Harvard Business Review Article Analysis

Magretta, J. (2012). ‘Competitive Advantage: The Value Chain and Your P&L. Applying Michael Porter’s Value Chain Framework to Your Business.’ Understanding Michael Porter: The Essential Guide to Competition and Strategy. Harvard Business School Publishing Corporation. Pp. 1-30

Competitive advantage is the major aspect of Porter and is a significant tool utilized by managers to edge out their rivals. In its context, competitive advantage is not focused on defeating rivals but rather, it is aimed at establishing superior value. In this particular chapter, the author delves on the way competitive advantage manifests itself in the value chain.

• -Economic Fundamentals

• -The Value Chain

Economic Fundamentals

While determining competitive advantage, it is significant for an organization to measure returns in relation to other companies doing same business.

Unmuddling Economic Fundamentals

In order to determine the economic sense of any company, the author observes that:

-Performance will have to be measured in a way that reflects the economic sense of every organization. The value of goods and services produced must exceed the input.

-Return On Invested Capital (ROIC) is the best approach to weigh the profits realized in a company.

-Any organization applying competitive advantage realizes higher profits than the rest.

-Tracing all the differences in relative prices and costs in all company engagements

The Value Chain

Notably, value chain is simply the activities an organization does to design self, deliver, produce, and eventually support its product. Particularly, the value chain serves as a reliable tool for use in identifying the specific activity that enables a company to enjoy competitive advantage.

Unmuddling the Value Chain

In order to appreciate the value chain of any company, the author observes that:

• The first step is to lay out industry value chain

• Compare value chain of a given company with the rest in the industry

• Zeroing in on price drivers and especially the activities that exhibit high impact through differentiation

• Zeroing in on cost drivers and especially on events that lead to large cost percentage