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STRATEGIC ANALYSIS

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Analyzing a Company’s Analyzing a Company’s External EnvironmentExternal Environment

Analyzing a Company’s Analyzing a Company’s External EnvironmentExternal Environment

““Things are always different--Things are always different--

the art is figuring out which the art is figuring out which

differences matter.”differences matter.”

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Two Aspects:

Company’s external environment

Macro-environment (distant)

Industry and competitive conditions

Operating environment

Company’s internal or micro-environment

Competencies, Capabilities, Strengths, Weaknesses, & competitiveness

Situation Analysis?Situation Analysis?Situation Analysis?Situation Analysis?

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Components of Macro-Components of Macro-EnvironmentEnvironment

Components of Macro-Components of Macro-EnvironmentEnvironment

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Key Questions Regarding theKey Questions Regarding theIndustry and Competitive Industry and Competitive

EnvironmentEnvironment

Key Questions Regarding theKey Questions Regarding theIndustry and Competitive Industry and Competitive

EnvironmentEnvironment

Industry’s dominant economic traits

Competitive forces and strength of each force

Drivers of change in the industry

Competitor analysis

Key success factors

Conclusions: Industry attractiveness

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Key Aspects of Industry Key Aspects of Industry AttractivenessAttractivenessKey Aspects of Industry Key Aspects of Industry AttractivenessAttractiveness

Dominant Economic Traits

Competitive Forces & Strength of each

Drivers of Change

Competitor Analysis

Key Success Factors

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Some DefinitionsSome DefinitionsSome DefinitionsSome Definitions

IndustryA group of companies offering

products or services that are close substitutes for each other

CompetitorsRival companies that serve the same

basic customer needs

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Some Some Definitions(cont’d)Definitions(cont’d)

Some Some Definitions(cont’d)Definitions(cont’d)

SectorA group of closely related industries

Market segmentsDistinct groups of customers within a market

that can be differentiated from each other based on their distinct attributes and demands

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The Computer Sector: The Computer Sector: Industries and Industries and

SegmentsSegments

The Computer Sector: The Computer Sector: Industries and Industries and

SegmentsSegments

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#1.Industry’s Dominant Economic #1.Industry’s Dominant Economic Traits?Traits?

#1.Industry’s Dominant Economic #1.Industry’s Dominant Economic Traits?Traits?

Market size and growth rate Scope of competitive rivalry Number of rivals Buyer needs and requirements Production capacity Pace of technological change Vertical integration Product innovation Degree of product differentiation Economies of scale Learning and experience curve effects

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Identification of :

Main sources of competitive forces

Strength of these forces

#2: Competitive Forces Faced by #2: Competitive Forces Faced by Firms?Firms?

#2: Competitive Forces Faced by #2: Competitive Forces Faced by Firms?Firms?

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Porter’s Five Forces Porter’s Five Forces ModelModel

Porter’s Five Forces Porter’s Five Forces ModelModel

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5-Forces5-ForcesI. Rivalry Among Competing I. Rivalry Among Competing

SellersSellers

5-Forces5-ForcesI. Rivalry Among Competing I. Rivalry Among Competing

SellersSellersUsually the strongest of the five forces

How aggressively are rivals using various weapons of competition to improve their market positions and performance?, through:

Offensive actions

Defensive countermoves

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TypicalTypical Weapons for Weapons for Competing?Competing?

TypicalTypical Weapons for Weapons for Competing?Competing?

Vigorous price competition

More or different performance features

Better product performance

Higher quality

Stronger brand image and appeal

Wider selection of models and styles

Bigger/better dealer network

Low interest rate financing

Higher levels of advertising

Stronger product innovation capabilities

Better customer service

Stronger capabilities to provide buyers with custom-made products

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5- Forces5- ForcesII. Threat of Potential EntryII. Threat of Potential Entry

5- Forces5- ForcesII. Threat of Potential EntryII. Threat of Potential Entry

Threat depends on:

Size & Available Resources of potential entry candidates

Barriers to entry

Reaction of existing firms

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Common Barriers to Common Barriers to EntryEntry

Common Barriers to Common Barriers to EntryEntry

Sizable economies of scale

Product differentiation

Cost and resource disadvantages independent of size

Brand preferences and customer loyalty

Capital requirements and/or other resource requirements

Access to distribution channels

Regulatory policies

Switching costs

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Expected RetaliationExpected RetaliationExpected RetaliationExpected Retaliation

