sty mgt module 4 aug 10

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McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

44

Chapter TitleChapter Title

16/e PPT16/e PPT

Evaluating a

Company·s

Resources and

Competitive Position

Screen graphics created by:

Jana F. Kuzmicki, Ph.D.Troy University-Florida Region



The Basic Framework

Strategy: the Link between the Firm

and its Environment

THE FIRM Goals &

Values

Resources &

Capabilities

Structure &Systems

THEINDUSTRY

ENVIRONMENT

Competitors

Customers

Suppliers

STRATEGY

STRATEGY



Sources of Superior Profitability

RATE OF PROFIT

ABOVE THE

COMPETITIVE LEVEL

How do we

make money?

INDUSTRY

ATTRACTIVENESS

Which

businesses

should we be in?

COMPETITIVEADVANTAGE

How should we

compete?

CORPORATE

STRATEGY

BUSINESS

STRATEGY



Chapter Roadmap

� Question 1: How Well Is the Companys PresentStrategy Working?

� Question 2: What Are the Companys Resource

Strengths and Weaknesses and Its ExternalOpportunities and Threats?

� Question 3: Are the Companys Prices and CostsCompetitive?

�

Question 4: Is the Company CompetitivelyStronger or Weaker than Key Rivals?

� Question 5: What Strategic Issues and Problemsmerit F ront-Burner Managerial Attention?



1. How well is the companyspresent strategy working?

2. What are the companys resource

strengths and weaknesses and itsexternal opportunities and threats?

3. Are the companys prices andcosts competitive?

4. Is the company competitively strongeror weaker than key rivals?

5. What strategic issues meritfront-burner managerial attention?

Company Situation Analysis:

The Key Questions



Fig. 4.1: Identifying the Components of a Single-Business Companys Strategy



Question 1: How Well Is the Companys

Present Strategy Working?

� Must begin by understanding what the strategy is

± Identify c ompetitive approach

� Low-cost leadership

� Differentiation

� Focus on a particular market niche

± Determine c ompetitive sc ope

� Broad or narrow geographic market coverage?

� In how many stages of industrys production/distribution chain doesthe company operate?

± Examine rec ent strategi c moves

± Identify f unc tional strategies

Key ConsiderationsKey Considerations



� Qualitative assessment

Is the strategy well-c onc eived?

± Covers all the bases?

± 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 Well

the Present 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.

Key Indicators of How Well

the Strategy Is Working



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

±± SS trengths

±± W W eaknesses

±± OO pportunities

±± T T hreats

� For a companys strategy to be well-c onc eived, it mustbe

± Matched to its resource strengths and weaknesses

± Aimed at capturing its best market opportunities anderecting defenses against external threats to its well-being

S W

O T

Question 2: What Are the Companys Strengths,

Weaknesses, Opportunities and Threats ?



� A strengt h is something a firm does well or an attribute

that enhances its competitiveness

± Valuable skills, competencies, or capabilities

±

Valuable physical assets± Valuable human assets

± Valuable organizational assets

± Valuable intangible assets

± Important competitive capabilities

± An attribute placing a company in a position of marketadvantage

± Alliances or cooperative ventures with partners

Resour c e strengt hs and c ompetitive

c apabilities are c ompetitive assets!

Identifying Resource Strengths

and Competitive Capabilities



Competencies vs. Core Competencies vs. Distinctive

Competencies

� A c ompetenc e is the produc t of organizational learning and experienc e and represents realprof i c ienc y in performing an internal activity

� A c ore c ompetenc e is a well-performedinternal activity c entral (not peripheral or incidental) toa companys c ompetitivenessand prof itability

� A distinc tive c ompetenc e is a c ompetitively valuableac tivity a company per f orms better t han its rivals



� Stem from skills, expertise, and experienc e usually representing an± Accumulation of learning over, time

± Gradual buildup of real prof i c ienc y in

per f orming an ac tivity � Involve deliberate eff orts to develop the ability to do

something, often entailing± Selecting people with requisite knowledge and skills

± Upgrading or expanding individual abilities

± Molding work products of individuals into a cooperativeeffort to create organizational ability

