lesson 3module: jm006 analyzing a company’s resources and competitive position

Lesson 3 Module: JM006

Analyzing a Company’s Resources and

Competitive Position

Analyzing a Company’s Resources and

Competitive Position


OutlineOutline

• Sizing Up a Company’s Resource Strengths and Weaknesses

• Assessing a Company’s Competitive Strength

• Identifying the Strategic Issues that Merit Managerial Attention


The Key QuestionsThe Key Questions

1. How well is the company’spresent strategy working?

2. What are the company’s resourcestrengths and weaknesses and itsexternal opportunities and threats?

3. Are the company’s pricing strategy competitive?4. How competitive is the company vis-à-vis its rivals?5. What strategic issues merit

managerial attention?


Evaluating How Well the Company’s

Present Strategy Is Working

Evaluating How Well the Company’s

Present Strategy Is Working• Start by identifying the company’s present strategy

– What is the company’s basic competitive approach -

• Low-cost leadership?

• Differentiation?

• Market segmentation?

– What geographic area does the company compete?

– What recent strategic moves has the company made

– What functional strategies is the company using


Identifying the Componentsof a Single-Business Company’s Strategy


• Quantitative assessment – Is the strategy producing good results?

– Is company achieving its financial and strategic objectives?

• Qualitative assessment –

– Is the strategy complete (in the sense of covering all the bases)?

– Are the various pieces of the strategy internally consistent and mutually supportive (as opposed to being in conflict with each other)?

– Is there sound rationale for the strategy?

Approaches to Assess How Wellthe Present Strategy Is WorkingApproaches to Assess How Wellthe Present Strategy Is Working


• Market share

• Account management

• Profit margins

• ROI

• Share price

• Improving/eroding image and reputation

• Technology

Key Indicators of How Wellthe Strategy Is Working

Key Indicators of How Wellthe Strategy Is Working


• S W O TS W O T represents the first letter in

– SS trengths

– WW eaknesses

– OO pportunities

– TT hreats

What Are the Company’s Strengths, Weaknesses,

Opportunities and Threats ?

What Are the Company’s Strengths, Weaknesses,

Opportunities and Threats ?


• A strength is something a firm does well or an attribute that enhances its competitiveness

– Know-how

– Physical assets

– Human capital

– Intangible assets

– Strong strategic alliances or partnerships

Resource strengths and competitivecapabilities are competitive assets!

Identifying Resource Strengthsand Competitive Capabilities

Identifying Resource Strengthsand Competitive Capabilities


Competencies vs. Core Competencies

vs. Distinctive Competencies

Competencies vs. Core Competencies

vs. Distinctive Competencies• A competence is an activity that a company

performs with real proficiency—it is usually the product of organizational learning and experience

• A core competence is a well-performedinternal activity central to a company’s strategy, competitiveness, and profitability

• A distinctive competence is a competitively valuable activity a company performs better than its rivals


• Stem from skills, expertise, and cross-functional collaboration

• Are usually the product of deliberate efforts to develop expertise and competitive prowess – Selecting people with requisite skills and

know-how– Upgrading or expanding individual abilities – Building competitively valuable intellectual

capital

Company Competencies and Capabilities

Company Competencies and Capabilities


Core Competencies -- AValuable Company Resource

Core Competencies -- AValuable Company Resource

• A competence becomes a core competence when an activity that a company performs particularly well is central to its strategy, competitiveness, and profitability

• Typically, a core competence

– Results from collaboration among different parts of a company—it grows out of cross-functional know-how and expertise rather than skills/expertise that resides within a single department or operating unit

– Is intellectual capital and resides in a company’s people, not as assets on the balance sheet

– Gives a company a potentially valuable competitive capability and is thus a competitive asset


Examples of Core Competencies

Examples of Core Competencies

• Product innovation

• Supply chain management

• Product development

• After-sales service

• Total quality management


Determining the CompetitiveValue of a Company ResourceDetermining the Competitive

Value of a Company Resource

• To be the basis for sustainable competitive advantage, a “resource” must possess the following: :

1. Is the resource hard for rivals to copy?

2. Does the resource have staying power – is it durable?

3. Does it actually outclass what rivals have and provide a meaningful edge in attracting and/or pleasing customers?

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


• Opportunities most relevant to acompany are those offering

– Good match with its financial andorganizational resource capabilities

– Best prospects for profitable long-term growth

– Potential for competitive advantage

Identifying a Company’sMarket Opportunities

Identifying a Company’sMarket Opportunities


Identifying External ThreatsIdentifying External Threats• Slow market growth• Emergence of cheaper/better technologies• Introduction of better products by rivals• Entry of lower-cost foreign competitors• Onerous regulations• Potential of a hostile takeover• Unfavorable demographic shifts• Adverse shifts in foreign exchange rates• Attractive substitute products


