PofE 036: Book Review – Understanding Michael Porter – Joan Magretta

Understanding Michael Porter


  • The premise of the book, "Understanding Michael Porter" is that clear strategic thinking is essential for managers at all levels of an organization. This essential guide provides the foundation for understanding the basic principles of competition and strategy and establishes a framework in which Michael Porter's writings are easier to digest than his original texts. A direct quote from the book states that, "Strategy is not fast food." The essence of strategy is not only choosing what to do, but also choosing what not to do.

What I learned:

  • The key to competitive strategy rests on an organization's ability to create unique value and to be uniquely focused on creating value that customers understand within the structure of their industry and your company’s relative position.
  • Good strategy helps explain how an organization in the face of competition will accomplish superior performance and greater profits.


  • A key tool that you can use to help define your organization’s strategy is Michael Porter’s Five Forces. These five forces are:
  1. Identifying threats of new entries into your market.
  2. The bargaining power of suppliers to drive prices.
  3. The bargaining power of buyers.
  4. The threat of substitution to your products and services.
  5. The competitive rivalry amongst other players in your market.
  • Understanding the power of the Value Chain – the sequence of activities that a company designs, delivers and supports to produces its products and/or services.
  • That the your value proposition should answer three questions:
  1. Which customers do we serve?
  2. What requirements will my services or products meet?
  3. What relative price range will we charge for our services or products that customers will support?
  • Also, a robust strategy can be defined by the following four areas:
  1. Creating value
  2. Trade-offs
  3. Fit
  4. Continuity


  • The practical applications I gleaned from reading “Understanding Michael Porter” are:
    1. That trying to be the best in your industry can be destructive to your company’s value creation goals. To be the best means that the rules of the game must be the same for all players (i.e. football or baseball).
    2. Competition is all about the bottom line, making profits.
    3. Competitive advantage is about focusing on and creating a unique value proposition. Being unique and offering a unique experience to your customers (i.e. Zip Car, Enterprise, Netflix or IKEA).  
    4. Good strategy makes some customers unhappy because you can't meet everyone’s needs.
    5. Strategy is not about what you do but about what you will not do. You have to make trade-offs.
    6. Tactical execution is critical to implementing your strategy.
    7. Good strategy requires having multiple choices.
    8. Flexibility is good but being too flexible is not.
    9. You don't have to have a crystal ball to predict the future to commit to your strategy. Make a commitment and make incremental improvements as you go.

Principles of Execution Key Concepts:

  • Value Chain
  • Value Proposition
  • Porter's Five Forces

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