24084932 strategic management analysing a company s resources and copetitive position

7/29/2019 24084932 Strategic Management Analysing a Company s Resources and Copetitive Position

1/41

Analyzing a company's resources and competitive

position

How well is the company's present strategy working?

It is very important to study the company's competitive approach to

understand the working of the company's present strategy.

We need to study

if the company is striving to be low-cost leader or stressing to differentiate

its products.

is it concentrating on serving a broad spectrum of customers or a narrow

niche market.

what is its geographical coverage.

is it operational in just a single stage of industry's production/distribution

system or is vertically integrated across several stages.

the latest moves to improve competitive position and performance.

what are the functional strategies in R&D, production and other

departments.


2/41

The two best quantitative indicators of the performance of

present strategy are:

1. whether the company's is achieving its stated financial and

strategic objectives

2. whether the company is an above-average industry

performer.

Failure on these two fronts indicate either poor strategy

making or less than competent strategy execution or both.

Other indicators of how well a company's strategy is working

include:

1. Whether the firm's sales are growing faster, slower or about the

same pace as the market as a whole, thus resulting in a rising,

eroding or stable market share.


3/41

2. Whether the company is acquiring new customers at an attractive rate as well

as retaining existing customers.

3. Whether the firm's profit margins are increasing or decreasing and how well its

margins compare to rival firms' margins.

4. Trends in the firm's net profits and returns on investment and how thesecompare to the same trends for other companies in the industry.

5. Whether the company's overall financial strength and credit rating are

improving or on the decline.

6. Whether the company can demonstrate continuous improvement in such

internal performance measures as days of inventory, employee productivity,unit cost, defect rate, scrap rate, delivery time, warranty costs.

7. How shareholders view the company based on trends in the company's stock

price and shareholder value, relative to stock prices of other companies in the

industry.

8. The firm's image and reputation with its customers.

9. How well the company stacks up against rivals on technology, product

innovation, customer service, product quality, delivery time, price, getting

newly developed products to market quickly and other factors on which the

buyers base their choice of brands.


4/41

A company's strong performance on these parameters

indicates a sound strategy.

What are the company's resource strengths and weaknesses andits external opportunities and threats?

A good SWOT analysis provides the basis for crafting a

strategy that capitalizes on the company's resources and aims

at capturing the company's best opportunities and defendsagainst the threats.


5/41

Identifying company resources strengths and competitive

capabilities

A strength is something a company is good at doing or an

attribute that enhances its competitiveness.

It can take the following forms:

1. A skill or important expertise - low cost manufacturing capability,

technological know-how, defect free manufacturing. e.g. Japanese

precision manufacturing, Chinese mass manufacturing, Indiansoftware

2. Valuable physical assets - state-of-the-art plants and equipments,

real estate location, worldwide distribution facilities or ownership of

valuable natural resources. e.g. Toyota, Jharkhand

3. Valuable human assets - an experienced and capable workforce,talented employees in key areas, cutting-edge knowledge and

intellectual capital, collective learning embedded in the organization

or proven managerial know-how. e.g. McKinsey, KPMG


6/41

4. Valuable organizational assets - proven quality control systems,

proprietary technology, key patents, mineral rights, highly trained

customer service representatives, sizable amounts of cash and

marketable securities, a strong balance sheet and credit rating or a

comprehensive list of customers' e-mail addresses.

5. Valuable intangible assets - well-known brand name, reputation for

technological leadership or a strong buyer loyalty and goodwill.

6. Competitive capabilities - product innovation capabilities, short

development times in bringing new products to markets, a strong

dealer network, cutting-edge supply chain management capabilities,quickness in responding to changing market conditions and emerging

opportunities, or state-of-the-art systems for doing business via the

internet.

7. An achievement or attribute that puts the company in a position of

market advantage - low overall costs relative to competitors, marketshare leadership, a superior product, wider product line than rivals,

wide geographical coverage, well-known brand name, superior e-

commerce capabilities or exceptional customer service.


