.4 Criticisms care is being extended to address the problems of health care delivery in developing countries, in collaboration with Porter has been criticized by some academics for incon- Dr. Jim Yong