In-text citations for assignment must include page or paragraph number.
Michael Porter — An Icon of Competitive Strategy and
Competitive Advantage
Every business student would be well served by becoming
conversant with Porter’s models. Michael E. Porter was (and may still hold the
distinction) of being the youngest professor to receive tenure in Harvard
University’s history. He has been on the Harvard Business School faculty since
1973. It would not be easy to find an academic article, book, or textbook
dealing with competitive strategy and competitive advantage written in the past
50 years that does not mention the impact of Porter’s theories.
In Competitive Strategy (1980), as you learned in week 2,
Porter identifies five industry forces that managers must consider in
developing market strategies. The five forces Porter’s model identifies are:
(1) the threat of new entrants into the market, (2) the bargaining power of
customers in the industry, (3) the bargaining power of suppliers in the
industry, (4) the threat of substitute products or services entering the
market, and (5) the price competition or other forms of rivalry among existing
firms in the market. The application of the five forces model recurs throughout
the course.
Porter pursues the theme of global competition in his 1985
book, Competitive Advantage, where he notes that companies must select a
strategy of cost leadership (e.g., Costco), which is contingent upon a large
market share, or a strategy of differentiation (e.g., Nordstrom), which pursues
a smaller market share but has an exclusivity advantage. It is this part of Porter’s work we will focus
on this week. Porter’s books rank among
the best-selling business books.
Porter, E. M. (1980). Competitive strategy: Techniques for analyzing industries and
competitors. Free Press.
Porter, E. M. (1985). Competitive advantage: Creating and
sustaining superior performance. Free
Press.
Case Scenario:
Smithfield Custom Furniture:
Smithfield Custom Furniture has done extremely well since
its founding in 1903. Smithfield has
focused on selling reasonably priced furniture since its inception. Now 2001,
the company has been headed by the founder’s granddaughter, Joan Smithfield (CEO). She has run the
company for the past twenty years. Today, the company has 247 retail stores.
220 stores are spread throughout the 50 states, and 27 stores are located in
England, France, and Germany. Each country has 9 stores. The company employs
13,000 people.
For the past 20 years, Joan Smithfield has been aware of the
financial growth in a large workforce segment, primarily due to more women in
the workforce holding full-time and professional occupations. She knows, too,
that the reasonably priced furniture market has become saturated with other
competitors during this time.
The company does all its manufacturing in the United States
at six facilities, which recently were modernized with the latest equipment. Although recently modernized, Smithfield’s
production plants are not producing at maximum capacity. Joan realizes the
plants could produce more and different types of furniture.
The Board of Directors is pressuring Joan to diversify
Smithfield’s product line. Everyone on the board, including Joan, agrees
diversification is needed. Everyone agrees, too, a new line of furniture needs
to be added.
However, the 12-member Board of Directors is evenly divided
on whether the new line of furniture should be 1) massed produced,
mass-marketed, and sold at the lowest price point possible or 2) whether the
new line of furniture should be a very upscale line of furniture,
custom-crafted and produced from the most expensive and exotic woods,
exclusively marketed to the top 7.5% of world-wide income earners. The
Smithfield plants have the capacity and capability to develop and produce
either but not both lines of new furniture.
Joan Smithfield has been a longtime admirer of Michael
Porter. She met Porter a few times over the years at various seminars and
business functions.
Your Task for Your Initial Post:
In your role as a senior strategy analyst at Smithfield
Custom Furniture, CEO Joan Smithfield has requested you to provide to her a
memorandum that addresses A-C below.
A. Explain, using the link provided to Porter’s Competitive
Advantage Model, how Porter’s Competitive Advantage model applies to the
Smithfield’s Board of Directors’ issue of deciding to produce a very exclusive
furniture line or a mass-produced, mass-marketed furniture product line. Use
in-text citations as appropriate.
B. Select the best strategy for the Smithfield company to
pursue from the two strategies Porter presents in his model and explain why
that particular strategy is better than the alternative.
C. Using this week’s course readings, assuming Joan
Smithfield accepts your recommendation, what is the next action she should take
to determine if your recommendation is correct? Be specific. Use in-text
citations and list references from course readings as required.
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