environment analysis

External EnvironmentExternal EnvironmentWhat the Firm Might DoWhat the Firm Might Do

Internal EnvironmentInternal EnvironmentWhat the Firm Can DoWhat the Firm Can Do

SustainableSustainableCompetitiveCompetitiveAdvantageAdvantage

SWOT Analysis

StrengthsWeaknessesOpportunities Threats

Why SWOT Analysis?

It is an easy-to-use tool for developing an overview of a company’s strategic situationIt forms a basis for matching your

company’s strategy to its situation

S W O TS W O T analysis involves more than just developing the 4 lists of strengths, weaknesses, opportunities, and threats

The most important part of S W O TS W O T analysis is

Using the 4 lists to draw conclusionsabout a company’s overall situation

Acting on the conclusions to

Better match a company’s strategy to itsresource strengths and market opportunities

Correct the important weaknesses

Defend against external threats

Role of SWOT Analysis inCrafting a Better Strategy

Strengths

A STRENGTH is something a company is good at doing or a characteristic that gives it an important capability.

Possible Strengths:Name recognitionProprietary technologyCost advantagesSkilled employeesLoyal Customers

A strength is something a firm does well or an attribute that enhances its competitivenessValuable skills, competencies, or capabilitiesValuable physical assetsValuable human assetsValuable organizational assetsValuable intangible assetsImportant competitive capabilitiesAn attribute placing a company in a position of market

advantage(Group exercise to identify such attributes)Alliances or cooperative ventures with partners

Resource strengths and competitivecapabilities are competitive assets!

Identifying Resource Strengthsand Competitive Capabilities

WeaknessesA WEAKNESS is something a company

lacks or does poorly (in comparison to others) or a condition that places it at a disadvantage

Possible Weaknesses:Poor market imageObsolete facilitiesInternal operating problemsPoor marketing skills

Identifying Resource Weaknessesand Competitive DeficienciesA weakness is something a firm lacks, does

poorly, or a condition placing it at a disadvantage

Resource weaknesses relate to

Inferior or unproven skills,expertise, or intellectual capital

Lack of important physical,organizational, or intangible assets

Missing capabilities in key areasResource weaknesses and deficienciesare competitive liabilities!

Strengths and Weakness form a basis for INTERNAL analysis

By examining strengths, you can discover untapped potential or identify distinct competencies that helped you succeed in the past.

By examining weaknesses, you can identify gaps in performance, vulnerabilities, and erroneous assumptions about existing strategies.

Qualitative assessment –Is the strategy well-conceived?

Covers all the elements of value chain?

Internally consistent?

Makes sense?

Timely and in step with marketplace?

Quantitative assessment – What are the results?

Is company achieving its financial and strategic objectives?

Is company an above-average industry performer?

Approaches to Assess How Wellthe Present Strategy Is Working

How Well Is the Company’sPresent Strategy Working?

Must begin by understanding what the strategy isIdentify competitive approach

Low-cost leadership Differentiation Focus on a particular market niche

Determine competitive scope Broad or narrow geographic market coverage? In how many stages of industry’s

production/distribution chain does the company operate?

Examine recent strategic movesIdentify functional strategies

Key Considerations Key Considerations

ResourcesResources**TangibleTangible**IntangibleIntangible

CapabilitiesCapabilities

Teams of ResourcesTeams of Resources

Sources ofSources of

CoreCoreCompetenciesCompetencies

CompetitiveCompetitiveAdvantageAdvantage

StrategicStrategicCompetitivenessCompetitiveness

Above-AverageAbove-

AverageReturnsReturns


Gained throughGained throughCore CompetenciesCore Competencies

DiscoveringDiscoveringCoreCore

CompetenciesCompetencies

Discovering Core CompetenciesDiscovering Core Competencies

Criteria ofSustaina

bleAdvantages

ValueChain

Analysis

ValuableRareCostly to ImitateNonsubstitutable

****

*

ResourcesResources**TangibleTangible**IntangibleIntangible

Discovering Core Competencies

Are resources strengths and/or strategic assets ??


Are resources strengths and/or strategic assets ??

