Strategic Management: Formulation and Implementation

Achieving Competitive Advantage

Michael Porter (1985; 1985) proposes a three-stage progression to achieving competitive advantage:

  1. Analyze the industry structure
  2. Decide on competitive strategy
  3. Implement competitive strategy

According to Porter, the starting point of strategy must be the external environment. He believes that external environment defines what the organization needs to achieve and, therefore, what its strategy should be. Each competitive force should be analyzed in depth, through a checklist of factors (see Chapter 5).

Porter's second stage involves the firm deciding on a competitive strategy in order to achieve "sustainable competitors advantage." He suggests there are only two "generic " competitive positions: cost leadership and differentiation. The level of focus can be altered, either concentrating on the whole market or focusing a specific segment (see section above).

The final stage is implementation of the strategy to achieve sustainable competitive advantage. This part of this chapter describes the way a firm can choose and implement a generic strategy and sustain competitive advantages.

The basic tool for diagnosing competitive advantage and finding ways to enhance it is a value chain. Therefore, the first section presents the concept of the value chain. Other sections describe: how a firm can gain a sustainable cost advantage, how a firm can differentiate itself from its competitors, how industries can be segmented, the relationship between technology and competitive advantage.