Michael Eugene Porter (born May 23, 1947) is an American academic known for his theories on economics, business strategy, and social causes.Throughout his career at Harvard Business School, he has brought economic theory and strategy concepts to bear on many of the most challenging problems facing corporations, economies and societies, including market competition and company strategy, economic development, the environment, and health care. A six-time winner of the McKinsey Award for the best Harvard Business Review article of the year, Professor Porter is the most cited author in business and economics.

Dr. Porter’s initial training was in aerospace engineering at Princeton University. He then earned an M.B.A. from Harvard Business School and a Ph.D. in Business Economics from Harvard’s Department of Economics. His research approach—applying economic theory to complex systemic problems—reflects these multidisciplinary foundations. In 2000, Harvard Business School and Harvard University jointly established the Institute for Strategy & Competitiveness to provide a home for his research.

Porter stated in a 2010 interview: "What I've come to see as probably my greatest gift is the ability to take an extraordinarily complex, integrated, multidimensional problem and get my arms around it conceptually in a way that helps, that informs and empowers practitioners to actually do things."

Michael Porter is the author of nineteen books including Competitive Strategy, Competitive Advantage, Competitive Advantage of Nations, On Competition, and Redefining Health Care, as well as over 125 articles.

First published in 1980 and since then translated into nineteen languages, Competitive Strategy has transformed the theory, practice, and teaching of business strategy throughout the world. Porter's analysis of industries captures the complexity of industry competition in five underlying forces. Porter introduces one of the most powerful competitive tools yet developed: his three generic strategies - lowest cost, differentiation, and focus - which bring structure to the task of strategic positioning.

Porter lays the foundation for understanding an industry at a macro level. How is the industry structured? With few or many competitors, similarly sized or varied? Understanding the 'lay of the land' for an industry using Porter's framework provides a good schematic of the 'spaces' occupied by different firms. Clusters of firms that target the same customers form strategic groups. The degree of overlapping space among firms in a group can be used to denote the intensity of rivalry. Groups characterized by larger spaces between firms potentially enjoy higher margins, while those tightly clustered fight for the same customers and are prone to price competition. The ability of firms to move between strategic groups depends on the height of "mobility barriers" which define competition within the group. Some strategic groups are penetrable by new firms, while others are harder to break into due to characteristics such as high capital requirements, established brand names, distribution channels, etc. One of Porter's insights is that industry structure is dynamic, and changes are driven by underlying trends affecting the industry, such as technology, substitute products, demographics, etc. The ability to foresee industry direction and evolution is extremely valuable in formulating strategy. Understanding competitors is vital in predicting their likely reactions to competitive moves. How is each competitor business situated within its corporate parent (how does the business fit into the corporate portfolio, and how central is it to the firm's underlying strategy and goals)? Understanding the functional backgrounds of the company's directors and top executives often gives insight into how they will view the business and how they will react.

“Consumers tend to be more price sensitive if they purchase products that are undifferentiated, expensive relative to their incomes, or of a sort where quality is not particularly important to them.”

“From my examination of many declining industries, the firms that seem to be the most objective about managing the decline process are those that also participate in substitute industries. They have a clearer perception concerning the prospects of the substitute product and the threat of decline.”

“If a firm can spot an industry in which the fragmented structure does not reflect the underlying economics of competition, this can provide a most significant strategic opportunity. A company can enter such an industry cheaply because of its initial structure. Since there are no underlying economic causes of fragmentation, none of the investment costs or risks of innovation to change underlying economic structure need be borne.”

First published in 1985, Competitive Advantage is the essential complement to Competitive Strategy. Porter here explores the underpinnings of competitive advantage in an individual firm and describes how a firm actually gains an advantage over its rivals. Competitive Advantage introduces a whole new way of understanding what a firm does. Porter's groundbreaking concept of the value chain disaggregates a company into "activities," or the discrete functions or processes that represent the elemental building blocks of competitive advantage.

