Chapter 9: Michael Porter – Competitiveness, Productivity and Value Creation
A research-based review of Michael E. Porter's understanding of competitiveness, value chains, and long-term value creation
Michael E. Porter is considered one of the world's most influential researchers in the fields of strategy, competitiveness, and value creation. Over the decades, he has developed theories that have had a major impact on how businesses, industries, and nations understand competitive advantage, productivity, and economic development.
Porter is particularly known for his work on the Value Chain , the Five Forces and the theory of the competitive advantage of nations . Common to these works is the understanding that lasting value creation is based on productivity, innovation, continuous improvement and the ability to create higher value than competitors.
This article draws primarily on Michael Porter's own books, scholarly articles, and research publications. The aim is to present his understanding of value creation as expressed in his research, before placing it in a broader economic and social science context.
Table of contents
Who is Michael E. Porter?
Historical and academic context
Key books and publications
Michael Porter's understanding of value creation
What role does the public sector play?
What role does the private sector play?
Criticism and academic debate
What can we learn?
Relevance for The Invisible Capital
Literature
Further reading
Sources that form the basis of this article
This article is based primarily on Michael Porter's own books, scientific articles and research publications. These are supplemented with research from Harvard Business School and other leading research environments in the fields of strategy, competitiveness and productivity development. The aim is to present Porter's research as he himself develops his theories, before placing them in a broader academic context.
1. Who is Michael E. Porter?
Michael Eugene Porter is a professor at Harvard Business School and is considered one of the world's most influential scholars in the fields of strategy and competitiveness. For more than five decades, he has developed theories that have shaped both academic research and practical management in businesses around the world.
Porter's research has had a profound impact on how companies analyze competition, develop strategies, and work on value creation. At the same time, he has shown that the same principles can also be used to understand why certain regions and nations develop high competitiveness and strong economic growth.
Throughout his writings, Porter returns to one fundamental question:
Why are some businesses and societies more successful than others in creating lasting value?
His answer is that long-term value creation is built on productivity, innovation and the ability to continuously develop competitive advantage.
2. Historical and academic context
When Michael Porter began his research career in the 1970s, much of the economic literature was concerned with why some businesses grew faster than others. Many analyses placed the greatest emphasis on access to capital, market share, or size, but offered few answers to why some businesses managed to maintain high profitability and competitiveness over the long term.
Porter believed that the explanation had to be sought in the companies' strategic choices and their ability to create greater value than their competitors.
Through his work, he developed a new way of analyzing competition. He showed that a company's performance is not only influenced by its own resources, but also by competitive conditions in the market, suppliers, customers, new entrants, and alternative products.
Porter later expanded his perspective to include regions and nations, arguing that a country's competitiveness is not primarily based on natural resources or low costs, but on productivity, innovation, expertise, and the ability to continuously improve.
Thus, he shifted his attention from short-term competitive advantages to long-term value creation.
3. Key books and publications
Michael Porter has written a number of books and scientific works that have had great significance in the fields of strategy, competitive analysis, and value creation.
Competitive Strategy (1980)
This book is considered one of the most important works in modern strategy research. In it, Porter presents the Five Forces model , which analyzes how competitive conditions in an industry affect a company's profitability and strategic choices.
Competitive Advantage (1985)
In this work, Porter introduces the value chain , a model that shows how businesses create value through a series of interconnected activities – from purchasing and production to marketing, sales and service. The value chain has since become one of the most widely used analytical tools in strategy and management.
The Competitive Advantage of Nations (1990)
Here Porter expands the perspective from businesses to nations. He develops the so-called diamond model ( Porter's Diamond ), which explains how factors such as expertise, innovation, demanding customers, strong supplier environments and competition affect a country's competitiveness and economic development.
On Competition (1998)
This book brings together several of Porter's most important articles on strategy, competition, industry clusters, and regional development. It shows how competitiveness is developed through continuous improvement and innovation, both at the business level and in society as a whole.
Through these works, Michael Porter established a new framework for understanding how businesses and nations can develop lasting competitive advantages through productivity, innovation, and strategic choices.