What a firm has to work with:What a firm has to work with:

its its assets,assets, including its including its peoplepeople and the value of its and the value of its brand namebrand name

What a firm What a firm Has...Has...ResourcesResources

Resources represent Resources represent inputs inputs into a firm’s production into a firm’s production process...process...

such as capital equipment, such as capital equipment, skills of employees, brand skills of employees, brand names, finances and names, finances and talented managerstalented managers

What a firm What a firm HasHas......What a firm has to work with:What a firm has to work with:

its assets, including its people its assets, including its people and the value of its brand nameand the value of its brand name

ResourcesResources

What a firm has to work with:What a firm has to work with:

its assets, including its people its assets, including its people and the value of its brand nameand the value of its brand name

Resources represent inputs into a Resources represent inputs into a firm’s production process...firm’s production process...

such as capital equipment, skills such as capital equipment, skills of employees, brand names, of employees, brand names, finances and talented managersfinances and talented managers

““Some genius invented the Oreo. Some genius invented the Oreo. We’re just living off the We’re just living off the inheritance.”inheritance.”

F. Ross Johnson,F. Ross Johnson,Former President & CEO, Former President & CEO,

RJR NabiscoRJR Nabisco

What a firm What a firm HasHas......ResourcesResources

Tangible ResourcesTangible Resources

FinancialFinancial**PhysicalPhysical**

Human ResourcesHuman Resources**OrganizationalOrganizational**

What a firm Has...What a firm has to work with:

its assets, including its people and the value of its brand name

Resources represent inputs into a firm’s production process...

such as capital equipment, skills of employees, brand names, finances and talented managers

Intangible ResourcesIntangible Resources

TechnologicalTechnological**

InnovationInnovation**

ReputationReputation**

“Some genius invented the Oreo. We’re just living off the inheritance.”

F. Ross Johnson,Former President & CEO, RJR

Nabisco

ResourcesResources

ResourcesResources

** TangibleTangible** IntangibleIntangible




Discussion-What are capabilities??


Discussion-What are capabilities??

What a firm Does...

Capabilities represent:Capabilities represent:

the firm’s capacity or ability to the firm’s capacity or ability to integrate integrate individual firm’s resources individual firm’s resources to achieve a to achieve a desired objective.desired objective.


What a firm Does...

Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources that are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firm's employees.(Discussion on examples )

Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources that are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firm's employees.(Discussion on examples )

Capabilities represent:

the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.


What a firm Does...

Capabilities represent:

the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.

Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources that are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firm's employees.

Capabilities become important when they are Capabilities become important when they are combined in combined in unique combinations unique combinations which create which create core competencies which havecore competencies which have strategic value strategic value and and can lead tocan lead to competitive advantagecompetitive advantage..


ResourcesResources










How do we assemble bundles of How do we assemble bundles of Resources, Capabilities and Core Resources, Capabilities and Core

Competencies to create Competencies to create VALUEVALUE for customers?for customers?

Will environmental changes make Will environmental changes make our core competencies obsolete?our core competencies obsolete?

And..And....

Are substitutes available for our core Are substitutes available for our core competencies?competencies?

Are our core competencies easily Are our core competencies easily imitated?imitated?

Key Questions for Managersin Internal Analysis

Key Questions for Managersin Internal Analysis

What a firm Does...that is Strategically

Valuable

“…“…are the essence of what makes an are the essence of what makes an organization unique in its ability to provide organization unique in its ability to provide value to customers.”value to customers.”

Leonard-Barton, Bowen, Clark, Holloway & Leonard-Barton, Bowen, Clark, Holloway & WheelwrightWheelwright

McKinsey & Co. recommends identifying three to McKinsey & Co. recommends identifying three to four competencies to use in framing strategic four competencies to use in framing strategic actions.actions.

