Porter took a different path, creating what he calls “frameworks.” In his own words, “My frameworks provide a set of logical relationships that are really fundamental. They’re like physics—if you’re going to have higher profitability, you’ve got to have a higher price or a lower cost. That industry competition is driven by the five forces. That the firm is a collection of activities. These frameworks provide basic, fundamental, and I believe unchangeable relationships about the ‘matter’ of competition.”

The key to competitive success—for businesses and nonprofits alike—lies in an organization’s ability to create unique value. Porter’s prescription: aim to be unique, not best. Creating value, not beating rivals, is at the heart of competition.

Strategy explains how an organization, faced with competition, will achieve superior performance.

How you think about competition will define the choices you make about how you are going to compete. It will impact your ability to assess those choices critically. That is why before we can even begin to talk about strategy, we need to tackle the question of competition and competitive advantage.

The airline industry has suffered from this sort of competition for decades. If American Airlines tries to win new customers by offering free meals on its New York to Miami route, then Delta will be forced to match it—leaving both companies worse off. Both will have incurred added costs, but neither will be able to charge more, and neither will end up with more seats filled. Every time one company makes a move, its rivals will jump to match it. With everyone chasing after the same customer, there will be a contest over every sale. This, says Porter, is competitive convergence. Over time, rivals begin to look alike as one difference after another erodes. Customers are left with nothing but price as the basis for their choices. This has happened in airlines, in many categories of consumer electronics, and in personal computers, with the notable exception of Apple, the one major company in that industry that has consistently marched to its own drummer.

As you might expect, rivals didn’t take long to respond, piling on the pillows and swaddling guests in ever-higher thread counts: Hilton with its Serenity Bed, Marriott with its Revive Collection, Hyatt with its Hyatt Grant Bed, Radisson with its Sleep Number Bed, and Crowne Plaza with its Sleep Advantage Program. By 2006, the press declared that the Bed Wars had come to an end, but not before every major rival had made large investments developing, installing, and promoting its own branded offering. Guests at every hotel in the category can now rest assured that “bed quality” will not differentiate one hotel from another. As is often the case, one company’s attempt to be “the best” ended up raising the bar for everyone. It’s not surprising, with this approach to competing, that long-term profitability in the hotel industry has been chronically low, a topic we’ll explore more rigorously in chapter 2. Reports are mixed about whether, in this case, the industry was able to raise prices enough to benefit from its investment in upgraded bedding. If not, customers captured the value of this spending. But even if this particular move benefited the industry overall, when all rivals compete on the same dimension, no one gains a competitive advantage.

Companies only have to be “big enough,” which rarely means they have to dominate. Often “big enough” is just 10 percent of the market. Yet companies under the influence of winner-takes-all thinking tend to pursue illusory scale advantages. In doing so, they are likely to damage their own performance by cutting price to gain volume, by overextending themselves to serve all market segments, and by pursuing overpriced mergers and acquisitions. The auto industry over the past couple of decades has exhibited all of the above tendencies, to disastrous effect.

Competing to be unique is unlike warfare in that one company’s success does not require its rivals to fail. It is unlike competition in sports because every company can chose to invent its own game. A better analogy than war or sports might be the performing arts. There can be many good singers or actors—each outstanding and successful in a distinctive way. Each finds and creates an audience. The more good performers there are, the more audiences grow and the arts flourish. This kind of value creation is the essence of positive-sum competition.