4. Michael Porter's understanding of value creation
For Michael Porter, value creation is about a business's ability to create greater value for customers than the costs of producing the good or service. Value creation occurs when a business develops products, services or solutions that customers perceive as more valuable than the alternatives in the market.
Porter thus shifts the focus from production alone to the question of how businesses build lasting competitive advantages. Value creation is not just about producing as much as possible, but about producing smarter, with higher quality, greater innovation capacity and better resource utilization.
The value chain shows where value is created.
One of Porter's most important contributions is the value chain theory .
He shows that value creation occurs through a number of interconnected activities in the business.
Purchasing.
Product development.
Production.
Logistics.
Marketing.
Sale.
Customer service.
All of these activities affect the overall value the business creates.
By analyzing each part of the value chain, businesses can identify where they create the most value, where resources are used most efficiently, and where there are opportunities for improvement.
The value chain thus becomes a tool for continuous development and increased competitiveness.
Competitive advantage creates long-term value creation
Porter argues that businesses achieve lasting success when they develop competitive advantages that are difficult to copy.
This can happen through high quality.
Innovation.
Strong brands.
Efficient production.
Unique expertise.
Or a combination of several factors.
Competitive advantage is therefore not just about price.
They are about the business's overall ability to create value for customers.
The greater the value the business delivers, the stronger the foundation for long-term value creation.
Productivity is the basis for competitiveness
For Porter, productivity is the most important explanation for the competitiveness of both businesses and nations.
Productivity is not just about producing more in less time.
It is about using labor, capital, technology and knowledge in a way that creates the highest possible value.
Businesses with high productivity can invest more in research, innovation and skills development.
Thus, productivity becomes a driving force for further value creation.
Innovation strengthens the value chain
Porter sees innovation as a natural part of value creation.
Innovation can improve products.
Streamline work processes.
Reduce costs.
Increase quality.
Create new markets.
Innovation therefore does not become an end in itself, but a means to strengthen the value chain and develop the company's competitiveness.
Value creation occurs when innovation provides customers with higher value and the business with better resource utilization.
Value creation is about the customer
A consistent theme at Porter is that value creation must always be seen from the customer's perspective.
A business can be efficient, technologically advanced, and well organized.
Yet it does not create lasting value if customers do not perceive the products or services as having high value.
Customer value therefore becomes the very yardstick for whether value creation is successful.
This perspective has had a major impact on modern strategy, customer experience and business development.
Summary
Michael Porter shows that value creation occurs when businesses develop products, services and work processes that create high value for customers while using resources efficiently. Through the value chain, competitive advantage, productivity and continuous innovation, he explains how businesses can build lasting competitiveness.
His research shows that value creation is not the result of a single activity, but of how the entire business works together to develop better solutions than its competitors.
5. What role does the public sector play?
Michael Porter sees the public sector as an important facilitator of value creation, but not as the primary player in competition between businesses. He argues that the most important task of governments is to develop framework conditions that enable businesses to invest, innovate and compete on equal terms.
For Porter, it is the quality of society's framework conditions that is decisive – not whether the state is large or small.
The public sector creates good competitive conditions
Porter shows that businesses develop best when they operate in a society with stable institutions, well-functioning markets and predictable rules.
The authorities contribute, among other things, through:
an effective legal system
investments in education and research
modern infrastructure
competition law
stable financial framework conditions
These factors make it easier for businesses to invest long-term and develop new products and services.
Investments in competence and innovation
Porter highlights the importance of public investments in education, research and skills development.
A society with a high level of education and strong research environments gives businesses access to qualified labor and new knowledge.
This makes the public sector an important contributor to innovation and productivity growth.
Industrial clusters strengthen competitiveness
One of Porter's most famous contributions is his research on industry clusters .
He shows how geographic concentrations of businesses, universities, suppliers and research environments can strengthen innovation capacity and competitiveness.
The public sector can contribute by facilitating such environments through investments, collaboration and long-term business development.