Threat of Entry influenced by Potential entrant’s expectations about retaliation from existing players:History of retaliationEstablished firms with:

substantial resources to fight backGreat commitment to the industry

Slow industry growth

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Learning/Experience Learning/Experience EffectsEffects

Learning/experience effects exist when a company’s unit costs decline as its cumulative production volume increases because of

Accumulating production know-how

Growing mastery of the technology

The bigger the learning or experience curve effect, the bigger the cost advantage of the firm with the largest cumulative production volume

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5 – Forces5 – ForcesIII. Threat of Substitute III. Threat of Substitute

ProductsProducts

5 – Forces5 – ForcesIII. Threat of Substitute III. Threat of Substitute

ProductsProducts

What is a substitute product?What is a substitute product?

Other products (outside the industry) that can perform the same function(s) as the product of the industry

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Eyeglasses and contact lensvs. laser surgery

Sugar vs. artificial sweetenersNewspapers vs. TV vs. Internet

Examples

Substitute ProductsSubstitute ProductsSubstitute ProductsSubstitute Products

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5 – Forces5 – ForcesIV. IV. Supplier is powerful Supplier is powerful

when….when….

5 – Forces5 – ForcesIV. IV. Supplier is powerful Supplier is powerful

when….when….Industry members incur high costs in

switching their purchases to other suppliers;Needed inputs are in short supply;Seller has a differentiated input that

enhances quality or performance of seller’s products, or, is a valuable or critical part of seller’s production process;

There are only a few suppliers of a particular input;

Suppliers’ threats to integrate forward

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5 – Forces5 – ForcesV. Bargaining power of BuyersV. Bargaining power of Buyers

5 – Forces5 – ForcesV. Bargaining power of BuyersV. Bargaining power of Buyers

Whether seller-buyer relationships represent aweak or strong competitive force depends on

Whether buyers have sufficient bargainingleverage to influence terms of sale in their favor

Extent and competitive importance ofseller-buyer strategic partnershipsin the industry

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Strategic Implications of Strategic Implications of thethe

Five Competitive ForcesFive Competitive Forces

Strategic Implications of Strategic Implications of thethe

Five Competitive ForcesFive Competitive Forces Competitive environment is unattractive from

the standpoint of earning good profits when

Rivalry is vigorous

Entry barriers are lowand entry is likely

Competition from substitutes is strong

Suppliers and customers haveconsiderable bargaining power

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Managing Competitive ForcesManaging Competitive ForcesManaging Competitive ForcesManaging Competitive Forces

Objective is to craft a strategy to

Insulate firm from competitive pressures

Initiate actions to produce sustainable competitive advantage

Allow firm to develop “most powerful” strategy that defines the business model for the industry

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#3: Factors Driving Industry Change #3: Factors Driving Industry Change and their Impactsand their Impacts

#3: Factors Driving Industry Change #3: Factors Driving Industry Change and their Impactsand their Impacts

Industries change because forcesare driving industry participantsto alter their actions

Driving forces are themajor underlying causesof changing industry andcompetitive conditions

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Some typical Driving Some typical Driving ForcesForcesSome typical Driving Some typical Driving ForcesForces

Internet and e-commerce opportunities

Increasing globalization of industry

Changes in long-term industry growth rate

Changes in product-buyers and usage

Product innovation

Technological change/process innovation

Marketing innovation

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Entry or exit of major firms

Diffusion of technical knowledge

Changes in cost and efficiency

Consumer preferences shift from standardized to differentiated products

Changes in degree of uncertainty and risk

Regulatory policies / government legislation

Changing societal concerns, attitudes, and lifestyles

Some Some (more)(more) typical Driving typical Driving Forces Forces

Some Some (more)(more) typical Driving typical Driving Forces Forces

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Strategic Group mappingStrategic Group mappingStrategic Group mappingStrategic Group mapping

Strategic group is a

cluster of firms in an

industry with similar

competitive approaches

and market positions

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Strategic Group Strategic Group MappingMapping

Strategic Group Strategic Group MappingMapping

Firms in same strategic group have two or more competitive characteristics in common Have comparable product line breadth

Sell in same price/quality range

Emphasize same distribution channels

Use same product attributes to appealto similar types of buyers

Use identical technological approaches

Offer buyers similar services

Cover same geographic areas

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Likely Strategic Moves of Likely Strategic Moves of RivalsRivals

Likely Strategic Moves of Likely Strategic Moves of RivalsRivals

A firm’s best strategic moves are affected by Current strategies of competitors Future actions of competitors

Profiling key rivals involves gatheringcompetitive intelligence about Current strategies Most recent actions and public announcements Resource strengths and weaknesses Efforts being made to improve their situation Thinking and leadership styles of top executives

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4# Competitor Analysis4# Competitor Analysis4# Competitor Analysis4# Competitor Analysis

Sizing up strategies and competitive strengths and weaknesses of rivals involves assessing

Which rival has the best strategy? Which rivalsappear to have weak strategies?

