Analyzing a Companys Resources and Competitive Position

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Chapter 3
Analyzing a Companys Resources and
Competitive Position
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Before executives can chart a new strategy, they
must reach common understanding of the companys
current position.
W. Chan Kim and Renee Mauborgne
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By studying the external environment, firms
identify what they might chose to do.
By studying the internal environment, firms
identify what they can do.
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Company Situation AnalysisThe Key Questions

• 1. Current strategy effectiveness?
• 2. What are the companys resourcestrengths and
  weaknesses and itsexternal opportunities and
  threats?
• 3. Price and costs
• competitiveness?
• 4. Is the company strongeror weaker than key
  rivals?
• 5. What strategic issues meritmanagerial
  attention?

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Fig. 3.1 Identifying the Components of a
Single-Business Strategy
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How Well Is thePresent Strategy Working?
Two Key Steps

• Qualitative assessment -- What is the strategy?
• Competitive strategy
• Competitive scope
• Recent competitivemoves
• Functional strategies

• Quantitative assessment -- What are the results?
• Is company achieving its financial and strategic
  objectives?
• Is company an above-average industry performer?

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What Is the Strategy?

• Identify competitive approach
• Low-cost leadership
• Differentiation
• Focus on a particular market niche
• Determine competitive scope
• Stages of industrys production/distribution
  chain
• Geographic coverage
• Identify functional strategies
• Examine recent strategic moves

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Symptoms?

• Market Share - rising, stable, declining?
• Profit Margins - trend, relationship to industry?
• Net profits, ROI, - trends relative to industry
• Financial strength and credit rating
• Stock price trends?
• Sales trends relative to industry?
• Image and reputation with customers?
• Leader relative to industry KSFs?

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What Are the Firms Strengths, Weaknesses,
Opportunities and Threats ?

• S W O T represents the first letter in
• S trengths
• W eaknesses
• O pportunities
• T hreats
• Analyze, dont just list
• S O and T?
• W O and T?

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Identifying Resource Strengthsand Competitive
Capabilities

• A strength is something a firm does well or an
  attribute that enhances its competitiveness
• Valuable competencies or know-how
• Valuable physical assets
• Valuable human assets
• Valuable organizational assets
• Valuable intangible assets
• Important competitive capabilities
• An attribute that places a company in a position
  of market advantage
• Alliances or cooperative ventures with partners

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Capabilities vs. Competencies vs. Core
Competencies

• A capability is something the company is able to
  do well on an ongoing basis without losing money
  at it.
• 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-performed internal
  activity that is central to a companys
  competitiveness and profitability. It
  differentiates a company strategically

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Company Competencies

• A set of differentiated skills, complementary
  assets and routines that provide the basis for a
  firms sca.
• Knowledge and skills
• Technical systems
• Managerial systems
• Values and norms
• Often, a core competence results from
  collaboration among different parts of a company
• Typically, core competencies reside in a
  companys people, not in assets on the balance
  sheet

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Examples Core Competencies

• Expertise in integrating multiple technologies to
  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
• System to fill customer orders accurately and
  swiftly

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Examples Core Competencies

• Sharp Corporation
• Expertise in flat-panel display technology
• Toyota, Honda, Nissan
• Low-cost, high-quality manufacturingcapability
  and short design-to-market cycles
• Intel
• Ability to design and manufactureever more
  powerful microprocessors for PCs
• Starbucks
• Store ambience and innovative coffeedrinks

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Determining the CompetitiveValue of a
Company Resource

• To qualify as the basis for sustainable
  competitive advantage, a resource is measured
  by 4 tests
• 1. Is the resource rare ?
• 2. Is the resource valuable ?
• 3. Is the resource costly to imitate ?
• 4. Is the resource non-substitutable ?

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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

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Identifying a CompanysMarket Opportunities

• Opportunities most relevant to a company are
  those offering
• Good match with its financial and organizational
  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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Role of SWOT Analysis inCrafting a Better
Strategy

• Three key parts of SWOT analysis
• Developing lists of SWOTs
• Drawing conclusions abouta companys overall
  situation
• and
• Acting on the conclusions to
• Better match a companys strategy to its resource
  strengths and market opportunities,
• Correct the important weaknesses, and
• Defend against external threats

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Are the CompanysPrices and Costs
Competitive?

