Michael Porter: The Value Chain and the Generic Strategy Options
Is it still possible to talk about long-term coherent strategy in a market which is more and more fast, mutually related, polymorphous and unsettled?
Michael Porter supported the thesis that a fit, coherent and programmatic strategy is the only solution in order to achieve andmaintain competitive advantage for the first-time in the eighties (“Competitive Strategy , Free Press, New York, 1980”; “Competitive Advantage: Creating and Sustaining superior Performance” ,1985) and he kept upholding it until today.
During his career he developed this idea by creating and implementing several strategical tools (like for example the value chain) and extending and adapting his basestheories to different fields and business.
In an article of “Fast Company magazine” of 2001 he claimed:
“Change brings opportunities. On the other hand, change can be confusing. One school of thought say that it's all just too complicated, that no manager can solve the complex problem that represents a firmwide strategy today. So managers should use the hunt-and-peck method of finding astrategy: Try something, see if it works, then proceed to the next. It's basically just a succession of incremental experiments.
I say that method will rarely work, because the essence of strategy is choice and trade-offs and fit.”
He begin the introduction to the last edition of “On Competition, Updated and expanded Edition, 2008” saying:
“Competition is one of society's most powerful forcesfor making things better in many fields of human endeavour. The study of competition and the creation of value, in their full richness, have preoccupied me for several decades. Competition is pervasive, whether it involves contesting markets, countries coping with globalisation, or social organisation responding to social needs. Every organisation needs a strategy in order to deliver superiorvalue to its costumers.”
Concerning the “Value chain” and the “Generic Strategies” the logical path exposed in the book “Competitive Advantage: Creating and Sustaining superior Performance”(1985) is the following:
He starts answering at the question “Which is the goal of a firm?”.
The aim of a firm is to achieve and maintain a superior profitability: high profits as difference between revenuesand costs.
The enterprise could be seen as a system of activities which add value to the final product, increasing customer's willingness to pay and causing additional costs.
The difference between the “customer willingness to pay” and the “supplier opportunity cost” (Gemawatt and Rivkin) is the margin and the value created by the enterprise.
In order to expand this margin the enterprisecan and have to choose between two different and mutually exclusive strategies: differentiation and cost advantage; the strategies becomes four if we consider in addition to the “Competitive advantage” another fundamental dimension that is the “Competitive Scope”:
THE VALUE CHAIN
The term Value Chain hasbeen used for the first time by Michael Porter in his book “Competitive Advantage: Creating and Sustaining superior Performance” in 1985.
He formulated this concept as a response to the criticism that his “Five Forces framework” (” How competitive Forces Shape Strategy”, 1979) lacked an implementation methodology that bridged that gap between internal capabilities and opportunities in thecompetitive landscape.
This framework focused on industry attractiveness as a determinant of the profit potential of all companies within that particular industry. However, significant differences in performance exist between companies operating within the same industry that can be explained either by company's participation in a successful strategic group or by a firm's specific competitive...