Which firms are poised to gainmarket share, and which onesseen destined to lose ground?

Which rivals are likely to rank among the industry leaders five years from now? Do any up-and-coming rivals have strategies and the resources to overtake the current industry leader?

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Considerations Involved inConsiderations Involved inPredicting Moves of RivalsPredicting Moves of RivalsConsiderations Involved inConsiderations Involved inPredicting Moves of RivalsPredicting Moves of Rivals

Which rivals need to increase their unit sales and market share? What strategies are rivals most likely to pursue?

Which rivals have a strong incentive, along with resources, to make major strategic changes?

Which rivals are good candidates to be acquired? Which rivals have the resources to acquire others?

Which rivals are likely to enter new geographic markets?

Which rivals are likely to expand their product offerings and enter new product segments?

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#5: Key Success Factors ?#5: Key Success Factors ?#5: Key Success Factors ?#5: Key Success Factors ?

KSFs are those competitive factors most affecting everyindustry member’s ability to prosper. They concern Specific strategy elements Product attributes Resources Competencies Competitive capabilities

that a company needs to have to be competitively successful

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KSFs – Technology KSFs – Technology relatedrelated

KSFs – Technology KSFs – Technology relatedrelated

Expertise in a particular technology or Scientific Research;

Proven ability to improve Production Processes

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KSFs – Manufacturing KSFs – Manufacturing relatedrelated

KSFs – Manufacturing KSFs – Manufacturing relatedrelated

Ability to achieve Scale Economies and/or capture Learning-Curve effects;

Quality-control Know-how;High utilization of Fixed Assets;Access to attractive Supplies or Labour;High labour productivity;Low-cost Product design & engineering;Ability to manufacture customized

products

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KSFs – Distribution KSFs – Distribution relatedrelated

KSFs – Distribution KSFs – Distribution relatedrelated

A strong network of wholesale distributors / dealers;

Strong direct-sale capabilities – Internet or Company outlets;

Ability to secure valuable shelf-space at retailers’.

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KSFs – Marketing KSFs – Marketing relatedrelated

KSFs – Marketing KSFs – Marketing relatedrelated

Breadth of Product line & product selection

A well-known & well-respected Brand Fast, accurate technical assistanceCourteous, personalized cust. ServiceAccurate filling of buyer ordersCustomer Guarantees & WarrantiesClever advertising

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Example: KSFs forExample: KSFs forBeer IndustryBeer Industry

Example: KSFs forExample: KSFs forBeer IndustryBeer Industry

Full utilization of brewing capacity –to keep manufacturing costs low

Strong network of wholesale distributors –to gain access to retail outlets

Clever advertising –to induce beer drinkers tobuy a particular brand

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Example: KSFs for Example: KSFs for Apparel Manufacturing Apparel Manufacturing

IndustryIndustry

Example: KSFs for Example: KSFs for Apparel Manufacturing Apparel Manufacturing

IndustryIndustry Appealing designs and

color combinations –to create buyer appeal

Low-cost manufacturingefficiency – to keep sellingprices competitive

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Example: KSFs for Tin Example: KSFs for Tin andand

Aluminum Can IndustryAluminum Can Industry

Example: KSFs for Tin Example: KSFs for Tin andand

Aluminum Can IndustryAluminum Can Industry

Locating plants close to end-use customers –to keep costs of shipping empty cans low

Ability to market plant output withineconomical shipping distances

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#6: Industry #6: Industry Attractiveness ?Attractiveness ?

#6: Industry #6: Industry Attractiveness ?Attractiveness ?