Role of SWOT Analysis inCrafting a Better StrategyRole of SWOT Analysis inCrafting a Better Strategy

• The most important part of S W O T analysis isusing the 4 lists of strengths, weaknesses, opportunities, and threats

– To draw conclusions about a company’soverall situation and

– 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


The Three Steps of SWOT Analysis


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

• This linked set of activities that are performed internally create value for the customer (the “value” of all the activities is reflected in the price that buyers pay for the product or service—hence the term value chain)

• A company’s value chain consists of two types of activities

– Primary activities – where most ofthe value for customers is created

– Support activities – facilitateperformance of the primary activities

Concept of a Company Value Chain

Concept of a Company Value Chain


A Representative Company Value Chain


• Accurately determining a company’s cost competitiveness involves comparing costs all along the industry’s entire value chain

• Suppliers’ value chains are relevant because– Costs, performance features, and quality of inputs

provided by suppliers influence a firm’s own costsand product performance

• Forward channel allies’ value chains are relevant because – Costs and margins are part of price paid

by ultimate end-user– Activities performed affect end-user satisfaction

The Value Chain Systemfor an Entire Industry

The Value Chain Systemfor an Entire Industry


A Representative Value Chain for an Entire Industry


Home Appliance Industry

Parts and components manufacture

Assembly

Wholesale distribution

Retail sales

Example of Industry Value Chain


Processing of basic ingredients

Syrup manufacture

Bottling and can filling

Wholesale distribution

Advertising

Retailing



Soft Drink Industry


• After identifying key value chain activities, the next step involves breaking down departmental cost accounting data into costs of performing specific activities

• Appropriate degree of disaggregation depends on– Economics of activities– Value of comparing narrowly defined

versus broadly defined activities• Guideline – Develop separate cost

estimates for activities– Having different economics– Representing a significant or growing proportion of

costs

Developing Data to Measure aCompany’s Cost CompetitivenessDeveloping Data to Measure a

Company’s Cost Competitiveness


• Determining whether a company’s costs are in line with those of rivals requires

– Measuring how a company’s costs compare with those of rivals activity-by-activity

• Requires having accounting data to measure costof each value chain activity

• Activity-based costing entails

– Defining expense categories accordingto specific activities performed and

– Assigning costs to the activityresponsible for creating the cost

Activity-Based Costing:Key Tool in Analyzing Costs

Activity-Based Costing:Key Tool in Analyzing Costs


• Benchmarking involves gathering the data needed to make cross-company comparisons of – how certain activities are performed – costs associated with these activities

• Benchmarking can involve cross-company comparisons of – Supply chain activities

• Materials purchasing and materials costs• Systems for paying suppliers• Management of inventories

– Getting new products to market– Quality control– Filling and shipping of customer orders – Training of employees– Processing of payrolls

Benchmarking: A Tool for ComparingCosts of Key Value Chain Activities

Benchmarking: A Tool for ComparingCosts of Key Value Chain Activities


• Identify “best practices” in performing each activity in the value chain

– Learn the methods, techniques, and approaches used by other firms to

• Lower costs

• Achieve better results

– Understand the “best practices”

• Take action to improve company’s cost competitiveness and methods of operation by implementing best practices

Objectives of BenchmarkingObjectives of Benchmarking


• A company’s cost competitiveness depends on how well the company manages its value chain relative to how well its competitors manage their value chains

• When a company discovers its costs are out-of-line, the high-cost activities can exist in any of three areas in the industry value chain

1. Suppliers’ activities

2. Company’s own internal activities

3. Forward channel activities

Activities, Costs, &

Margins ofForward

Channel Allies

InternallyPerformedActivities, Costs, &Margins

Activities, Costs, &

Margins ofSuppliers

Buyer/UserValue

Chains

Good Value Chain Management Is the Key to Being Cost CompetitiveGood Value Chain Management Is the Key to Being Cost Competitive


• Evaluating the strength of a company’s overall competitive position involvesanswering two questions

– How does a company rank relativeto its key rivals on each importantfactor that determines market success?

– Does the company have a netcompetitive advantage or disadvantagevis-à-vis its major competitors?

Determining Whether a Company Is Competitively Stronger or Weaker than Key

Rivals

Determining Whether a Company Is Competitively Stronger or Weaker than Key

Rivals


• How to combat price discounting of rivals?

• How to reduce a company’s high costs?

• How to sustain a company’s present growthin light of slowing buyer demand?

• Whether to expand a company’s product line?

• Whether to acquire a rival firm?

• Whether to expand into foreign markets rapidly or cautiously?

• How to stave off market challenges from new foreign competitors?

• What to do about aging demographics of a company’s customer base?

A Sampling of Possible Strategic IssuesA Sampling of Possible Strategic Issues

lesson 3module: jm006 analyzing a company’s resources and competitive position

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