In 1979 Michael Porter wrote an article that was published in the Harvard Business Review, entitled, “How Competitive Forces Shape Strategy.” He subsequently published an expanded discussion on this in a published work in 1981.
Porter proposed that the competitive environment can be analyzed through a five factor categorization (rivalry amongst existing competitiors, threat of new entrants, etc. - see below) and suggested that companies respond in one of three ways - cost leadership; differentiation from competitiors; or focus on market segment (s).
The Harvard Business Review has just published Mr. Porter's revisit to the subject in its January 2008 edition, entitled, "The Five Competitive Forces That Shape Strategy." A thirteen minute online video is also available.
Why has Porter's model endured? Because it is a simple, yet comprehensive way to analyze and understand the competitive environment in which a company operates. If we can understand our competitive environment, we can develop effective strategies to compete against our competitors - selling more and better margins. Who doesn't want that?