Core CompetenciesCore Competencies

ResourcesResources









Criteria ofSustainableAdvantages

ValuableRareCostly to ImitateNon substitutable

****

Discovering Core Competencies-Discussion

Discovering Core Competencies-Discussion

* Outsource

For a strategic capability to For a strategic capability to be a Core Competency, it be a Core Competency, it must be:must be:


ValuableValuable

RareRare

Costly to ImitateCostly to Imitate

NonsubstitutableNonsubstitutable


Valuable

Core Competencies must be: Valuable Capabilities that help a firm to exploit opportunities to create value for customers or neutralise threats

NonsubstitutableNonsubstitutableCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationshipsCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships


Valuable


RareRare

Costly to ImitateCostly to ImitateCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexityCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity

Capabilities that are possessed by few, if any, current or potential competitorsCapabilities that are possessed by few, if any, current or potential competitors

Stem from skills, expertise, and experience usually representing anAccumulation of learning over time andGradual buildup of real proficiency in

performing an activityInvolve deliberate efforts to develop the ability to

do something, often entailingSelecting people with requisite knowledge and skillsUpgrading or expanding individual abilities Molding work products of individuals into a

cooperative effort to create organizational abilityA conscious effort to create intellectual capital

Company Competencies and Capabilities

Core Competencies –A Valuable Company ResourceA competence becomes a core competence

when the well-performed activity is central to a company’s competitiveness and profitability

Often, a core competence isknowledge-based, residing in people,not in assets or a balance sheet

A core competence is typically the result of cross-department collaboration

A core competence gives a company apotentially valuable competitive capabilityand represents a definite competitive asset

Examples: Core Competencies

Expertise in integrating multiple technologiesto create families of new products

Know-how in creating operating systemsfor cost efficient supply chain management

Speeding new/next-generation products to market

Better after-sale service capability

Skills in manufacturing a high quality product

Capability to fill customer orders accurately and swiftly

Examples: Distinctive Competencies

ToyotaLow-cost, high-quality

manufacturing of motor vehicles

StarbucksInnovative coffee drinks and store

ambience

Determining the CompetitivePower of a Company ResourceTo qualify as competitively valuable or to be the

basis for sustainable competitive advantage, a “resource” must pass 4 tests:

1. Is the resource hard to copy?

2. Is the resource durable – does it have staying power?

3. Is the resource really competitively superior?

4. Can the resource be trumped bythe different capabilities of rivals?

A company’s business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service

All these activities that a company performs internally combine to form a value chain—so-called because the underlying intent of a company’s activities is to do things that ultimately create value for buyers

The value chain contains two types of activities

Primary activities (where most ofthe value for customers is created)

Support activities that facilitateperformance of the primary activities

Concept: Company Value Chain

SupportActivities

Primary Activities

Value Chain AnalysisValue Chain AnalysisIdentifying Resources and Capabilities That Can Add Value

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SupportActivities

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Human Resource ManagementHuman Resource Management


SupportActivities

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Firm InfrastructureFirm Infrastructure


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Assessing whether a firm’s costs are competitive with those of rivals is a crucial part of company situation analysis

Key analytical tools

Value chain analysis

Benchmarking

Are the Company’sPrices and Costs Competitive?

Example: Value Chain Activitiesfor a Bakery Goods Maker

Primary ActivitiesSupply chain

management

Recipe development and testing

Mixing and baking

Packaging

Sales and marketing

Distribution

Support Activities

Quality control

Human resource management

Administration

Example: Value Chain Activitiesfor a Department Store Retailer

Primary ActivitiesMerchandise selection

and purchasingStore layout and

product displayAdvertisingCustomer service

Support ActivitiesSite selectionHiring and trainingStore maintenanceAdministrative

activities

Example: Value ChainActivities for a Hotel Chain

Primary ActivitiesSite selection and

construction

Reservations

Operation of hotel properties

Managing lineupof hotel locations

Support Activities

Accounting

Hiring and training

Advertising

Building a brand and reputation

Generaladministration

Core Competencies--Cautions and RemindersCore Competencies--Cautions and Reminders

Never take for granted that core competencies will continue to provide a source of competitive advantageNever take for granted that core competencies will continue to provide a source of competitive advantage

All core competencies have the potential to become Core RigiditiesAll core competencies have the potential to become Core Rigidities

Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment

Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment

Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats

Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats

ResourcesResources







StrategicStrategicCompetitivenessCompetitiveness

Above-AverageAbove-AverageReturnsReturns


Gained throughGained throughCore CompetenciesCore Competencies



ValueChain

Analysis

ValuableRareCostly to ImitateNonsubstitutable

****

* Outsource

Criteria ofSustainableAdvantages


environment analysis

Documents

competitive assets

companys strategy

possible strengths

lists of strengths

partnersresource strengths

competitive deficiencies

internal analysis

better strategy