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SILVIA DIANI Summary

Chapter 3
Eks B 36 A

In order to chart a company’s strategic course wisely, managers must first develop a deep understanding of the
company’s present situation. Two facets of a company’s situation are especially pertinent:
(1) its external environment—most notably, the competitive conditions of the industry in which the company
operates; and
(2) its internal environment—particularly the company’s resources and organizational capabilities

Chapter 3. Evaluating a Company’s External Environment


This chapter explains several considerations of well-validated concepts and analytic tools for examining the
external environment that executives must monitor to lead their organizations strategically.

PESTEL analysis is one important tool that executives can rely on to organize factors within the macro
environment and to identify how these factors influence company and also to identify major opportunities and
threats and then adjust firms’ strategies accordingly. In particular;

(1) Political  centers on the role of governments in shaping business.


(2) Economic  centers on the economic conditions within which organizations operate.
(3) Social  Include population size, age, and ethnic mix, as well as cultural trends such as attitudes toward
obesity and consumer activism
(4) Technological  centers on improvements in products and services that are provided by science.
(5) Environmental  involves the physical conditions within which organizations operate.
(6) Legal  centers on how the courts influence business activity.

Other analytic tools is the five forces framework. The purpose of five forces analysis is to identify how much
profit potential exists in an industry. To do so, five forces analysis considers the interactions (rivalry) among the
competitors in an industry, The Threat of potential new entrants to the industry, substitutes for the industry’s
offerings, the power of suppliers to an industry, and the power of an industry’s buyers.

Five forces analysis is useful, but it has some limitations too. The description of five forces seems to assume that,
if a firm is to make more profit, it must take that profit from a rival, a supplier, or a buyer. In some settings,
however, collaboration can create a larger pool of profit that benefits everyone involved in the collaboration e.g
joint ventures.

In term of driving forces in the industry  Industry and competitive conditions change because due to industry's
macro-environment and changes originating within the industry. Such changes include: increasing globalization,
changing buyer demographics, technological change, Internet-expansion, product and marketing innovations,
entry or exit of major firms, diffusion of know-how, efficiency improvements in adjacent markets, reductions in
uncertainty and business risk, government policy changes, and changing societal factors. Once an industry's
change drivers have been identified, the analytical task becomes one of determining the effect on of them
industry growth and competition.

Next Mapping Strategic groups which are valuable for understanding close competitors that affect a firm more
than other industry members. Strategic groups are sets of industry competitors that have similar characteristics
to one another but differ in important ways from the members of other groups

Competitor analysis  Studying competitors’ past behavior and preferences provides a valuable assist in
anticipating what moves rivals are likely to make next and outmaneuvering them in the marketplace. Michael
Porter’s Framework for Competitor Analysis points to four indicators of a rival’s likely strategic moves and
countermoves. These include a rival’s current strategy, objectives, resources and capabilities, and assumptions
about itself and the industry.

Key success factors (KSFs) are those competitive factors that most affect industry members’ ability to survive
includes the strategy elements, product and service attributes, operational approaches, resources, and
competitive capabilities that are essential to surviving and thriving in the industry.

Each of the frameworks presented in this chapter—PESTEL, five forces analysis, driving forces, strategy groups,
competitor analysis, and key success factors— provides a useful perspective on an industry’s outlook for future
profitability. Putting them all together provides an even richer and more nuanced picture.
SILVIA DIANI Summary
Chapter 3
Eks B 36 A

Chapter 4. Evaluating a Company’s Resources, Capabilities, and Competitiveness


This chapter discusses techniques for evaluating a company’s internal situation, including its collection of
resources and capabilities and the activities it performs along its value chain. Internal analysis enables managers
to determine whether their strategy is likely to give the company a significant competitive edge over rival firms.
The analytic spotlight will be trained on six questions:

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


First, Determine current strategy of company, next examine any key indicators of how well a company’s strategy
is working include: • Trends in the company’s sales and earnings growth. • Trends in the company’s stock price.
• The company’s overall financial strength. The company’s customer retention rate. • The rate at which new
customers are acquired. • Evidence of improvement in internal processes such as defect rate, order fulfillment,
delivery times, days of inventory, and employee productivity. The stronger a company’s current overall
performance, the more likely it has a well-conceived, well-executed strategy.

2. What are the company’s most important resources and capabilities, and will they give the company a lasting
competitive advantage over rival companies?
A resource is a competitive asset that is owned or controlled by a firm. A capability or competence is the
capacity of a firm to perform and internal activity competently through deployment of a firm’s resources.
Resource and capability analysis is a powerful tool for sizing up a company’s competitive assets and determining
whether the assets can support a sustainable competitive advantage over market rivals.

3. What are the company’s strengths and weaknesses in relation to the market opportunities and external
threats?
Appraising a company’s resource strengths and weaknesses and its external opportunities and threats,
commonly known as SWOT analysis, provides a good overview of whether its overall situation is fundamentally
healthy or unhealthy.
SWOT analysis is a simple but powerful tool for sizing up a company’s resource capabilities and deficiencies, its
market opportunities, and the external threats to its future well-being.

4. How do a company’s value chain activities impact its cost structure and customer value proposition?
One of the most telling signs of whether a company’s business position is strong or precarious is whether its
prices and costs are competitive with industry rivals. Price-cost comparisons are especially critical in a
commodity-product industry where the value provided to buyers is the same from seller to seller, price
competition is typically the ruling force and lower-cost companies have the upper hand.
The higher a company’s costs are above those of close rivals, the more competitively vulnerable it becomes.
Two analytical tools are particularly useful in determining whether a company’s prices and costs are competitive
and thus conducive to winning in the marketplace: value chain analysis and benchmarking

5. Is the company competitively stronger or weaker than key rivals?

Competitive strength assessments provide useful conclusions about a company’s competitive situation. Knowing
where a company is competitively strong or weak in comparison to specific rivals is valuable in deciding on
specific actions to strengthen its ability to compete. High competitive strength ratings signal a strong competitive
position and possession of competitive advantage; low ratings signal a weak position and competitive
disadvantage.
6. What strategic issues and problems merit front burner managerial attention?

The final and most important analytical step is to zero in on exactly what strategic issues that company managers
need to address and resolve for the company to be more financially and competitively successful in the years
ahead. This step involves drawing on the results of both industry and competitive analysis and the evaluations
of the company's own competitiveness. A good strategy must contain ways to deal with all the strategic issues
and obstacles that stand in the way of the company's financial and competitive success in the years ahead.