Involves assessing whether the industryand competitive environment is attractiveor unattractive for earning good profits

Under certain circumstances, a firm uniquelywell-situated in an otherwise unattractive industrycan still earn unusually good profits

Attractiveness is relative, not absolute

Conclusions have to be drawn from theperspective of a particular company

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Core Concept: Assessing Core Concept: Assessing Industry AttractivenessIndustry Attractiveness

Core Concept: Assessing Core Concept: Assessing Industry AttractivenessIndustry Attractiveness

The degree to which an industry is attractive or unattractive is often not

the same for all industry participantsor potential entrants.

The opportunities an industrypresents depend partly on a

company’s ability to capture them.

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INTERNAL ANALYSISINTERNAL ANALYSIS

Analyzing Analyzing Company’s Resources Company’s Resources & Competitive Position& Competitive Position

INTERNAL ANALYSISINTERNAL ANALYSIS

Analyzing Analyzing Company’s Resources Company’s Resources & Competitive Position& Competitive Position

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““Before executives can Before executives can

chart a new strategy, they chart a new strategy, they

must reach common must reach common

understanding of the understanding of the

company’s current company’s current

position.”position.”

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Company Situation Company Situation AnalysisAnalysis

Company Situation Company Situation AnalysisAnalysis

1. How well is the company’s present strategy working?

2. S.W.O.T Analysis

3. Are Company’s prices and costs competitive?

4. Is company competitively stronger or weaker than key rivals?

5. What strategic issues merit priority managerial attention?

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

Working?Working?

#1: How Well Is the #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

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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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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

#2: Strengths, Weaknesses, #2: 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

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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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Company CompetenciesCompany Competenciesand Capabilitiesand Capabilities

Company CompetenciesCompany Competenciesand Capabilitiesand Capabilities

Stem from skills, expertise, and experience usually representing an Accumulation of learning over time and Gradual buildup of real proficiency in

performing an activity Involve deliberate efforts to develop the ability to do

something, often entailing Selecting people with requisite knowledge and skills Upgrading or expanding individual abilities Molding work products of individuals into a cooperative effort to

create organizational ability A conscious effort to create intellectual capital

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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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Examples: Core Examples: Core CompetenciesCompetencies

Examples: Core Examples: Core CompetenciesCompetencies

Expertise in integrating multiple technologiesto create families of new products

Know-how in creating operating systemsfor 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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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 valuablecapability 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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Examples: Distinctive Examples: Distinctive Competencies Competencies

Examples: Distinctive Examples: Distinctive Competencies Competencies

Sharp Corporation Expertise in flat-panel display technology

Toyota and Honda Low-cost, high-quality manufacturing

capability and short design-to-market cycles Intel

Ability to design and manufactureever more powerful microprocessors for PCs

Wal-Mart Low-cost distribution and use of

state-of-the-art retail technology

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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

Identifying Resource Identifying Resource WeaknessesWeaknesses

and Competitive Deficienciesand Competitive Deficiencies

Identifying Resource Identifying Resource WeaknessesWeaknesses

and Competitive Deficienciesand Competitive Deficiencies

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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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Role of SWOT Analysis inRole of SWOT Analysis inCrafting a Better StrategyCrafting a Better StrategyRole of SWOT Analysis inRole of SWOT Analysis inCrafting a Better StrategyCrafting a Better Strategy

The most important part of S W O TS W O T analysis is not developing the 4 lists of strengths, weaknesses, opportunities, and threats, but rather

Using the 4 lists to draw conclusionsabout a company’s overall situation and

Acting on the conclusions to

Better match a company’s strategy to itsresource strengths and market opportunities,

Correct the important weaknesses, and

Defend against external threats

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#4: Are Company’s Prices & Costs #4: Are Company’s Prices & Costs Competitive? Competitive?#4: Are Company’s Prices & Costs #4: Are Company’s Prices & 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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Company Value ChainCompany Value ChainCompany Value ChainCompany Value Chain

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Characteristics of Characteristics of Value Chain AnalysisValue Chain Analysis

Characteristics of Characteristics of Value Chain AnalysisValue Chain Analysis

Combined costs of all activities in a company’s value chain define the company’s internal cost structure

Compares a firm’s costs activityby activity against costs of key rivals

From raw materials purchase to

Price paid by ultimate customer

Pinpoints which internal activities are asource of cost advantage or disadvantage

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Why Do ValueWhy Do ValueChains of Rivals Differ?Chains of Rivals Differ?

Why Do ValueWhy Do ValueChains of Rivals Differ?Chains of Rivals Differ?