± A conscious effort to create intellectual capital

Company Competencies and

Capabilities



Core Competencies

A Valuable Company Resource

� A c ompetenc e becomes a c ore c ompetenc e when thewell-performed activity is c entral to a companyscompetitiveness and profitability

� Often, a c ore c ompetenc e isknowledge-based, residing in people,not in assets on a balance sheet

� A c ore c ompetenc e is typically the result of c ross-department c ollaboration

� A c ore c ompetenc e gives a company apotentially valuable c ompetitive c apability and represents a definite c ompetitive asset



Examples: Core Competencies

� Expertise in integrating multiple technologiesto create families of new products

� Know-how in creating operating systems

for 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



� A distinc tive c ompetenc e is a competitively valuableactivity that a company per f orms better t han itsc ompetitors

�

A distinc tive c ompetenc e is a c ompetitively potent resour c e sour c e because it

± Gives a company a c ompetitively valuablec apability unmat ched by rivals

±Can underpin and add real punchto a companys strategy

± Is a basis for sustainable c ompetitive advantage# 1

Distinctive Competence

A Competitively Superior Resource



Examples: Distinctive Competencies

T oyota

Low-cost, high-quality

manufacturing of motor

vehicles

Starbuc ks

Innovative coffee drinks

and store ambience



�� S W O TS W O T analysis involves more t han just developing t he 4 lists of strengths, weaknesses, opportunities, and threats

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

± U sing t he 4 lists to draw c onc lusionsabout a c ompanys overall situation

± Ac ting on t he c onc lusions to

� Better match a companys strategy to itsresource strengths and market opportunities

� Correct the important weaknesses

� Defend against external threats

Role of SWOT Analysis in

Crafting a Better Strategy



Identifying Resource Weaknesses

and Competitive Deficiencies

� A weakness is something a firm lacks, does

poorly, or a condition placing it at a disadvantage

�

Resour c e weaknesses relate to

± Inferior or unproven skills,

expertise, or intellectual capital

± Lack of important physical,

organizational, or intangible assets

± Missing capabilities in key areas

Resour c e weaknesses and def i c ienc ies

are c ompetitive liabilities!



Identifying External Threats

� Emergence of cheaper/better technologies

� Introduction of better products by rivals

� Entry of lower-cost foreign competitors

� Rigorous regulations

� Rise in interest rates

� Potential of a hostile takeover

� Unfavorable demographic shifts

� Adverse shifts in foreign exchange rates

� Political upheaval in a country



Fig. 4.2: The Steps of SWOT Analysis



For Discussion: Your Opinion

In doing SWOT analysis, why is it not sufficient

just to compile 4 lists (one each for resource

strengths, resource weaknesses, market

opportunities, and external threats) and then

move on?



� Assessing whether a firms c osts are c ompetitivewith those of rivals is a crucial part of companysituation analysis

� Key analyti c al tools

± Value chain analysis

± Benchmarking

Question 3: Are the Companys

Prices and Costs Competitive?



� A companys business consists of all ac tivities undertaken indesigning, producing, marketing, delivering, and supporting itsproduct or service

� All these activities that a company performs internally combine to

form a value chainso-called because the underlying intent of acompanys activities is to do things that ultimately c reate value f or buyers

� The value chain contains two types of ac tivities

± P rimary ac tivities (where most of the value for customers is created)

± Support ac tivities that facilitateperformance of the primary activities

Concept: Company Value Chain



Fig. 4.3: A Representative Company Value Chain



Example: Value Chain Activities

for a Bakery Goods Maker

P rimary Ac tivities

� Supply chain management

� Recipe development and

testing

� Mixing and baking

� Packaging

� Sales and marketing

� Distribution

Support Ac tivities

� Quality control

�

Human resourcemanagement

� Administration




for a Department Store Retailer


� Merchandise selection and

purchasing

� Store layout and productdisplay

� Advertising

� Customer service

Support Ac tivities

� Site selection

� Hiring and training

� Store maintenance

� Administrative activities



Example: Value Chain

Activities for a Hotel Chain


� Site selection and

construction

� Reservations

� Operation of hotel

properties

�

Managing lineupof hotel locations

Support Ac tivities

� Accounting

�

Hiring and training

� Advertising

� Building a brand and

reputation

� General

administration



� C ombined c osts of all activities in a companys valuechain def ine the companys internal c ost struc ture

