Chapter-04 Evaluating a Company’s Resources & Competitive Position

Mohammed Sohail Mustafa 1

Chapter - 04

Evaluating a Company’s Resources & Competitive

Position


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.


Identifying the Components of a Single-Business Company’s Strategy


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?)


Step: I How Well is the Company’s Present Strategy Working?

Identify competitive approach. Determine competitive scope. Examine recent strategic moves. Identify functional strategies.


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.


Five Categories of Ratios

1. Liquidity Ratios,2. Activity/Turnover/Asset Management

Ratios,3. Debt Management Ratios.4. Profitability Ratios, &5. Market Ratios.


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


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


4-13


4-14


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.


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:


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.)


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


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


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.


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


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


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.


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

Chapter-04 Evaluating a Company’s Resources & Competitive Position

Documents

Transcript of Chapter-04 Evaluating a Company’s Resources & Competitive Position