Several factors can cause differencesin value chains of rival companies

Internal operations

Strategy

Approaches used in execution of the strategy

Underlying economics of the activities

Differences complicate task of assessingrivals’ relative cost positions

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The Value Chain SystemThe Value Chain Systemfor an Entire Industry for an Entire Industry

The Value Chain SystemThe Value Chain Systemfor an Entire Industry for an Entire Industry

Assessing a company’s cost competitiveness involves comparing costs all along the industry’s value chain

Suppliers’ value chains are relevant because Costs, performance features, and quality of inputs

provided by suppliers influence a firm’s own costsand product performance

Forward channel allies’ value chains are relevant because Costs and margins are part of price paid

by ultimate end-user Activities performed affect end-user satisfaction

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Example: Value Chain Example: Value Chain ActivitiesActivities

Example: Value Chain Example: Value Chain ActivitiesActivities

Timber farming

Logging

Pulp mills

Papermaking

Distribution

Pulp & Paper Industry

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Home Appliance Industry

Parts and components manufacture

Assembly

Wholesale distribution

Retail sales

Example: Value Chain Example: Value Chain ActivitiesActivities

Example: Value Chain Example: Value Chain ActivitiesActivities

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Processing of basic ingredients

Syrup manufacture

Bottling and can filling

Wholesale distribution

Advertising

Retailing

Albertson’s

Example: Value Chain Example: Value Chain ActivitiesActivities

Example: Value Chain Example: Value Chain ActivitiesActivities

Soft Drink Industry

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Programming

Disk loading

Marketing

Distribution

Example: Value Chain Example: Value Chain ActivitiesActivities

Example: Value Chain Example: Value Chain ActivitiesActivities

Software Computer Industry

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Developing Data to Measure a Developing Data to Measure a Company’s Cost Company’s Cost CompetitivenessCompetitiveness

Developing Data to Measure a Developing Data to Measure a Company’s Cost Company’s Cost CompetitivenessCompetitiveness

After identifying key value chain activities, the next step involves breaking down departmental cost accounting data into costs of performing specific activities

Appropriate degree of disaggregation depends on Economics of activities

Value of comparing narrowly definedversus broadly defined activities

Guideline – Develop separate cost estimates for activities Having different economics

Representing a significant or growing proportion of costs

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Activity-Based Costing: A Activity-Based Costing: A KeyKey

Tool in Analyzing CostsTool in Analyzing Costs

Activity-Based Costing: A Activity-Based Costing: A KeyKey

Tool in Analyzing CostsTool in Analyzing Costs 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 cost

of each value chain activity Activity-based costing entails

Defining expense categories accordingto specific activities performed and

Assigning costs to the activityresponsible for creating the cost

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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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Objectives of Objectives of BenchmarkingBenchmarkingObjectives of Objectives of BenchmarkingBenchmarking

Identify best practices in performing an activity

Understand the best practices in performingan activity – learn what is the “best” wayto do a particular activity from thosedemonstrating they are “best-in-world”

Learn how other firms achieve lower costs

Take action to improve company’s cost competitiveness

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What Determines if aWhat Determines if aCompany Is Cost Company Is Cost

Competitive?Competitive?

What Determines if aWhat Determines if aCompany Is Cost Company Is Cost

Competitive?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, high-cost activities can exist in any of three areas in the industry value chain 1. Suppliers’ activities

2. Company’s own internal activities

3. Forward channel activities

Activities, Costs, &

Margins ofForward

Channel Allies

InternallyPerformedActivities, Costs, &Margins

Activities, Costs, &

Margins ofSuppliers

Buyer/UserValue

Chains

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Translating Performance of Value Translating Performance of Value Chain Activities to Competitive Chain Activities to Competitive

AdvantageAdvantage

Translating Performance of Value Translating Performance of Value Chain Activities to Competitive Chain Activities to Competitive

AdvantageAdvantage 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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#4: Company Stronger or #4: Company Stronger or Weaker than Key Rivals?Weaker than Key Rivals?#4: Company Stronger or #4: Company Stronger or Weaker than Key Rivals?Weaker than Key Rivals?

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?

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Why Do a CompetitiveWhy Do a CompetitiveStrength Assessment ?Strength Assessment ?Why Do a CompetitiveWhy Do a CompetitiveStrength Assessment ?Strength Assessment ?

Reveals strength of firm’s competitive position vis-à-vis key rivals

Shows how firm stacks up against rivals, measure-by-measure – pinpoints firm’s 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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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?