Michael Porter's Competitive Advantage 1

Michael Porter is one of the great interpreters of the business world. There is Stephen Covey, but Stephen Covey focuses heavily on human resources and their capacities. Human resources are the most valuable resources, but unless human resources understand the business environment they are working under, there will be no guarantee of success. Also, human resources generally want to do less for more money which would be possible if the learning curve could be utilized to minimize time and maximize efficiency. Perhaps in the short time the learning curve works that way, but in contemporay times in which the short-term returns is what counts, one finds oneself relearning and relearning until it almost becomes an endless process.

Michael Porter is basically concerned with the forces that shape an industry. The most immediate forces are the business and its competitors. If one were to take the example of "Pizza Hut," its competitors would be local pizza stores, Domino's, Papa Gino's, etc. The competitors determine the prices one charges for the products one sells, one's decor to differentiate oneself from the competitors... essentially one's position within the market. Now the rivalry or competition between the stores is determined by four forces: customers, new entrants, suppliers, and substitutes.

Customers is the most obvious force that determines the success of the business. Customers with disposable cash must decide which "pizza" to get. Price-sensitive customers will certainly go for the cheaper "pizzas." Customers wanting a premium pizza experience may not really care about the price and will buy the more expensive pizza because there is a "uniqueness" factor to the pizza that is much superior in quality to the mass-produced pizza.

New entrants are almost always a threat to a business. Usually businesses with low overhead and easily reproducible ideas are easily imitated. There is, of course, the possibility of a new pizza place being so revolutionary that it betters the industry as a whole but such cases rarely occur. Also, if there is a population explosion in an area, it is possible that all "pizza" businesses benefit even with new entrants.