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?