7/41

8. Competitively valuable alliances or cooperative ventures - fruitful

partnerships with suppliers that reduce costs and/or enhance product

quality and performance; alliances and joint ventures that provide

access to valuable technologies, competencies or geographical

markets.


8/41

Company competencies and competitive capabilities

A company's resource strength relates to specific skills and

expertise and sometimes it is the pooled knowledge and

expertise of different groups. e.g. new product innovationrequires expertise of various departments like R&D,

engineering and design, cost-effective manufacturing and

market testing.

Company competencies can range from merely a competencein performing an activity to a core competence to a distinctive

competence.


9/41

Competence

A competence is something an organization is good at doing.

It is nearly always the product of experience.

It originates with deliberate efforts to develop the

organizational ability to do something.

It is about selecting people with the requisite knowledge and

skills, upgrading individual abilities as needed and molding

the efforts and work products of individuals into a cooperativegroup effort to create organizational ability.

As expertise builds and company gains proficiency in

performing the activity consistently well at an acceptable cost

the ability evolves into a true competence and companycapability. e.g. proficiency in specific knowledge, selecting

good locations for retail outlets, merchandising and product

display


10/41

Core competence

A core competence is a proficiently performed internal activity

that is central to a company's strategy and competitiveness.

It is more valuable than a competence because of its role in the

company's strategy and its contribution to making the company

success.

It can relate to any of the several aspects of a company's

business. A company may have more than one core competence, but it is

difficult to have more than two or three. E.g. ITC has core

competence in distribution and customization of taste

It is usually knowledge based, residing in people and is acompany intellectual capital.

Generally it is also an cross-departmental combinations of

knowledge and expertise.


11/41

Distinctive competence

A distinctive competence is a competitively valuable activity

that a company performs better than its rivals. E.g. search

engine of Google, product design of Apple

It is a competitively superior strength.

A competency translates into a distinctive competence when

the company enjoys competitive superiority when performing

that activity.

A core competence becomes real competitive advantage only

when it rises to the level of a distinctive competence. e.g.

Sharp corporation in LCDs, Toyota in low-cost, high quality

manufacturing and short design-to-market cycles for newmodels


12/41

It is important in terms of strategy-making because

it gives a competitively valuable capability

it has the potential for being the cornerstone of strategy

it produce competitive edge in the marketplace

It is advantageous when a firm has a distinctive competence

which rivals do not have and it is very costly and time

consuming for rivals to acquire the skill. E.g. processor design

capabilities of Intel


13/41

What is the competitive power of a resource strength?

The competitive power of a company's strength is measured

by the following four tests:

1. Is the resource strength hard to copy?

The more difficult and expensive it is to imitate a company's

resource strength, the greater its potential competitive value.

Resources tend to be difficult to copy when:

They are unique (real estate location, patent)

Must be built over time in ways that are difficult to imitate (brand

name, mastery of a technology)

When it needs big capital investment (a state-of-the-art

manufacturing plant) e.g. Wal-Mart's competence in super efficient distribution and

store operations capabilities.


14/41

2. Is the resource strength durable - does it have staying

power?

The longer the competitive value of a resource lasts, the

greater its value. e.g. Intel's expertise in chip design has staying power, Indian

software industry's expertise in off-shoring may be nullified by

other countries in the near future,

3. Is the resource really competitively superior?

e.g. Jaguar was acquired by Tatas, Nirma was able to

penetrate the low cost detergent market,


15/41

4. Can the resource strength be trumped by the different

resource strengths and competitive capabilities of rivals?

e.g. Bajaj scooters lost its market share to other two wheelers

like hero Honda, HMT watches lost the market to Titan,

Most of the firms have a mixed bag of resources - one or two

valuable, some good and many satisfactory.

Only a few market leaders have the distinctive competence.

A company can derive competitive advantage from a

collection of good-to-adequate resources that collectively

have competitive power in the marketplace.


16/41

e.g. Toshiba's laptop computers were the global market

leaders through most of the 1990s, an indicator that Toshiba

had competitively valuable resource strength.

