CONTRIBUTIONS OF MICHAEL PORTER TO THE FIELD OF MANAGEMENT

Presented By:
Siddharth Mohapatra
Guided By: Dr. Bonita Siddharth Mishra
Mitra Simran Samantaray
Sipra Sahoo
A STRATEGY DELINEATES A
TERRITORY IN WHICH A
COMPANY SEEKS TO BE UNIQUE.
-MICHAEL PORTER
 INTRODUCTION

•Born on 23rd May,1947 in Michigan

•Economist, researcher, author, advisor, speaker, teacher and golfer
•Aerospace and mechanical Engineer
• MBA from HBS

• PhD in Business economics from Harvard

Man who changed the management perception

CONTENTS
• Michael porter’s contribution in the field of management
Porter’s 5 force model

Porter generic competitive strategies

Value chain model
Porter hypothesis
Porter’s four corner model

• Examples of such contributions

• Conclusion
 PORTER’S 5 FORCE MODEL

Porter's Five Forces is a model that

identifies and analyzes five competitive forces
that shape every industry, and helps determine an
industry's weaknesses and strengths. Frequently
used to identify an industry's structure to
determine corporate strategy, Porter's model can
be applied to any segment of the economy to
search for profitability and attractiveness.
The model is named after Michael E. Porter.
 Understanding Porter's Five Forces
• Porter's Five Forces is a business analysis model that helps to explain why different industries are able
to sustain different levels of profitability.

• The model was published in Michael E. Porter's book, "Competitive Strategy: Techniques for
Analyzing Industries and Competitors" in 1980.

• The model is widely used to analyze the industry structure of a company as well as its corporate
strategy.

• The forces are frequently used to measure competition intensity, attractiveness, and profitability of an
industry or market.

• These forces are-

1. Competition in the industry
2. Potential of new entrants into the industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products
Competition in the Industry

• This force refers to the number of competitors and their ability to undercut a company.
• The larger the number of competitors, along with the number of equivalent products and
services they offer, the lesser the power of a company.

Potential of New Entrants Into an Industry

• A company's power is also affected by the force of new entrants into its market.
• The less time and money it costs for a competitor to enter a company's market and be an
effective competitor, the more a company's position may be significantly weakened.
• An industry with strong barriers to entry is an attractive feature for companies that allows
them to charge higher prices and negotiate better terms

Power of Suppliers

• This force addresses how easily suppliers can drive up the cost of inputs.
• It is affected by the number of suppliers of key inputs of a good or service, how unique
these inputs are, and how much it would cost a company to switch from one supplier to
another
Power of Customers
• This specifically deals with the ability that customers have to drive prices down.
• It is affected by how many buyers or customers a company has and how much it
would cost a company to find new customers or markets for its output.

Threat of Substitutes

• Substitute goods or services that can be used in place of a company's products or

services pose a threat.
• Companies that produce goods or services for which there are no close substitutes will
have more power to increase prices and lock in favourable terms and vice versa.
 Analyzing Porter's 5 Forces on Coca-Cola
The Coca-Cola Company is a perfect example of a
company that we are going to discuss with this
qualitative analysis tool prom investment perspective:

Who Are the Rival Competitors?

When you think of Coca-Cola and competitors, Pepsi is
probably one of the first rivals to come to mind, and
rightfully so. The two companies have been in
competition with each other.

How Likely Is a New Entrant to the Industry?

Several new entrants to the industry at once could
fragment it to the point that it affects Coca-
Cola’s bottom line
What Could Buyers Purchase Instead?
For instance, customers could start drinking coffee instead of Coke.
If the rise of Starbucks has shown anything, it is that people really do
love coffee in the right environment and with the right flavourings.
Buyers could also choose beverages such as freshly made smoothies
or fresh-pressed juices instead of Coca-Cola's bottled beverages. 

 What Bargaining Power Do Buyers Have?

It mostly deals with distribution companies that service fast food
chains for fountain services, vending machine companies, college
campuses and grocery stores.

Power Do Suppliers Have?

