chapter-04 evaluating a company’s resources & competitive position
DESCRIPTION
Evaluating a Company’s Resources & Competitive PositionTRANSCRIPT
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Chapter - 04
Evaluating a Company’s Resources & Competitive
Position
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Topics to be Covered
Identifying the Components of a Single-Business Company’s Strategy.
Company Situation Analysis. Key Indicators how well the Strategy is Working. Five Categories of Ratios. SWOT Analysis. Value Chain Analysis. Benchmarking.
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Identifying the Components of a Single-Business Company’s Strategy
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Company Situation Analysis
Company situation analysis is based on following five analytical steps: Determine how well the present strategy is working (is
current performance good?) By accounting criteria; by financial criteria; by marketing criteria; by management & HRM criteria, etc.
Do a SWOT analysis. Match S&W with O&T. What are the company’s core capabilities? What is the current overlap between the key success factors in the industry and the company’s core capabilities?
Asses the company’s relative competitive strength. Which of the company’s resources and assets are valuable in terms of providing a distinctive competency? Are these assets rare, non-imitable, or non-substitutable?
Evaluate the company’s relative cost position Identify the strategic issues and problems which the
company needs to address (change the mission? Raise or lower objectives? Improve or change strategy?)
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Step: I How Well is the Company’s Present Strategy Working?
Identify competitive approach. Determine competitive scope. Examine recent strategic moves. Identify functional strategies.
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Key Indicators how well the Strategy is Working Trend in sales and market share Acquiring and/or retaining customers Trend in profit margins Trend in net profits, ROI, and EVA Overall financial strength and credit ranking Efforts at continuous improvement activities Trend in stock price and stockholder value Image and reputation with customers Leadership role (s) – Technology, quality,
innovation, e-commerce, etc.
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Five Categories of Ratios
1. Liquidity Ratios,2. Activity/Turnover/Asset Management
Ratios,3. Debt Management Ratios.4. Profitability Ratios, &5. Market Ratios.
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Step: II What are the Company’s Strength, Weakness, Opportunities & Threats? Setting the objective should be done after the
SWOT analysis has been performed. This would allow achievable goals or objectives to be set for the organization. Strengths: characteristics of the business, or project
team that give it an advantage over others Weaknesses (or Limitations): are characteristics that
place the team at a disadvantage relative to others Opportunities: external chances to improve
performance (e.g. make greater profits) in the environment
Threats: external elements in the environment that could cause trouble for the business or project
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Strength Weakness Opportunities Threats
Skill or important expertise
Valuable physical assets
Valuable human assets
Valuable organizational assets
Valuable intangible assets
Competitive capabilities
Position of market advantage
Alliances and cooperative ventures
Deficiencies in skills or needed expertise
Lack of physical, organizational or intangible assets
Missing competitive capabilities in key areas
Not every industry opportunity is a company opportunity
Offer avenues for profitable growth
Offer potential for competitive advantage
Match well with company’s financial and organizational capabilities
Emergence of new products
Emergence of new technologies
Entry of new competitors
New regulationsVulnerability to
interest rate fluctuations
Vulnerability to FX rate fluctuations
Demographic shifts
Political upheaval
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4-13
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4-14
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Step III: Are the Company’s Prices & Costs Competitive?
The two key analytical tools to measure the price & costs of the company’s product are:1. Value Chain Analysis, &2. Benchmarking.
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Value Chain Analysis
To better understand the activities through which a firm develops a competitive advantage and creates shareholder value, it is useful to separate the business system into a series of value-generating activities referred to as the value chain. In his 1985 book Competitive Advantage, Michael Porter introduced a generic value chain model that comprises a sequence of activities found to be common to a wide range of firms. Porter identified primary and support activities as shown in the following diagram:
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Cost Advantage and the Value Chain Porter identified 10 cost drivers related to
value chain activities:1. Economies of scale2. Learning3. Capacity utilization4. Linkages among activities5. Interrelationships among business units6. Degree of vertical integration7. Timing of market entry8. Firm's policy of cost or differentiation9. Geographic location10. Institutional factors (regulation, union activity, taxes,
etc.)
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Differentiation and the Value Chain
Porter identified several drivers of uniqueness:1. Policies and decisions2. Linkages among activities3. Timing4. Location5. Interrelationships6. Learning7. Integration8. Scale (e.g. better service as a result of large
scale)9. Institutional factors
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Technology and the Value Chain
InboundLogistics
Technologies
OperationsTechnologies
OutboundLogistics
Technologies
Marketing &Sales
Technologies
ServiceTechnologies
Transportation Material
handling Material storage Communications Testing Information
systems
Process Materials Machine tools Material
handling Packaging Maintenance Testing Building design
& operation Information
systems
Transportation Material handling Packaging Communications Information
systems
Media Audio/video Communicatio
ns Information
systems
Testing Communications Information
systems
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Linkages between Value Chain Activities
Value chain activities are not isolated from one another. Rather, one value chain activity often affects the cost or performance of other ones. Linkages may exist between primary activities and also between primary and support activities. Consider the case in which the design of a product is changed in order to reduce manufacturing costs. Suppose that inadvertently the new product design results in increased service costs; the cost reduction could be less than anticipated and even worse, there could be a net cost increase. Sometimes however, the firm may be able to reduce cost in one activity and consequently enjoy a cost reduction in another, such as when a design change simultaneously reduces manufacturing costs and improves reliability so that the service costs also are reduced. Through such improvements the firm has the potential to develop a competitive advantage.
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Benchmarking
Focuses on cross-company comparisons of how certain activities are performed and costs associated with these activities: Purchase of materials Payment of suppliers Management of inventories Getting new products to market Performance of quality control Filling and shipping of customer orders Training of employees Processing of pay rolls
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Step: IV Is the Company Stronger or Weaker than Key Rivals?
The Company assesses its competitive strength with key rivals in the following ways:
1. List industry key success factors and other relevant measures of competitive strength
2. Rate firm and key rivals on each factor using rating scale of 1 to 10 (1 = very weak; 5 = average; 10 = very strong)
3. Decide whether to use a weighted or unweighted rating system (a weighted system is superior because chosen strength measures are unlikely to be equally important)
4. Sum individual ratings to get an overall measure of competitive strength for each rival
5. Based on overall strength ratings, determine overall competitive position of firm
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Why do a Competitive Strength Assessment?
Reveals strength of firm’s competitive position.
Shows how firms’ stacks up against rivals, measure-by-measure- pinpoint the company’s competitive strengths & weakness.
Indicate whether the firm is at a competitive advantage/disadvantage against each rival.
Identifies possible offensive attacks. Identifies possible defensive actions.
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Step: V What Strategic Issues Merit Managerial Attention?
Whether current strategy is adequate to meet trends in competitive forces
Adjust to respond to driving forces of industry Industry’s future key success factors Vulnerability to efforts of rivals Capitalize on strengths Prioritize opportunities Protection against threats and weaknesses Competitive advantage or disadvantage Strong and weak spots in current strategy Additional actions needed
Improve cost position Capitalize on emerging opportunities Strengthen competitive position