� C ompares a firms costs activity by activity against costs of key rivals

± From raw materials purchase to

± Price paid by ultimate customer

� P inpoints w hi ch internal ac tivities are asource of c ost advantage or disadvantage

Characteristics of Value Chain

Analysis



� Several f ac tors give rise to di ff erenc esin value chains of rival companies

± Different strategies

± Different operating practices

± Different technologies

± Different degrees of vertical integration

± Some companies may perform particular activities internally whileothers outsource them

� Di ff erenc es among t he value chains of c ompeting c ompaniesc ompli c ate task of assessingrivals relative c ost positions

Why Do Value Chains of Rivals

Differ?



� Assessing a companys c ost c ompetitiveness involvesc omparing c osts all along the industrys value chain

� Suppliers value chains are relevant because

±

Costs, performance features, and quality of inputsprovided by suppliers influence a firms own costsand product performance

� V alue chains of distributors and retailers arerelevant because

± Their costs and profit margins represent value addedand are part of the price paid by ultimate end-user

± The activities they perform affect end-user satisfaction

The Value Chain System

for an Entire Industry



Fig. 4.4: Representative Value Chain for an Entire Industry




Pulp & Paper Industry

Timber farming

Logging

Pulp mills

Papermaking

Distribution




Parts and components manufacture

Assembly

Wholesale distribution

Retail sales

Home Appliance Industry



Processing of basic ingredients

Syrup manufacture

Bottling and can filling

Wholesale distributionAdvertising

Retailing


Albertson¶s

Soft Drink Industry




Computer Software Industry

Programming

Disk loading

Marketing

Distribution



Developing Data to Measure a

Companys Cost Competitiveness

� After identifying key value chain activities, the next stepinvolves determining costs of performing specific value chainactivities is, using ac tivity-based c osting

� 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



� Determining, whether a companys costs are inline with those of rivals, requires

± Measuring, how a companys costs, compare withthose of rivals, activity-by-activity

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

� Activity-based costing entail (require)

±

Defining expense categories accordingto specific activities performed and

± Assigning costs to the activityresponsible for creating the cost

Activity-Based Costing: A Key

Tool in Analyzing Costs



� Overall c ompetitive position involvesanswering two questions

± How does a c ompany rank relativeto c ompetitors on each importantfactor that determines market success?

± Does a company have a netc ompetitive advantage or disadvantagevis-à-vis major competitors?

Question 4: Is the Company Stronger

or Weaker than Key Rivals?



� Focuses on c ross-c ompany c omparisons of how certainactivities are performed and c osts associated withthese 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 payrolls

Benchmarking Costs of

Key Value Chain Activities



� I denti f y best and most efficient means of performingvarious value chain activities

� Learn what is the best way to perform a particular

activity from those companies who have demonstratedthat they are best-in-industry or best-in-world atperforming the activity

� Learn what other firms do to perform

an activity at lower cost� F igure out w hat ac tions to take to improve a

companys own cost competitiveness

Objectives of Benchmarking



WeightedUn weighted

Competitive Strength

Assessment



� Reveals strength of firms competitive positionvis-à-vis key rivals

� Shows how firm stacks up against rivals, measure-by-measure pinpoints firms competitivestrengths and competitive weaknesses

� Indicates whether firm is at a competitiveadvantage / disadvantage against each rival

� Identifies possible offensive attacks (pit companystrengths against rivals weaknesses)

� Identifies possible defensive actions (a need tocorrect competitive weaknesses)

Why Do a Competitive

Strength Assessment ?



Test Your Knowledge

Which of the following statements is f alse?

A. The higher a companys costs are above those of close rivals, the morecompetitively vulnerable it becomes.

B. Because the value chains of rival companies tend to be quite similar, costsoutside a companys own value chain do not affect whether it is at a cost

advantage or disadvantage vis-à-vis key rivals.

C. A companys cost competitiveness depends not only on the costs of internally performed value chain activities but also on the costs of activities performed by its suppliers and forward channel allies.

D. The stronger a companys financial performance and market position, themore likely it has a well-conceived, well-executed strategy.