As big as the beverage company is, and as many contracts as it likely
has with its suppliers securing pricing, suppliers still have some
power, and some of it may be out of their hands. Thanks to contracts
the company likely has in place, the effect would be minimal unless
those disasters occurred repeatedly over the course of several years.

 
 PORTER’S 2 KEY GENERIC COMPETITIVE
STRATEGIES
• A firm's relative position within its industry determines whether a firm's profitability is above
or below the industry average.
• The fundamental basis of above average profitability in the long run is sustainable competitive
advantage.
• There are two basic types of competitive advantage a firm can possess: low cost or
differentiation.
• The two basic types of competitive advantage lead to three generic strategies for achieving
above average performance in an industry: cost leadership, differentiation, and focus.
• The focus strategy has two variants, cost focus and differentiation focus.
1. Cost Leadership
• In cost leadership, a firm sets out to become the low
cost producer in its industry.
• The sources of cost advantage are varied and depend
on the structure of the industry.
• They may include the pursuit of economies of scale,
proprietary technology, preferential access to raw
materials and other factors
 
2. Differentiation
• In a differentiation strategy a firm seeks to be unique
in its industry along some dimensions that are widely
valued by buyers.
• It selects one or more attributes that many buyers in
an industry perceive as important and unique.

3. Focus
• The focuser selects a segment or group of segments
in the industry and tailors its strategy to serving them
to the exclusion of others.
 PORTER’S VALUE CHAIN MODEL
Porter's Value Chain focuses on systems, and how inputs are changed into the outputs purchased
by consumers. Using this viewpoint, Porter described a chain of activities common to all
businesses, and he divided them into primary and support activities, as shown below.
 The Value Chain activities
Porter’s Value Chain Analysis consists of a number of activities, namely primary activities and
support activities. 

Primary activities

Inbound logistics – These are all the processes related to receiving, storing, and distributing
inputs internally. Your supplier relationships are a key factor in creating value here.

Operations – These are the transformation activities that change inputs into outputs that are sold
to customers. Here, your operational systems create value.

Outbound logistics– These activities deliver your product or service to your customer. These are
things like collection, storage, and distribution systems, and they may be internal or external to
your organization.

Marketing and sales – These are the processes you use to persuade clients to purchase from you
instead of your competitors. The benefits you offer, and how well you communicate them, are
sources of value here.
Service – These are the activities related to maintaining the value of your product or service to
your customers, once it's been purchased.

Support Activities

These activities support the primary functions above. In our diagram, the dotted lines show that
each support, or secondary, activity can play a role in each primary activity.

Procurement (purchasing) – This is what the organization does to get the resources it needs to
operate. This includes finding vendors and negotiating best prices.

Human resource management – This is how well a company recruits, hires, trains, motivates,
rewards, and retains its workers.

Technological development – These activities relate to managing and processing information,

as well as protecting a company's knowledge base.

Infrastructure – These are a company's support systems, and the functions that allow it to
maintain daily operations.
Starbucks as an Example of the Value Chain Model
Let’s take the example of Starbucks to understand this better. The Starbucks journey began
with a single store in Seattle in the year 1971 to become one of the most recognized brands
in the world.

Primary activities-

Inbound Logistics
The inbound logistics for Starbucks refer to company-appointed coffee buyers selecting the
finest quality coffee beans from producers in Latin America, Africa, and Asia.
Operations
Starbucks operates in more than 75 markets, either in the form of direct company-owned
stores or licensees. Starbucks has more than 24,000 stores internationally,
Outbound Logistics
There is very little or no presence of intermediaries in product selling. The majority of the
products are sold in their own or in licensed stores only
Marketing and Sales
Starbucks invests more in superior quality products and a high level of customer
service than in aggressive marketing.
Service
• Starbucks aims at building customer loyalty through its stores' customer service. The retail objective of
Starbucks is, as it says in its annual report, “to be the leading retailer and brand of coffee in each of
our target market by selling the finest quality coffee and related products, and by providing each
customer a unique Starbucks Experience.”