The actual facts are- they were not faster than rival's laptops

- they did not have bigger screens

- no more memory

- no longer battery power- no superior performance features

- no superior technical support services

- they were not cheaper

- they seldom were ranked first in various ratings in the overall

performance


17/41

The advantages for Toshiba were a combination of good

resource strengths and capabilities like

its strategic partnerships with suppliers of laptop components

efficient assembly capability design expertise

skills in choosing quality components

a wide selection of models

an attractive mix of built-in performance features against price better-than-average reliability of its models

good technical support services


18/41

Identifying company resource weaknesses and competitive deficiencies

A weakness or competitive deficiency is something a company lacks or

does poorly (in comparison to others) or a condition that puts it at a

disadvantage in the marketplace.

It can relate to:

1. inferior or unproven skills, expertise or intellectual capital in

competitively important areas of business

2. deficiencies in competitively important physical, organizational or

intangible assets3. missing or competitively inferior capabilities in key areas.

How much the resource weakness makes it competitively vulnerable

depends on how much they matter in the marketplace and if can

they be overcome by company's strengths.

Sizing up a company's complement of resource capabilities anddeficiencies is like a strategic balance sheet, in which resources

strengths are competitive assets and resource weaknesses are

competitive liabilities.


19/41

Identifying a company's market opportunities

Market opportunity plays a vital role in the strategy

formulation of a company.

It is important to indentify opportunities and appraise the

growth and profit potential of each one.

A company's opportunities can be plentiful or scarce and can

range from widely attractive (an absolute "must" to pursue) to

marginally interesting (the growth and profit potential arequestionable) to unsuitable (no good match with company's

strength and capabilities).

Every industry opportunity is not a company opportunity.

A opportunity is most relevant to the company when itmatches with the company's financial and organizational

resource capabilities.


20/41

Identifying threats to a company's future profitability

They are factors in the company's external environment that

pose threat to its profitability and competitive well-being.

Threats include: emergence of cheaper or better technologies e.g. typewriters replaced

by DTP

rivals' introduction of new or improved products . E.g Nirma

lower-cost foreign competitors' entry into a company's stronghold new regulations that may be more burdensome to a company than its

competitors

vulnerability to a rise in interest rates

the potential of a hostile takeover

unfavorable demographic shifts

adverse changes in foreign exchange rates

political upheaval in a foreign country where the company has

facilities


21/41

External threats may pose a moderate degree of adversity or

they may be imposing enough to make the company's

position, situation and outlook tenuous.

The management must identify these threats and initiatestrategic changes to neutralize or lessen the threat.


22/41

What do the SWOT listings reveal?

SWOT analysis helps in drawing conclusions about the

company's overall situation and acting on those conclusions to

better match the strategy to its strength and marketopportunities and to correct weaknesses and defend against

external threats.

The following questions help in SWOT analysis of a company:1. Does the company have an attractive set of resource strengths? Does it

have any strong core competencies or a distinctive competence? Are

the company's strengths and capabilities well matched to the industry

key success factors? Do they add adequate power to the company's

strategy? Will the company's current strengths and capabilities matterin the future?


23/41

2. How serious are the company's weaknesses and competitive

deficiencies? Are they mostly inconsequential and readily correctable

or could they prove fatal if not remedied soon? Are some of the

company's weaknesses in areas that relate to the industry's key

success factors? Are there any weaknesses that if uncorrected wouldkeep the company from pursuing an otherwise attractive opportunity?

Does the company have important resource gaps that need to be filled

for it to move up in the industry rankings and/or boost its profitability?

3. Do the company's resource strengths and competitive capabilities (its

competitive assets) outweigh its resource weaknesses andcompetitive deficiencies (its competitive liabilities) by an attractive

margin?

4. Does the company have attractive market opportunities that are well

suited to its resource strengths and competitive capabilities? Does the

company lack the resources and capabilities to pursue any of the mostattractive opportunities?

5. Are the threats alarming, or are they something the company appears

able to deal with and defend against?