E. A competence is something a company is good at doing whereas a corecompetence is a proficiently performed internal activity that is central toa companys strategy and competitiveness.



� Based on results of both industry and competitive

analysis and an evaluation of a companys

competitiveness, what items should be

on a companys worry list?

� Requires t hinking strategi c ally about

± Pluses and minuses in the industry

and competitive situation± Companys resource strengths and weaknesses and

attractiveness of its competitive positionA good strategy must address w hat to do

about each and every strategi c issue!

Question 5: What Strategic Issues

Merit Managerial Attention?



Stating the Issues Clearly and

Precisely

� A well-stated issue involves such phrases as

± How to . . . ?

± W het her to . . . ?

±

W hat should be done about . . . ? � Issues need to be precise, specific,

and c ut straight to t he chase

� Issues on the t he worry list

raise questions about± What actions need to be considered

± What to think about doing



� How to stave off market challenges from new foreign

competitors?

� How to combat price discounting of rivals?

� How to reduce a companys high costs?

� How to sustain a companys present growth

in light of slowing buyer demand?

� Whether to expand a companys product line?

� Whether to acquire a rival firm?

� Whether to expand into foreign markets rapidly or cautiously?

� What to do about aging demographics of a companys customer

base?

Identifying the Strategic Issues:

Some Possibilities



For Discussion: Your Opinion

Why is it important for company managers to

develop a worry list of strategic issues and

problems that they need to address and toresolve? Why cant managers just skip this step

and go directly to the task of choosing what

strategy to employ?



The purpose of the worry list is to identi f y t he spec i f i c

issues/problems t hat management needs to address,

not to figure out what specific actions to take.

-Deciding what to do which strategic actions to take

and which strategic moves to make comes later,

-i.e. when it is time to craft a companys strategy andchoose from among the various strategic alternatives



� C ost c ompetitiveness depends on how well a

company manages its value chain relative to how

well competitors manage their value chains

� When a companys costs are out-of-line, theactivities responsible for the higher costs may be

due to any of three parts of industry value chain

1. Ac tivities per f ormed by suppliers

2. A companys own internal ac tivities

3. Ac tivities per f ormed by f orward channel alliesActivities,

Costs, &

Margins of

Forward

Channel Allies

Internally

Performed

Activities,

Costs, &

Margins

Activities,

Costs, &

Margins of

Suppliers

Buyer/User

Value

Chains

What Determines If a

Company Is Cost Competitive?



� A company can create c ompetitive advantage byout-managing rivals in performing value chainactivities in either/both of two ways

Option 1: Develop competencies and capabilitiesthat rivals dont have or cant match

Option 2: Do an overall better job than rivals of lowering combined costs of performingall the value chain activities

Translating Performance of Value Chain Activities

into Competitive Advantage



Fig. 4.5: Translating Company Performance of

Value Chain Activities into Competitive Advantage



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

Assessing a Companys

Competitive Strength vs. Key Rivals



� Reveals strength of firms competitive positionvis-à-vis key rivals

� Shows how firm stacks up against rivals, measure-by-measure pinpoints firms competitivestrengths and competitive weaknesses

� Indicates whether firm is at a competitiveadvantage / disadvantage against each rival

� Identifies possible offensive attacks (pit companystrengths against rivals weaknesses)

� Identifies possible defensive actions (a need tocorrect competitive weaknesses)

Why Do a Competitive

Strength Assessment ?



Ethical Principles in Benchmarking

� Avoid actions implying an interest in

± Restraint of trade

± Market and/or customer allocation

schemes

± Price fixing

±

Bribery� Refrain from acquiring trade secrets

by any means viewed as improper

� Be willing to provide same type of

information to a benchmarking

partner

� Communicate early to clarifyexpectations and avoid

misunderstandings

� Be honest and complete

� Treat benchmarking interchange asconfidential

� Use information obtained only forstated purposes

� Respect corporate culture of partner

companies� Use benchmarking contacts

designated by partner company

� Be fully prepared for each exchange

� Provide partners with agenda andquestionnaire prior to exchange

�

Follow through with commitmentsto partner in a timely manner

� Understand how partner wantsinformation provided used

sty mgt module 4 aug 10

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