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Ten Practical Implications Of Porter’s Work

1818 words - 8 pages

Ten Practical Implications
The implications of Porter’s work, as cited in the Epilogue of Magretta (2012), are listed and discussed below:
1. Vying to be the best is an intuitive but self-destructive approach to competition.
a. Practical examples of this statement are:
• Brand extension failure: Colgate's Kitchen Entrees frozen dinners, Smith and Wesson bicycles, Frito-Lay Lemonade, Maxwell House Ready-To Drink Coffee and Clairol's “Touch of Yogurt” shampoo are great examples.
• The retail industry in 2008: Competing companies had to downsize their workforce, massively restructure or even close down while facing successive downturns and online competition. T. J. Maxx, a department store chain, survived the downturn onslaught by focusing on its value proposition of budget friendly fashion labels.
• The semiconductor industry in 2009: Severe price undercutting and frequent product refreshes led to critically low margins and few companies like Intel, Samsung and Qualcomm survived the downturn.
b. Apart from brand confusion, competing to be the best, although initially advantageous to customers in terms of price reductions is disastrous for companies due to the costs involved in this race to converge offerings.
c. Since consumers are different and have different needs, companies should focus on their “niche” market segments.

2. There is no honor in size or growth if those are profitless. Competition is about profits, not market share.
a. Practical examples of this statement are:
• The failures during the merger boom era of 1990-2014: Many highly publicized mergers and acquisitions (M&A) failed during this era, notable ones include Daimler-Benz and Chrysler, AOL and Time Warner, eBay and Skype, Kmart and Sears, Bank of America and Countrywide, and Arby’s and Wendy’s.
• Coke and Pepsi own many diversified companies to achieve the global conglomerate effect with independent value chains.
b. Fueled by the drive for increased market share, cost-efficiency, restructuring and monopolistic pricing power many companies venture toward M&A’s to grow in size, without detailed analysis into risk factors, such as synergy potential, core competencies and integration complexity.
c. Revenues matter only if profits are growing and thus sustaining the company’s long term strategy.
d. Magretta (2012) reminds us that GM couldn’t succeed in spite of being the world’s largest car company while a much smaller BMW remains profitable.

3. Competitive advantage is not about beating rivals; it’s about creating unique value for customers. If you have a competitive advantage, it will show up on your P&L.
a. Practical examples of this statement are:
• Warren Buffet’s Berkshire Hathaway uses a selective contrarian investment strategy which is uniquely distinct from its rivals.
• Apple creates innovative products and a brand personality of lifestyle, simplicity and imagination to win the consumer.
• Nestlé and Danone have similar mission statements of...

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