Support activities

Infrastructure
• This includes departments like management, finance, legal, etc., which are required to keep the
company’s stores operational. Starbucks' well-designed and pleasing stores are complemented with
good customer service provided by the dedicated team of employees in green aprons.

Human Resource Management

• The committed workforce is considered a key attribute in the company’s success and growth over the
years. Starbucks employees are motivated through generous benefits and incentives

Technology Development
• Starbucks is very well-known for the use of technology, not only for coffee-related processes, but to
connect to its customers.
• Starbucks also uses Apple’s i-beacon system, wherein customers can order a drink through the
Starbucks phone app.
 PORTER’S HYPOTHESIS
• According to the Porter Hypothesis, strict environmental regulations can induce efficiency and encourage
innovations that help improve commercial competitiveness. The hypothesis suggests that strict
environmental regulation triggers the discovery and introduction of cleaner technologies and
environmental improvements, the innovation effect, making production processes and products more
efficient.

• The cost savings that can be achieved are sufficient to overcompensate for both the compliance costs
directly attributed to new regulations and the innovation costs.

• In the first-mover advantage, a company is able to exploit innovation by learning curve effects or patenting
and attains a dominating competitive position compared to companies in countries where environmental
regulations were enforced much later.

• innovation offsets can not only lower the net cost of meeting environmental regulations, but can even lead
to absolute advantages over firms in foreign countries not subject to similar regulations.

• Innovation offsets will be common because reducing pollution is often coincident with improving the
productivity with which resources are used. In short, firms can actually benefit from properly crafted
environmental regulations that are more stringent. By stimulating innovation, strict environmental
regulations can actually enhance competitiveness.”
 PORTER’S 4 CORNER MODEL
The Four Corners Analysis, developed by Michael Porter, is a model well designed to help
company strategists assess a competitor's intent and objectives, and the strengths it is using to
achieve them.

It is a useful technique to evaluate competitors and generate insights concerning likely competitor
strategy changes and determine competitor reaction to environmental changes and industry shifts.

By examining a competitor's current strategy, future goals, assumptions about the market, and
core capabilities, the Four Corners Model helps analysts address four core questions
• Drivers What drives your competitors and moves them forward? What makes them tick? What
is the impact of this motivation on their strategy? If you understand what your competitors'
goals are, you will know whether they are likely to change course or not in the future.
• Current Strategy - What is the competitor doing and what is the competitor capable of doing?
• Capabilities - What are the strengths and weaknesses of the competitor?
• Management Assumptions - What assumptions are made by the competitor's management
team?
HOW IS THIS TOOL USED?

Step1: Identify the motivation of your competitor:

• In this section we are required to state what drives and motivates our competitor to move
forward.
• we have to underline your competitor’s targets as to know if they are likely to change their
strategy or not in the future
• We should analyse the way the company perceives itself such as its strengths and weaknesses.

Step 2: Identify the possible actions of your competitor:

• The second part of the analysis is about the predictable actions that a competitor might take.
• This section is also divided into two subsections; current strategy and capabilities.

Step3: Identify the company’s trend:

• The last thing that you need to do in this analysis is to combine all the information together
and start making the analysis.
• The four corners are interrelated and they affect each other in a direct or indirect way.
Consequently, we have to draw conclusions and correlations from the data in order to figure
out the company’s future strategy.
Four Corners Analysis Example: Fast
Food Restaurant
 CONCLUSION
Businesses of 21st century need to go step further in defining their surrounding
and place that they take or will take in an industry. Reason for that is that
modern business do not rely on inside industry competition any more, the
approach is much more meticulous wherefore industries are competing
between each other, business lines as well. Therefore when it comes to the
positioning itself Porters five forces model represents excellent ground but in
order to have clear picture one cannot deny influence of digitalization or
globalization.one can state that Porter made inexhaustible contribution to the
management science and practice, and that it was great pleasure to examine his
work for the authors. All in all, this article can serve as good theoretical
background for those who would like to search more deeply in this area.