McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

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Chapter TitleChapter Title

15/e PPT15/e PPT

Evaluating a Company’s

Resources and Competitive

Position

Screen graphics created by:Jana F. Kuzmicki, Ph.D.

Troy University-Florida Region

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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 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

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Fig. 4.1: Identifying the Components ofa Single-Business Company’s Strategy

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Question 1: How Well Is the Company’sPresent Strategy Working?

Must begin by understanding what the strategy is Identify 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 moves Identify functional strategies

Key Considerations Key Considerations

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Qualitative assessment –Is the strategy well-conceived?

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 Wellthe Present Strategy Is Working

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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 Wellthe Strategy Is Working

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S W O TS W O T represents the first letter in SS trengths

WW eaknesses

OO pportunities

TT hreats

For a company’s strategy to be well-conceived, it must be Matched to its resource strengths and weaknesses

Aimed at capturing its best market opportunities and erecting defenses against external threats to its well-being

S W

O T

Question 2: What Are the Company’s Strengths, Weaknesses, Opportunities and Threats ?

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A strength 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 market

advantage Alliances or cooperative ventures with partners

Resource strengths and competitivecapabilities are competitive assets!

Identifying Resource Strengthsand Competitive Capabilities

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Competencies vs. Core Competencies vs. Distinctive Competencies

A competence is the product of organizational learning and experience and represents real proficiency in performing an internal activity

A core competence is a well-performedinternal activity central (not peripheral or incidental) to a company’s competitivenessand profitability

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

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Identifying Resource Weaknessesand Competitive Deficiencies

A 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 areas

Resource weaknesses and deficienciesare competitive liabilities!

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Identifying a Company’sMarket Opportunities

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

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Identifying External Threats

Emergence of cheaper/better technologies

Introduction of better products by rivals

Entry of lower-cost foreign competitors

Onerous regulations

Rise in interest rates

Potential of a hostile takeover

Unfavorable demographic shifts

Adverse shifts in foreign exchange rates

Political upheaval in a country

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Fig. 4.2: The Three Steps of SWOT Analysis

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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

Question 3: Are the Company’sPrices and Costs Competitive?

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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

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Fig. 4.3: A Representative Company Value Chain

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Fig. 4.4: Representative Value Chain for an Entire Industry

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Developing Data to Measure a Company’s Cost Competitiveness

After identifying key value chain activities, the next step involves determining costs of performing specific value chain activities using activity-based costing

Appropriate degree of disaggregation depends on Economics of activities

Value of comparing narrowly definedversus broadly defined activities

Guideline – Develop separate costestimates for activities Having different economics

Representing a significant or growing proportion of costs

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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 according

to specific activities performed and Assigning costs to the activity

responsible for creating the cost

Activity-Based Costing: A KeyTool in Analyzing Costs

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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 payrolls

Benchmarking Costs ofKey Value Chain Activities

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Fig. 4.5: Translating Company Performance of Value Chain Activities into Competitive Advantage

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Overall competitive position involvesanswering two questions

How does a company rank relativeto competitors on each importantfactor that determines market success?

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

Question 4: Is the Company Strongeror Weaker than Key Rivals?

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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 Company’sCompetitive Strength vs. Key Rivals

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Based on results of both industry and competitive analysis and an evaluation of a company’s competitiveness, what items should beon a company’s “worry list”?

Requires thinking strategically about Pluses and minuses in the industry

and competitive situation Company’s resource strengths and weaknesses and

attractiveness of its competitive position

A “good” strategy must address “what to do”about each and every strategic issue!

Question 5: What Strategic IssuesMerit Managerial Attention?