24/41

6. All things considered, how strong is the company's overall situation?

Where on a scale of 1 to 10 (where 1 is alarmingly weak and 10 is

exceptionally strong) should the firm's position and overall situation

be ranked? What aspects of the company's situation are particularly

attractive? What aspects are the most concern?


25/41

The following questions help us to know the importance of

SWOT listings for strategic action:

1. Which competitive capabilities need to be strengthened immediately

(so as to add greater power to the company's strategy and boost salesand profitability)? Do new types of competitive capabilities need to be

put in place to help the company better respond to emerging industry

and competitive situations? Which resources and capabilities need to

be given greater emphasis and which merit less emphasis? Should the

company emphasize leveraging its existing resource strengths and

capabilities or does it need to create new resource strengths and

capabilities?

2. What actions should be taken to reduce the company's competitive

liabilities? Which weaknesses or competitive deficiencies are in urgent

need of correction?


26/41

3. Which market opportunities should be top priority in future strategic

initiatives (because they are good fits with the company's resource

strengths and competitive capabilities, present attractive growth and

profit prospects, and/or offer the best potential for securing

competitive advantages)? Which opportunities to be ignored, at leastfor the time being (because they offer less growth potential or are not

suited to the company's resources and capabilities)?

4. What should the company be doing to guard against the threats to its

well-being?


27/41

Are the company's prices and costs competitive?

Competitors have an opportunity to cut the price when their

cost of production is substantially lower than their

competitors.

One of the most important signs of a company's business

position being strong or precarious is whether its prices and

costs are competitive with industry rivals.

The trend is more strong in a commodity product industry andlower-cost companies have an advantage.

Even in industries where products are differentiated according

to their attributes, it is necessary to keep the cost in line with

competitors, to ensure that premium charged on the productscreate value to the customers.


28/41

A small disparity in price is justified when the product or

service has highly differentiated attributes than the

competitor offers.

The two analytical tools useful for determining if thecompany's costs and prices are competitive are:

value chain analysis

benchmarking


29/41

The concept of a company value chain

A company's value chain consists of the linked set of value-

creating activities the company performs internally.

It consists of two broad categories of activities primary activities that are foremost in creating value for customers

support activities that facilitate and enhance the performance of the

primary activities

It includes a profit margin, a mark up over the cost of performing

the value-creating activities.

Assigning the company's operating costs and assets to each

individual activity in the chain provides cost estimate and capital

requirements.

Manner in which one activity is done can affect the costs of

performing other activities. e.g. cost of producing Japanese

VCRSs was reduced from $ 1300 to $ 300 with focus on better

design


30/41

Cost of each activity contributes to whether the company's

overall cost position relative to rivals is favorable or

unfavorable.

The tasks of value chain analysis and benchmarking are todevelop the data for comparing a company's costs activity

against the costs of key rivals and to learn which internal

activities are a source of cost advantage or disadvantage.


31/41

Why the value chains of rival companies often differ

The value chain of rival companies differ because

the manner in which it performs each activity reflect the evolution of

its own particular business and internal operations its strategy

the approaches it is using to execute its strategy

the underlying economics of the activities themselves

e.g. costs of internally performed activities for a fully integratedmanufacturer will be greater than a partially integrated

manufacturer.

A company pursuing a low-cost/low-price strategy and a rival

that is positioned on the high end differ in their value chain.

The cost and price differences among rival companies depends

on activities performed by suppliers or by distribution channel

allies involved in getting the product to end users.


32/41

If the suppliers or wholesalers/retailers have excessively high

cost structure or profit margin then it jeopardizes a company's

cost competitiveness even though its costs for internally

performed activities are competitive.


33/41

The value chain system for an entire industry

Accurately assessing a company's competitiveness in end-use

markets require that company managers understand the

entire value chain system for delivering a product or service toend users, not just the company's own value chain.

Suppliers value chain are relevant because suppliers perform

activities and incur cost in creating and delivering the

purchased inputs used in a company's own value chain. The costs, performance features and quality of these inputs

influence a company's own cost and product differentiation

capabilities.

This is a powerful reason for working collaboratively withsuppliers in managing supply chain activities.


