Chapter 4Evaluating a Company’s

Resources and Competitive

Position

Objectives

• How evaluate and identify the strengths

• Why certain activities performed?

• Cost structure ?

• Strengths and key rivals

• Industry, analysis..

What could a manager do?

Questions

1) Strategy ?

2) SWOT ?

3) Prices and costs are competitive ?

4) Competitively stronger/weaker than

key rivals ?

5) Strategic issues/problems the most importants

Tools

• SWOT

• Value chain

• Benchmarking

• Competitive strength assessment

How well is the company’s presentstrategy working ?

Q1.

What the strategy is ?

R&D and

Supply chain

Manufacturing

MarketingHuman

ressources

Financial

How well a company’s strategyis working

• Sales• Customers• Profit margins• Net profits• Financial strength and credit rating• Internal measures• Shareholders• Image

Profit margins and sales

Revenues – Cost of good sold

Revenues

Net profits

Profits after taxes

Revenues

Financial strength

Current assets

Current liabilities

Current assets – Inventory

Current liabilities

Current assets – Liabilities

Internal performance measures

Inventory

Cost of goods sold/365

Profits after taxes

Total stockholders’ equity

ShareholdersAnnual dividends per share

Current market price per share

Or

Earnings per share

Annual dividends per share

Earnings per share

After tax profits + Depreciation

• Performance increase= Do not Change

• Performance decrease= Need to change

Q2.What are the company’s resource

strengths and weaknesses and its

external opportunities and threats ?

Strength

Identifying company resource strengths,competencies, and competitive capabilities

• A skill, an area of specialized expertise, or a competitively

important capability

• Valuable physical assets

• Valuable human assets and intellectual capital

• Valuable organizational assets

• Valuable intangible assets

• An achievement or attribute that puts the company in a position

of market advantage

• Competitively valuable alliances or cooperative ventures

Assessing a company’s competencies and capabilities-What activities does it perform well?

• Competence

- something an organization is good at doing

• Core competence

- internal activity that is central to a company’s strategy and competitiveness

• Distinctive competence

- valuable activity that a company performs better than

its rivals

A distinctive competence is a competitivelypotent resource strength

• It gives a company competitively valuable

capability that is unmatched by rivals

• It has potential for being the cornerstone of the

company’s strategy

• It can produce a competitive edge

What is the competitive power of aresource strength?

• Is the resource really competitively valuable?

• Is the resource strength rare—is it something

rivals lack?

• Is the resource strength hard to copy?

• Can the resource strength be trumped by

substitute resource strengths and competitive

capabilities?

Competitively valuable resource strengthsand competencies call for the use of a

resource-based strategy

• Resource-based strategies

- attempt to exploit company resources in a

manner that offers value to customers in ways

rivals are unable to match

- be directed at eroding or a least neutralizing the competitive potency of a particular rival’s

resource strengths

Weakness

Identifying company resource weaknesses, missingcapabilities, and competitive deficiencies

• Inferior or unproven skills, expertise, or

intellectual capital in competitively important

areas of the business

• Deficiencies in competitively important physical,

organizational, or intangible assets

• Missing or competitively inferior capabilities in

key areas

Opportunities

Identifying a company’s external market opportunities

• A company’s opportunities can be plentiful or

scarce, fleeting or lasting, and can range from

wildly attractive to marginally interesting to

unsuitable

• Big opportunities are nonetheless hard to see in

advance.

• Managers have to guard against viewing every

industry opportunity as a company opportunity

• The market opportunities most relevant to a

company are those that match up well with the

company’s financial and organizational

resource capabilities

Identifying a company’s external market opportunities

Threats

Identifying the external threats toprofitability

• Can stem from the emergence of cheaper or better technologies, rivals’ introduction of new or improved products and so on.

• They may be so imposing as to make a

company’s situation and outlook quite

tenuous

What to look for in

identifying a company’s

strengths, weaknesses,

opportunities, and threats

Potential resource strengths and competitivecapabilities

• A powerful strategy

• Core competencies in

• A distinctive competence in

• A product that is strongly differentiated from those or rivals

• Competencies and capabilities that are well matched to industry key success factors

• A strong financial condition; ample financial resources to grow the business

• Strong brand-name image/company

reputation

• An attractive customer base

• Economy of scale or learning/experience

curve advantages over rivals

• Proprietary technology/superior

technological skills/important patents

• Superior intellectual capital relative to key rivals

• Cost advantages over rivals

• Strong advertising and promotion

• Product innovation capabilities

• Proven capabilities in improving

production processes

• Good supply chain management

capabilities

• Good customer service capabilities

• Better product quality relative to rivals

• Wide geographic coverage and/or strong

global distribution capability

• Alliances/joint ventures with other firms

that provide access to valuable technology, competencies, and/or attractive geographic markets