Summary
Michael Porter shows that the public sector plays an important role in value creation by developing good framework conditions for productivity, innovation and competition. Through investments in education, research, infrastructure and effective institutions, governments lay the foundation for businesses to develop lasting competitive advantages and contribute to long-term economic development.
6. What role does the private sector play?
For Michael Porter, the private sector is the most important arena for direct value creation. It is the businesses that develop products and services, invest in innovation, compete for customers and create jobs. Through this activity, knowledge, technology and expertise are converted into values that benefit customers, owners, employees and society.
At the same time, Porter emphasizes that sustainable competitiveness does not arise by chance. It is developed through strategic choices, continuous improvement, and the ability to create greater value than competitors.
Customer value is at the center
Porter believes that the most important task of businesses is to create value for customers.
Value creation is therefore not just about producing as much as possible or as cheaply as possible.
It is about developing products and services that customers experience as better, more useful or more innovative than the alternatives.
The higher the customer value the business creates, the stronger the foundation for long-term competitiveness.
Productivity creates growth
Businesses that continuously improve their work processes and make better use of resources develop higher productivity.
This productivity growth makes it possible to invest further in research, technology, expertise and innovation.
Porter shows that productivity is therefore not just a result of good management.
It is the very foundation for long-term value creation.
Strategy and innovation go hand in hand
Porter emphasizes that businesses must have a clear strategy for how they will differentiate themselves from their competitors.
Innovation becomes an important part of this strategy.
New products.
Better services.
Efficient production.
Stronger customer experiences.
All of these factors contribute to strengthening the business's value chain and creating lasting competitive advantages.
Summary
Michael Porter shows that the private sector creates value through productivity, innovation and strategic development. Businesses that continuously improve their products, services and work processes develop stronger competitiveness and at the same time contribute to increased value creation in society.
The private sector thus becomes the most important arena where knowledge, technology and innovation are translated into practical solutions that create value for customers and society.
7. Criticism and professional debate
Michael Porter's research has had an enormous impact on modern strategy, management and competitive analysis. His theories on competitiveness, value chains and productivity are used today by businesses, governments and universities around the world. At the same time, several of his models have been the subject of academic debate and further development.
The criticism is directed to little against Porter's basic understanding of value creation. The debate is primarily about how the theories should be applied in an economy characterized by digitalization, global networks, and rapid technological development.
Is competition enough?
Porter highlights competition as an important driver of innovation and value creation.
Several researchers have subsequently pointed out that collaboration has also become increasingly important.
Businesses today develop new solutions through partnerships with customers, suppliers, universities and research communities.
Value creation therefore often occurs through a combination of competition and cooperation.
The value chain has evolved
Porter's value chain was developed at a time when businesses largely controlled their own production processes.
In today's digital economy, value creation is often distributed across global networks, digital platforms and ecosystems.
Many researchers therefore believe that the value chain is still a valuable analytical tool, but that it should be supplemented with perspectives that capture interaction across businesses and national borders.
Competitiveness in the digital economy
Digitalization, artificial intelligence and the platform economy have changed the competitive landscape in many industries.
Although these developments were not as evident when Porter developed his models, most researchers believe that his basic principles of productivity, innovation and customer value are still highly relevant.
The theories are therefore often used as a foundation, while at the same time being further developed to meet new technological and economic challenges.
Porter's importance in today's research
Michael Porter is still considered one of the world's most influential researchers in the field of strategy and competitiveness.
His theories are used at leading universities, in international organizations, and by businesses all over the world.
Although the economy has changed significantly since his first books were published, his basic message remains the same:
Sustainable value creation is built on productivity, innovation, strategic choices and the ability to continuously create greater value for customers than competitors.
Summary
The academic debate surrounding Michael Porter's research is primarily about how the theories can be further developed in the face of digitalization, global value chains, and new forms of collaboration.
At the same time, there is broad agreement on his most important contribution: Long-term value creation is created through productivity, innovation, and the strategic development of a company's competitive advantage. This makes Porter's research a central part of the understanding of modern value creation.
