Understanding Michael Porter: The Essential Guide to Competition and Strategy

by Joan Magretta

Porter’s most influential articles for HBR. Two are especially relevant for this book: “What Is Strategy?” (1996), one of the most-cited and best-selling HBR articles of all time,

and “The Five Competitive Forces That Shape Strategy” (2008),

Competing to be the best feeds on imitation. Competing to be unique thrives on innovation.

Thus the value proposition and the value chain—the two core dimensions of strategic choice—are inextricably linked. The value proposition focuses externally on the customer. The value chain focuses internally on operations. Strategy is fundamentally integrative, bringing the demand and supply sides together.

We saw, in chapter 4, that a series of choices about a company’s value proposition and its value chain gives rise to competitive advantage. Where those choices involve trade-offs, the strategy becomes more valuable and more difficult to imitate (chapter 5). You can think of fit as an amplifier, raising the power of both of those effects. Fit amplifies the competitive advantage of a strategy by lowering costs or raising customer value (and price). Fit also makes a strategy more sustainable by raising barriers to imitation.

The first kind of fit is basic consistency, where each activity is aligned with the company’s value proposition and each contributes incrementally to its dominant themes.

A second type of fit occurs when activities complement or reinforce each other. This is real synergy, where the value of each activity is raised by the other.

Porter’s third type of fit is substitution. Here performing one activity makes it possible to eliminate another.

Porter asks a different question: Which activities are generic and which are tailored? Generic activities—those that cannot be meaningfully tailored to a company’s position—can be safely outsourced to more efficient external suppliers. However, Porter argues that outsourcing is risky for activities that are or could be tailored to strategy, and especially for those activities that are strongly complementary with others.