Its powerful framework provides the tools to understand the drivers of cost and a company's relative cost position. Porter's value chain enables managers to isolate the underlying sources of buyer value that will command a premium price, and the reasons why one product or service substitutes another. He shows how competitive advantage lies not only in activities themselves, but in the way activities relate to each other, to supplier activities, and to customer activities.

"The most challenging part of dealing with uncertainty is to find creative ways to minimize the cost of preserving flexibility or hedging, and to maximize the advantages of betting correctly. Understanding the way in which each activity in the value chain can contribute to competitive advantage under the various scenarios may allow the firm to do so."

"Both industry attractiveness and competitive position can be shaped by a firm, and this is what makes the choice of competitive strategy both challenging and exciting. While industry attractiveness is partly a reflection of factors over which a firm has little influence, competitive strategy has considerable power to make an industry more or less attractive. At the same time, a firm can clearly improve or erode its position within an industry through its choice of strategy. Competitive strategy, then, not only responds to the environment, but also attempts to shape that environment to a firm's favor. These two central questions in competitive strategy have been at the core of my research."

"Technological change is not important for its own sake, but is important if it affects competitive advantage and industry structure. Not all technological change is strategically beneficial; it may worsen a firm's competitive position and industry attractiveness. High technology does not guarantee profitability. Indeed, many high-technology industries are much less profitable than some "low-technology" industries due to their unfavorable structures."

Porter's 5 Forces

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Porter's Five Forces model, named after Michael E. Porter, is a tool for analyzing competition within an industry. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack of it) of an industry in terms of its profitability. An "unattractive" industry is one in which the effect of these five forces reduces overall profitability. The most unattractive industry would be one approaching "pure competition," in which available profits for all firms are driven to normal profit levels. These forces are:

1. Competition in the industry;

2. Potential of new entrants into the industry;

3. Power of suppliers;

4. Power of customers;

5. Threat of substitute products.

Porter refers to these forces as the microenvironment, to contrast it with the more general term, macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a business unit to re-assess the marketplace, given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low because the industry's underlying structure of high fixed costs and low variable costs afford enormous latitude in the price of airline travel. Airlines tend to compete on cost, and that drives down the profitability of individual carriers as well as the industry itself because it simplifies the decision by a customer to buy or not buy a ticket.

Frequently used to identify an industry's structure to determine corporate strategy, Porter's model can be applied to any segment of the economy to search for profitability and attractiveness.

Porter's Five Forces is a model of analysis that helps to explain why different industries are able to sustain different levels of profitability. This model was originally published in Porter's book, "Competitive Strategy: Techniques for Analyzing Industries and Competitors" in 1980. The model is widely used, worldwide, to analyze the industry structure of a company as well as its corporate strategy. Porter identified five undeniable forces that play a part in shaping every market and industry in the world. The forces are frequently used to measure competition intensity, attractiveness and profitability of an industry or market.

The importance of this force is the number of competitors and their ability to threaten a company. The larger the number of competitors, along with the number of equivalent products and services they offer, dictates the power of a company. Suppliers and buyers seek out a company's competition if they are unable to obtain a suitable deal.

A company's power is also affected by the force of new entrants into its market. The less money and time it costs for a competitor to enter a company's market and be an effective competitor, the more a company's position may be significantly weakened.

This force addresses how easily suppliers can drive up the price of goods and services. It is affected by the number of suppliers of key aspects of a good or service, how unique these aspects are and how much it would cost a company to switch from one supplier to another. The fewer number of suppliers, and the more a company depends upon a supplier, the more power a supplier holds.

This specifically deals with the ability customers have to drive prices down. It is affected by how many buyers, or customers, a company has, how significant each customer is and how much it would cost a customer to switch from one company to another. The smaller and more powerful a client base, the more power it holds.

Competitor substitutions that can be used in place of a company's products or services pose a threat. For example, if customers rely on a company to provide a tool or service that can be substituted by another tool or service or by performing the task manually and this substitution is fairly easy and of low cost, a company's power can be weakened.