8. What can we learn?
Michael Porter's research shows that sustainable value creation is based on more than financial results alone. Businesses create long-term value when they continuously improve productivity, develop innovations and deliver higher value to customers than their competitors. The most important lesson is that competitiveness is created through the systematic development of people, skills, technology and work processes.
9. Relevance for The invisible capital
Michael Porter's research supports the fundamental message of Invisible Capital that the most important competitive advantages are often intangible. Competence, innovation, organizational development, strong value chains and customer experiences are values that are rarely fully reflected in the accounts, but which are crucial for the long-term value creation of businesses and society.
10. Literature
Key books by Michael E. Porter
Competitive Strategy (1980)
Competitive Advantage (1985)
The Competitive Advantage of Nations (1990)
On Competition (1998)
Selected scientific articles on strategy, competitiveness and productivity
Relevant articles
11. Further reading
For readers who want a broader understanding of value creation and competitiveness, the research is also recommended for:
➜ Chapter 10 - Kalle Moene – The Nordic model and value creation
Academic background and further reading
This series also builds on my own professional journey through the Web Design study , the eMarketing study , Innovation and Commercialization and professional seminars in San Francisco and Oxford . Here you will find the background, professional environments and experiences that have followed the development from the early years of the web to today's digitalization.
Recommended literature
Value creation is about much more than economic growth and money. It is about people, knowledge, innovation, productivity, institutions, trust and the interaction between the public and private sectors.
Here we have collected books from some of the world's leading economists and thinkers who explain in various ways how value is created, who contributes to creating it, and what prerequisites make long-term value creation possible.
The books complement each other and provide different perspectives on the same fundamental question:
What really makes people, businesses and societies create greater value over time?
Recommended books from our library
Creating a Learning Society: A New Approach to Growth, Development, and Social Progress
Author: Joseph E. Stiglitz and Bruce C. Greenwald
Short review:
Creating a Learning Society examines how knowledge, learning, and technological development contribute to economic growth and long-term value creation. Joseph E. Stiglitz and Bruce C. Greenwald challenge the notion that economic development is primarily about accumulating more physical capital. They argue that society’s ability to create, disseminate, and apply knowledge is crucial to productivity growth and improved living standards. A key point is that learning does not only occur in schools and universities. It also occurs in businesses, through work, production, innovation, and the interaction between people and organizations. Knowledge can also spread from one business and one part of the economy to others.
The book thus provides an important perspective on why human capital, competence, innovation and learning must be understood as central parts of a society's ability to create value over time.
Why we recommend the book
We recommend Creating a Learning Society because it expands the understanding of what lies behind economic value creation.
Machines, technology and financial capital are important, but they do not create productivity growth alone. Behind the development are people who learn, develop knowledge, improve work processes, share experiences and find new solutions.
This makes the book particularly relevant to Invisible Capital and our perspective on value creation: A significant part of society's value-creating capacity is found in the knowledge, competence, and learning ability of the people who participate in the economy.
Stiglitz and Greenwald thus provide an academic foundation for one of the most important relationships in modern value creation:
The Value of Everything: Making and Taking in the Global Economy
Author: Mariana Mazzucato
Short review
In The Value of Everything, Mariana Mazzucato asks a fundamental question: What exactly is value – and who creates it? Mazzucato returns to the historical discussions of value in economics and shows how the understanding of value creation has changed. She challenges the notion that high income, high prices or large profits necessarily mean that correspondingly large values have been created. One of the book's most important contributions is the distinction between value creation and value extraction . Mazzucato examines the financial sector, the pharmaceutical industry, innovation and the public sector, among others, and argues that we must become better at distinguishing between activities that actually create new values, and activities that primarily extract values that have already been created.
The book also challenges the traditional notion that the private sector creates value while the public sector mainly consumes or redistributes it. Innovation and economic development often arise through a complex interaction between public investment, research, businesses, capital and people.
The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations
Author: Philippe Aghion, Céline Antonin and Simon Bunel
Short review
The Power of Creative Destruction is about one of the most important drivers of long-term economic growth: innovation.
Philippe Aghion, Céline Antonin and Simon Bunel build on Joseph Schumpeter's classic idea of "creative destruction" – the process by which new technologies, businesses, products and ideas challenge and replace existing solutions.
