The Business Book

(Joyce) #1


The hotel industry is characterized
by intense competitor rivalry. Some
hotel chains have introduced loyalty
schemes to try to increase customer
preference and encourage return visits.

products are nearly identical. An
example of a market with a low
threat of new entrants is the software
market for personal computers.
Microsoft came to dominate the
market with its Windows 95
operating system. New entrants
found it hard to break in because
programs such as Excel, PowerPoint,
and Word are universally used.

Choosing a position
Porter used the US heavy-truck
manufacturer Paccar to illustrate
the principles of choosing how to
position a company within a given
industry structure. In a crowded
market, Paccar wanted to find a
space where competitive forces
were weak, and where it could avoid
buyer power and price-based rivalry.
In the heavy-truck industry,
where large fleet buyers dominate,
it is hard to create a niche based
on differentiation. Paccar, based in
Washington state, chose to focus
on one group of customers: owner-

operators. Personal pride in their
own trucks and the fact that they
were economically dependent on
their vehicles made them less
price-sensitive as purchasers.
Paccar therefore decided to invest
in developing an array of features
with owner-operators in mind, such
as luxurious sleeper cabins, leather
seats, noise-insulated cabins, and
sleek exterior styling. They offered
thousands of options for owners to
put their personal signature on their
trucks, by simply inputting them on
computers at network dealers. They
also offered roadside assistance
and fuel-efficient, aerodynamic
designs. As a result, Paccar has
been profitable for more than 68
years in succession, and delivers
better-than-average returns.
No matter how different
industries appear on the surface,
Porter’s model offers any company
a way of assessing profitability
through analyzing five easily
calculated, competitive forces. In
revealing an industry’s underlying
structure, Porter’s model simplifies
a mass of information, providing
managers with a clear process for
making sense of industry data and
using it to form effective strategy. ■


Michael Porter

Born in 1947 in Michigan,
Michael E. Porter was the
son of a US Army officer,
and lived in different places
around the world as a child.
Porter served in the US Army
Reserve following graduation.
He received a BSE with high
honors in aerospace and
mechanical engineering from
Princeton University, in 1969,
an MBA in 1971 from Harvard
Business School, and a PhD
in business economics from
Harvard University in 1973.
The author of 18 books and
more than 125 articles in the
fields of competitiveness and
management, Porter’s
academic studies encompass
competitiveness in national,
regional, social, and health-
care arenas. He has served
as an advisor to governments,
corporations, nonprofit
organizations, and academics
across the globe.

Key works

1980 Competitive Strategy
1985 Competitive Advantage
1990 The Competitive
Advantage of Nations

Defending against the
competitive forces and
shaping them in a company’s
favor are crucial to strategy.
Michael Porter
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