Potential resource weaknesses and competitivedeficiencies

• No clear strategic direction

• Resources that are not well matched to

industry key success factors

• No well-developed or proven core

competencies

• A weak balance sheet, burdened with too

much debt

• Higher overall unit costs relative to key

competitors

• Weak or unproven product innovation

capabilities

• A product/service with ho-hum attributes or

features inferior to those of rivals

• Too narrow a product line relative to rivals

• Weak brand image or reputation

• Weak dealer networks; lack of adequate

global distribution capability

• Behind on product quality, R&D, and/or

technological know-how

• In the wrong strategic group

• Losing market share

• Lack of management depth

• Inferior intellectual capital relative to leading rivals

• Subpar profitability

• Plagued with internal operating problems or obsolete facilities

• Behind rivals in e-commerce capabilities

• Short on financial resources to grow the

business and pursue promising initiatives

• Too much underutilized plant capacity

Potential market opportunities

• Openings to win market share from

rivals

• Sharply rising buyer demand for the

industry’s product

• Serving additional customer groups or

market segments

• Expanding into new geographic markets

• Expanding the company’s product line

to meet a broader range of customer

needs

• Utilizing existing company skills or

technological know-how to enter new

product lines or new businesses

• Online sales

• Integrating forward or backward

• Falling trade barriers in attractive foreign

markets

• Acquiring rival firms or companies with

attractive technological expertise or

capabilities

• Entering into alliances or joint ventures to

expand the firm’s market coverage or boost

its competitive capability

• Openings to exploit emerging new

technologies

Potential external threats to acompany’s prospects

• Increasing intensity of competition

among industry rivals—may squeeze

profit margins

• Slowdowns in market growth

• Likely entry of potent new competitors

• Loss of sales to substitute products

• Growing bargaining power of customers or

suppliers

• A shift in buyer needs and tastes away from

the industry’s product

• Adverse demographic changes that threaten

to curtail demand for the industry’s product

• Vulnerability to unfavorable industry driving

forces

• Restrictive trade policies on the part of

foreign governments

• Costly new regulatory requirements

What can be learned from a

SWOT analysis?

Identify company resource strengths and competitive capabilities

Identify company resource weaknesses

and competitive deficiencies

Identify the company’s market opportunities

Identify external threats to the company’s future

well-being

Conclusions concerning the company’s overall business situation:

• Where on the scale from “alarmingly weak” to “exceptionally strong” does the attractiveness of the company’s situation rank?• What are the attractive and unattractive aspects of the company’s situation?Implications for improving company strategy:

• Use company strengths and capabilities as cornerstones for strategy• Pursue those market opportunities best suited to company strengths and capabilities• Correct weaknesses and deficiencies• Use company strengths to lessen the impact of important external threats

What can be gleaned from the SWOT

listings?

ARE THE COMPANY’SPRICES AND COSTS

COMPETITIVE ??

ECONOMICS AND TRADE2005033122

LEE SEONG JIN

THE SIGN OF COMPANY’S POSITION

• THE COMPETITIVENESS IN PRICES AND COSTS. It should be in line with rivals

• TWO TOOLS ARE USED to determine the competitiveness of costs and prices– VALUE CHAIN ANALYSIS– BENCHMARKING APPROACH

THE CONCEPT OF COMPANY’S VALUE CHAIN

• First step in understanding cost structure.

• It shows specific activities through which firms can create customer value and competitive advantage.

• Two broad catagories.– The primary activities– The requisite support activities

This is the value chain !!

THE VALUE CHAIN SYSTEM FOR AN ENTIRE INDUSTRY

• A company's cost competitiveness depends not only on the costs of internally performed activities but also on costs in the value chains of its suppliers and forward channel allies

• Look at page 120, Figure 4.4

ACTIVITY-BASED COST ACCOUNTING

• A tool for determining the costs of value chain activities.

• Second step for evaluating a company’s competitiveness

• KEY POINT is !!• costs estimates are need at least for

each broad category of primary and secondary activity.

BENCHMARKING

• A tool for assessing whether a company’s value chain activities are competitive

• potent tool for learning which companies are best at performing , using their techniques(OR BEST PRACTICE) to improve company's own activities.

BENCHMARKING

• FOUR STAGES

BENCHMARKING

• PROBLEM is– how to gain access to information about

other companies practices and costs• “”The leader companies are often unlikely to

share their competitiveness.

Strategic options for Remedying

a cost disadvantage• Internal cost disadvantage– Implement the use of best practices.– Try to eliminate some cost-producing

activities altogether by revamping the value chain.

– Relocate high-cost activities to geographically cheap areas.

– See if certain internally performed activities can be outsourced.

– Others are in page 125.

Strategic options for Remedying

a cost disadvantage• A supplier-related cost disadvantage.– pressure suppliers for lower prices– collaborate closely with suppliers

• The forward channel allies.– Pressure dealer-distributors and other

forward channel allies.– Change to a more economical

distribution strategy.–Work closely with forward channel allies

Translating Activities into competitive advantage

• Two Options– perform value chain activities more

proficiently.– perform value chain activities more

cheaply.

Q4. Is the company competitively

stronger or weaker than key

rivals?

Overall competitive strength

1. How does the company rank relative to competitors on each of the important factors that determine market success?

2. Does the company have a net competitive

advantage of disadvantage VS major

competitors?

• Indicate where a company has a competitively strong and weak

• Provide insight into the company’s ability to

defend or enhance its market position

• To make a list of the industry’s key success factorsand most telling measures of competitive strength or weakness factor

• To rate the firm and its rivals on each factor

• To sum the strength rating on each factor to get an overall measure of competitive strength for each company beingrated

• To use the overall strength ratings to draw conclusion

1. Unweighted Rating System

Each key success factor/competitive

strength measure is assumed to be equally

important

2. Weighted Rating System

Different measures of competitive strength

are unlikely to be equally important

Interpreting the Competitive StrengthAssessments

"Worry List“…

• -draws on the results of both industry and competitive analysis and company situation analysis

• -to identify the specific issues/problems

• -centers on such concerns as "how to...," "what to do about...,"and "whether to..."

A Good Strategy

• -contains ways to deal with all the strategic issues and obstacles

• -is a valuable precondition for good strategy making

• *Managers need such understanding to craft a strategy that is well suited to the company's competitive circumstances.