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Analyzing a Analyzing a Company’s Resources Company’s Resources

and Competitive Positionand Competitive Position

Analyzing a Analyzing a Company’s Resources Company’s Resources

and Competitive Positionand Competitive Position

4444Chapter

Screen graphics created by:Jana F. Kuzmicki, Ph.D.

Troy State University-Florida and Western Region

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Chapter RoadmapChapter RoadmapChapter RoadmapChapter Roadmap

Question 1: How Well Is the Company’s Present Strategy Working?

Question 2: What Are the Company’s Resource Strengths and Weaknesses and Its External Opportunities and Threats?

Question 3: Are the Company’s Prices and Costs Competitive?

Question 4: Is the Company Competitively Stronger or Weaker than Key Rivals?

Question 5: What Strategic Issues and Problems Merit Front-Burner Managerial Attention?

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Fig. 4.1: Identifying the Fig. 4.1: Identifying the Components of a Single-Business Components of a Single-Business

Company’s StrategyCompany’s Strategy

Fig. 4.1: Identifying the Fig. 4.1: Identifying the Components of a Single-Business Components of a Single-Business

Company’s StrategyCompany’s Strategy

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Q #1: How Well Is the Q #1: How Well Is the Company’s Present Strategy Company’s Present Strategy

Working?Working?

Q #1: How Well Is the Q #1: How Well Is the Company’s Present Strategy Company’s Present Strategy

Working?Working?

Identify competitive approach Low-cost leadership Differentiation Focus on a particular market niche

Determine competitive scope Geographic market coverage Operating stages in industry’s production/distribution chain

Examine recent strategic moves Identify functional strategies

Key Issues

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Approaches to Assess How Approaches to Assess How Well the Present Strategy Is Well the Present Strategy Is

WorkingWorking

Approaches to Assess How Approaches to Assess How Well the Present Strategy Is Well the Present Strategy Is

WorkingWorking Qualitative assessment –

What is the strategy?

Completeness

Internal consistency

Rationale

Relevance

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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Key Indicators of How WellKey Indicators of How Wellthe Strategy Is Workingthe Strategy Is Working

Key Indicators of How WellKey Indicators of How Wellthe Strategy Is Workingthe 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.

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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

Q #2: What Are the Company’s Q #2: What Are the Company’s Strengths, Weaknesses, Strengths, Weaknesses,

Opportunities and Threats ? Opportunities and Threats ?

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Identifying Resource Identifying Resource StrengthsStrengths

and Competitive Capabilitiesand Competitive Capabilities

Identifying Resource Identifying Resource StrengthsStrengths

and Competitive Capabilitiesand 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

Resource strengths and competitivecapabilities are competitive assets!

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Competencies vs. Core Competencies vs. Core Competencies vs. Distinctive Competencies vs. Distinctive

CompetenciesCompetencies

Competencies vs. Core Competencies vs. Core Competencies vs. Distinctive Competencies vs. Distinctive

CompetenciesCompetencies 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 competitiveness and profitability

A distinctive competence is a competitively valuable activity a company performs better than its rivals

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A competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitability

Often, a core competence results from collaboration among different parts of a company

Typically, core competencies reside in a company’s people, not in assets on a balance sheet

A core competence gives a company apotentially valuable competitive capabilityand represents a definite competitive asset

Core Competencies -- ACore Competencies -- AValuable Company Valuable Company

ResourceResource

Core Competencies -- ACore Competencies -- AValuable Company Valuable Company

ResourceResource

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Distinctive Competence -- ADistinctive Competence -- ACompetitively Superior Competitively Superior

ResourceResource

Distinctive Competence -- ADistinctive Competence -- ACompetitively Superior Competitively Superior

ResourceResource A distinctive competence is a competitively significant

activity that a company performs better than its competitors

A distinctive competence Represents a competitively valuable

capability rivals do not have Presents attractive potential for

being a cornerstone of strategy Can provide a competitive edge in the marketplace —

because it represents a competitively superior resource strength

# 1

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To qualify as competitively valuable or to be the basis for sustainable competitive advantage, a “resource” must pass 4 tests:

1. Is the resource hard to copy?

2. Does the resource have staying power – is it durable?

3. Is the resource really competitively superior?

4. Can the resource be trumped by the different capabilities of rivals?

Determining the CompetitiveDetermining the CompetitiveValue of a Company Value of a Company

ResourceResource

Determining the CompetitiveDetermining the CompetitiveValue of a Company Value of a Company

ResourceResource

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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

Identifying a Company’sIdentifying a Company’sMarket OpportunitiesMarket Opportunities

Identifying a Company’sIdentifying a Company’sMarket OpportunitiesMarket Opportunities

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Identifying External Identifying External ThreatsThreats

Identifying External Identifying External ThreatsThreats

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 StepsFig. 4.2: The Three Stepsof SWOT Analysisof SWOT Analysis

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Q #3: Are the Company’sQ #3: Are the Company’sPrices and Costs Prices and Costs

Competitive?Competitive?

Q #3: Are the Company’sQ #3: Are the Company’sPrices and Costs Prices and Costs

Competitive?Competitive? Assessing whether a firm’s 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 aThe Concept of aCompany Value ChainCompany Value Chain

The Concept of aThe Concept of aCompany Value ChainCompany Value Chain

A company’s business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service

A company’s 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 ofthe value for customers is created

Support activities – facilitateperformance of the primary activities

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Fig. 4.3: RepresentativeFig. 4.3: RepresentativeCompany Value ChainCompany Value Chain

Fig. 4.3: RepresentativeFig. 4.3: RepresentativeCompany Value ChainCompany Value Chain

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Fig. 4.4: Representative Fig. 4.4: Representative Value Chain for an Entire Value Chain for an Entire

IndustryIndustry

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Benchmarking Costs ofBenchmarking Costs ofKey Value Chain ActivitiesKey Value Chain Activities

Benchmarking Costs ofBenchmarking Costs ofKey Value Chain ActivitiesKey Value Chain Activities

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

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Table 4.3: Options for Attacking Cost Table 4.3: Options for Attacking Cost Disadvantages Associated with Supply Chain Disadvantages Associated with Supply Chain

Activities or Forward Channel AlliesActivities or Forward Channel Allies

Table 4.3: Options for Attacking Cost Table 4.3: Options for Attacking Cost Disadvantages Associated with Supply Chain Disadvantages Associated with Supply Chain

Activities or Forward Channel AlliesActivities or Forward Channel Allies

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Fig. 4.5: Translating Performance of Fig. 4.5: Translating Performance of Value Chain Activities into Competitive Value Chain Activities into Competitive

Advantage Advantage

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Q. #4: Is the Company Q. #4: Is the Company Stronger or Weaker than Stronger or Weaker than

Key Rivals?Key Rivals?

Q. #4: Is the Company Q. #4: Is the Company Stronger or Weaker than Stronger or Weaker than

Key Rivals?Key Rivals? Overall competitive position involves

answering 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?

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Assessing a Company’s Assessing a Company’s Competitive Strength vs. Key Competitive Strength vs. Key

RivalsRivals

Assessing a Company’s Assessing a Company’s Competitive Strength vs. Key Competitive Strength vs. Key

RivalsRivals1. List industry key success factors and other relevant

measures of competitive strength2. 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

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What Strategic IssuesWhat Strategic IssuesMerit Managerial Merit Managerial

Attention?Attention?

What Strategic IssuesWhat Strategic IssuesMerit Managerial Merit Managerial

Attention?Attention? 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!

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Identifying the Strategic Identifying the Strategic IssuesIssues

Identifying the Strategic Identifying the Strategic IssuesIssues

How to stave off market challenges from new foreign competitors?

How to combat price discounting of rivals? How to reduce a company’s high costs? How to sustain a company’s present growth

in light of slowing buyer demand? Whether to expand a company’s product line? Whether to acquire a rival firm? Whether to expand into foreign markets rapidly or cautiously? What to do about aging demographics of a company’s

customer base?