34/41

Forward channels are relevant because

- the costs and margins of a company's distribution allies are part of

the price the end user pays

- the activities that distribution allies perform effect the end user'ssatisfaction.

Hence company' strive for mutually beneficial ways of doing

business with these channels.


35/41

Developing the data to measure a company's cost

competitiveness

It involves disaggregating or breaking down of departmental

cost accounting data into the costs of performing specificactivities.

The amount of disaggregation depends on the economics of

the activities.

A good guideline is to develop separate cost estimates foractivities having different economics and for activities

representing a significant or growing proportion of cost.

Traditional accounting defines costs according to broad

categories of expenses like wages and salaries, employeebenefits. etc.


36/41

A new method, activity based costing, entails defining

expense categories according to the specific activities being

performed and then assigning costs to the activity responsible

for creating the cost. To fully understand the costs of activities all along the industry

value chain, cost estimates for activities performed in the

competitively relevant portions of suppliers' and customers'

value chains also have to be developed. Despite the tediousness and imprecision the payoff in

exposing the costs of a particular activity makes activity-based

costing a valuable analytical tool.

The size of a company's cost advantage or disadvantage variesfrom item to item, different consumer groups (if different

distribution channels are used) and different geographic

markets.


37/41

Benchmarking the costs of key value chain activities

Benchmarking is a tool that allows a company to determine

whether the manner in which it performs particular functions and

activities represents industry "best practices" when both cost andeffectiveness are taken into account.

Benchmarking is done by companies to compare their cost against

competitors' and sometimes against companies in other industries

who are efficient.

The objectives of benchmarking are to identify the best practices in

performing an activity, to learn how other companies have achieved

low cost or better results and to improve a company

competitiveness.

e.g. Xerox learning from Japanese manufacturers, Toyotaimplementing just-in-time system after studying supermarkets in

USA, Southwest reduced turnaround time at stops by studying pit

crews on auto racing circuits.


38/41

The tough part of benchmarking is to gain access to

information about other companies practices and costs.

Information is collected from published reports, trade groups,

industry research firms, taking to knowledgeable industryanalysts, customers and suppliers.

It is further complicated by use of different cost accounting

systems.

Consulting firms, several councils and associates and otheronline benchmarking organizations help in benchmarking by

collecting data and distributing them without identifying the

source. This helps companies to avoid disclosing competitively

sensitive data to rivals and reduces risks of ethical problems.


39/41

Strategic options for remedying a cost disadvantage

Value chain analysis and benchmarking are important as

strategy tools because a company's competitiveness depends

on how efficiently it manages these actives compared tocompetitors.

The three main areas where costs of competing firms can

differ are:

a company's own activity segments suppliers' part of industry value chain

forward channel portion of the industry chain


40/41

When the cost disadvantage in due to internal factors any of the

following strategic approaches can be used:

1. Implement the use of best practices throughout the company,

particularly for high cost activities.2. Try to eliminate some cost-producing activities altogether by

revamping the value chain.

3. Relocate high-cost activities to geographic areas where they can be

performed cost effectively.

4. Search activities which can be outsourced to vendors or contractors.5. Invest in productivity-enhancing, cost-saving technological activities.

6. Innovate around the troublesome cost components.

7. Simplify the product design so that it can be manufactured or

assembled quickly and more economically.

8. Try to make up the internal cost disadvantage by achieving savings in

other two parts of the value chain system.


41/41

Translating proficient performance of value chain activities to

competitive advantage

Competencies and capabilities in value chain activities can be

translated into competitive advantage. Since attributes and features are easy to clone, the real

competitive advantage comes from pleasing the buyers.

The process of translating is:

1. Management makes efforts to build competencies and capabilities toadd power to its strategy and competitiveness.

2. The company invests in a couple of these competencies to take them

to the level of core competence.

3. Further learning and investments can take the core competence to a

level of distinctive competence.4. This distinctive competence will become attractive competitive

advantage which will be difficult for the rivals to match.

24084932 strategic management analysing a company s resources and copetitive position

Documents