• Assessing whether a firms costs are competitive
  with those of rivals is a crucial part of company
  analysis
• Key analytical tools
• Value chain analysis
• Benchmarking

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The Concept of aCompany Value Chain

• A companys business consists of all activities
  undertaken in designing, producing, marketing,
  delivering, and supporting its product or service
  
• A companys value chain consists of a linked set
  of value-creating activities performed internally
  
• The value chain contains two types of activities
• Primary activities -- where most of the value
  for customers is created
• Support activities -- facilitate performance of
  the primary activities

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Fig. 3.3 RepresentativeCompany Value Chain
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Fig. 3.4 Supply Chain Value Chain for an
Entire Industry
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The Supply Chain Systemfor an Entire
Industry

• Assessing a companys cost competitiveness
  involves comparing costs all along the industrys
  value chain
• Suppliers value chains are relevant because
• Costs, quality, and performance of inputs
  provided by suppliers influence a firms own
  costs and product performance
• Forward channel allies value chains are relevant
  because
• Forward channel allies costs and margins are
  part of price paid by ultimate end-user
• Activities performed affect end-user satisfaction

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Example Key Value Chain Activities
Pulp Paper Industry

• Timber farming
• Logging
• Pulp mills
• Papermaking

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Example Key Value Chain Activities
Soft-Drink Industry

• Processing of basic ingredients
• Syrup manufacture
• Bottling and can filling
• Wholesale distribution
• Advertising
• Retailing

Albertsons
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Example Key Value Chain Activities
Computer Software Industry

• Programming
• Disk loading
• Marketing
• Distribution

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Activity-Based Costing A KeyTool in
Analyzing Costs

• Measuring how a companys costs compare with
  those of rivals activity-by-activity
• Requires having accounting data that measures the
  cost of each value chain activity

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Benchmarking Costs ofKey Value Chain
Activities

• Focuses on cross-company comparisons of how
  certain activities are performed and the 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

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Objectives of Benchmarking

• Determine whether a company is performing
  particular value chain activities efficiently by
  studying practices and procedures used by other
  companies
• Understand the best practices in performingan
  activity.
• Assess if companys costs in performing
  particular value chain activities are in line
  with competitors
• Learn how other firms achieve lower costs
• Take action to improve companys cost
  competitiveness

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Ethical Standards in Benchmarking Dos and
Donts

• Avoid talk about pricing or
  competitively sensitive costs
• Dont ask rivals for sensitive data
• Dont share proprietary data without clearance
• Have impartial third party assemble and present
  competitively sensitive cost data with no names
  attached
• Dont disparage a rivals business to outsiders
  based on data obtained

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What Determines Whether aCompany Is Cost
Competitive?

• Cost competitiveness depends on how well a
  company manages its value chain relative to how
  well competitors manage their value chains
• When 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. Companys own internal activities
• 3. Forward channel activities

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Translating Performance of Value Chain
Activities to Competitive Advantage

• A company can create competitive advantage by
  managing its value chain to
• Integrate knowledge and skills of employees in
  competitively valuable ways
• Leverage economies of learning / experience
• Coordinate related activities in waysthat build
  valuable capabilities
• Build dominating expertisein a value chain
  activity criticalto customer satisfaction or
  market success

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How Strong Is the Companys Competitive
Position?

• Overall competitive position involves answering
  two questions
• How does a company rank relative to competitors
  on the important factorsthat determine market
  success?
• Does a company have a netcompetitive advantage
  ordisadvantage vis-à-vis major competitors?

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Assessing a Companys Competitive Strength
vs. Key Rivals

• 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
  usually superior because the 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 the overall strength ratings,
  determine overall competitive position of firm

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Why Do a CompetitiveStrength Assessment ?

• Reveals strength of firms competitive position
  vis-à-vis key rivals
• Shows how firm stacks up against rivals,
  measure-by-measurepinpoints firms competitive
  strengths and competitive weaknesses
• Indicates whether firm is at a competitive
  advantage / disadvantage against each rival
• Identifies possible offensive attacks (pit
  company strengths against rivals weaknesses)
• Identifies possible defensive actions (a need to
  correct competitive weaknesses)

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What Strategic IssuesMerit Managerial
Attention?

• Based on industry, competitive and internal
  analysis develop a worry list .
• Prioritize to determine key issues
• Probability
• Impact
• Requires thinking strategically about
• Pluses and minuses in the industry and
  competitive situation
• Companys resource strengths and weaknesses and
  attractiveness of its competitive position

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Stating the IssuesClearly and Precisely

• A well-stated issue involves such phrases as
• How to .?
• Whether to .?
• What should be done about .?
• Issues need to be precise, specific,
  and cut straight to the chase
• Issues on the the worry listraise questions
  about
• What actions need to be considered
• What to think about doing