Competitive Advantage by Michael Porter, Part 3

I’ve been doing a series on Michael Porter’s Competitive Advantage book and the value chain analysis framework.  Specifically, I’m using Clorox, Procter & Gamble, and Method Products to provide slight more concrete examples of Porter’s generic strategies and how to analyze them.  The value chain is an odd framework in that Porter uses it to conduct at least two different analyses, for cost advantage and differentiation.  The value chain approach to disaggregating what a company does is similar in both, but from there the two analyses diverge.  In this post, I’ll be doing a deep dive into cost analysis.  This type of work is especially important for figuring out whether a competitor has a true cost advantage (one of Porter’s generic strategies) and also for analyzing your company and competitors in general.

In my last post, I held Clorox up as an example of a cost leadership strategy, but I have realized since that I was wrong.  The company is actually pursuing more of a differentiation strategy.  See the Clorox background section below for details.  Nevertheless, let’s use the company as an example for a cost analysis.  Along the way, we’ll also compare them with Procter & Gamble and Method Products to continue to add more depth to our understanding of the overall value chain analysis.

This post is a long one, so my feelings will not be hurt if you choose to skim it.  Think of it as a reference work. Continue reading Competitive Advantage by Michael Porter, Part 3

Competitive Advantage by Michael Porter, Part 2

I recently wrote about Michael Porter’s concept of competitive advantage, and now I’d like to start really drilling down into the value chain analysis he uses to diagnose competitive advantage.  A value chain analysis disaggregates a company into its activities, grouped by function, to understand how different activities contribute to or detract from competitive advantage.  The analysis assesses both each individual activity and also how they are linked and configured.  Often, it’s the connections between activities that provide the greatest advantage and are the hardest for competitors to imitate, rather than just a handful of specific processes.

To bring the value chain to life, I thought I would take an example from consumer packaged goods that includes each of the generic competitive strategies:  cost advantage, differentiation, and focus.  I’ll be looking at Clorox, Procter & Gamble, and Method Products in detail over multiple posts.  I don’t know much about these companies to start with, so you’ll have a chance to see the good, the bad, and the ugly of a value chain analysis done from scratch. Continue reading Competitive Advantage by Michael Porter, Part 2

Competitive Advantage by Michael Porter

Michael Porter’s book Competitive Advantage was maybe the first business book to make an impact on my work.  I had just started working at a small consulting company after studying civil engineering, so I was fairly clueless about business analysis.  I had read about his Five Forces framework, but it didn’t really impact my work that much, perhaps because it was so concerned with industries rather than individual companies.  It didn’t seem that relevant to my day-to-day work.  In Competitive Advantage, Porter lays out his theories on competitive strategy, (you guessed it) competitive advantage, using value chain analysis to understand those concepts, and a few related topics.  Unlike industry analysis, the value chain felt insightful and actionable.  Since then, I’ve used it often to evaluate clients’ strategies and to conduct competitive analysis.  I thought I’d repay my intellectual debt by devoting a few posts to really digging into Porter’s concepts, where they work, and where they sometimes fall short. Continue reading Competitive Advantage by Michael Porter, Part 1