Michael Porter

Michael Porter is one of the more recent theorists of business development. His theories on competitive advantage are common lecture material for any MBA program. A present day icon in the business community and faculty member at Harvard, he has modernized the thinking on business management, updating historic theories of business development and economics.

It was in 1980 when he released his first book Competitive Strategy. The text, now in its 60th printing, is considered ninth in the top 20 most influential management books of the 20th century (Bedeian & Wren, 2001). In the text, Porter describes his “five forces of competition framework”. The basics to this theory are that “horizontal” competition (competition from substitutes, new entrants into the industry and rival competition) interact with “vertical forces” (bargaining power of suppliers and purchasers) influence the profitability of an industry (Porter, 1980). While every business student can give a synopsis of his five forces of competition, the true test of the accuracy of this theory comes when applied to various fields and business sectors.

The theory is also fundamental tool commonly used for investors to decide stock purchases. Cases presented by the financial analysis website “The Motley Fool” typically use Porter’s five forces to assess the value of a company’s stock. In a 2009 report analyzing the value of Under Armour, they utilize the theory to recommend investors buy into the company due to its competitive advantage (Argersinger, 2009) Buyers who listened to the investment site would have been treated to nearly a 500% increase on their UA stock investment (Google, 2012).

The theory seems very simple at first glance and can be applied to any industry or business model. Porter discusses in Competitive Strategy a generic strategy to gain a competitive advantage. It’s a rather simple methodology where a company should choose “product differentiation” (a structural determinant that...