But the book is not just about the disappearance of the old. The authors examine why some economies manage to create continuous innovation and productivity growth, while others stagnate. Competition, entrepreneurship, research, education, institutions and public policy thus become important parts of the explanation.
Creative destruction also comes at a cost. New technologies and businesses create opportunities and jobs, but can also make existing skills, tasks and business models less relevant. The challenge is therefore to create societies that both promote innovation and enable people to participate in the transition.
Why we recommend the book
We recommend The Power of Creative Destruction because it shows why innovation is a fundamental driver of value creation .
Value creation is not just about producing more of what we already produce. It also occurs when people develop new ideas, technology, and ways of working that enable us to solve tasks better than before.
This makes the book particularly relevant to The Invisible Capital. Behind innovation are people with knowledge, expertise, creativity and experience. But Aghion's perspective also shows that human capital must be part of a larger system where competition, institutions, research, investment and policy create the conditions for new ideas to actually turn into economic and social development.
The book thus provides an important context in our understanding of value creation:
Knowledge → new ideas → innovation → productivity growth → long-term value creation.
Competitive Advantage: Creating and Sustaining Superior Performance
Author: Michael E. Porter
Short review
Competitive Advantage is one of Michael E. Porter's most influential works on how businesses create value and develop lasting competitive advantages.
One of the book's most important contributions is the value chain . Porter shows that a business should not be viewed as a single, unified activity, but as a series of interconnected activities – from development and production to logistics, marketing, sales and service. It is through these activities, and the interaction between them, that the business creates value for customers.
Porter also shows how competitive advantage can arise through, among other things, lower costs or differentiation. But behind these results lies the organization of the company's activities, expertise, technology, work processes and the way in which resources are used.
The value chain thus makes it possible to examine where in the business the values are actually created – and how different activities together contribute to the end result.
Why we recommend the book
We recommend Competitive Advantage because Porter gives us a perspective that fits very well into our broader understanding of value creation.
When we talk about a business “creating value,” it may sound as if the business does this as a single entity. Porter opens up the business and shows that value creation occurs through many activities that are interrelated .
And this is where people become particularly interesting.
Behind research, product development, purchasing, production, logistics, marketing, sales, customer service, technology and management are people with knowledge, experience, expertise and the ability to collaborate . The value chain is therefore also a useful way to highlight the human effort behind the company's financial results.
For Invisible Capital, Porter thus gives us another important part of the value creation picture:
People and resources → activities → interaction → customer value → competitiveness → value creation
Institutions, Institutional Change and Economic Performance
Author: Philippe Aghion, Céline Antonin and Simon Bunel
Short review
Institutions, Institutional Change and Economic Performance is one of Douglass C. North's most important works on why some societies are more successful than others in creating economic development over time.
North shifts attention from traditional factors of production such as capital and labor to the institutions that shape how people, businesses, and governments act and cooperate. Institutions are society's formal and informal rules of the game – including laws, regulations, norms, traditions, and established ways of organizing interaction.
These rules of the game affect the incentives that people and organizations face. They also affect investments, knowledge development, cooperation, transaction costs, and which economic activities emerge.
North also shows that institutions develop over time. History therefore matters: Today's economic opportunities are influenced by institutional choices and development paths that can stretch far back in time.
Why we recommend the book
We recommend Institutions, Institutional Change and Economic Performance because it explains a crucial aspect of value creation that easily becomes invisible:
Value creation needs good rules of the game.
People may have knowledge. Businesses may have capital. Entrepreneurs may have great ideas. A society may have natural resources and advanced technology. But outcomes are also influenced by the institutions that determine how people can collaborate, invest, compete, make deals, and develop businesses.
This makes North particularly interesting for our understanding of trust as part of invisible capital. Trust is not the same as institutions, but stable rules of the game, credible agreements, and well-functioning institutions can reduce uncertainty and make economic interaction easier.
North thus gives us another important part of the value creation picture:
Institutions → predictability and incentives → cooperation and investment → productive activity → long-term value creation.
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