Chapter

|
V
 



   


 

|

 Chapter Roadmap
] m
 How Well Is the Company¶s Present
Strategy Working?
] m

What Are the Company¶s Resource
Strengths and Weaknesses and Its External Opportunities
and Threats?
] m
 Are the Company¶s Prices and Costs
Competitive?
] m
 Is the Company Competitively Stronger or
Weaker than Key Rivals?
] m
 What Strategic Issues and Problems Merit
Front urner Managerial Attention?
|
 Company Situation Analysis:
The Key Questions
p How well is the company¶s
present strategy working?

What are the company¶s resource
strengths and weaknesses and its
external opportunities and threats?
 Are the company¶s prices and
costs competitive?
 Is the company competitively stronger
or weaker than key rivals?
 What strategic issues merit
front burner managerial attention?
|
 Q #1: How Well Is the Company·s
Present Strategy Working?

 
] Identify




 Gow cost leadership

 Differentiation
 Focus on a particular market niche
] Determine





 ºeographic market coverage
 Operating stages in industry¶s production/distribution chain
] Examine 






] Identify u 



||
 Approaches to Assess How Well
the Present Strategy Is Working
] m 


  ] m 



What is the 
 What are the 
 
 Completeness  Is company achieving its
financial and strategic
 Internal consistency objectives?
 Rationale  Is company an above
average industry
 Relevance performer?

|
 Key Indicators of How Well
the 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
] Geadership role(s)  Technology, quality,
innovation, e commerce, etc.
|
 Q #2: What Are the Company·s Strengths,
Weaknesses, Opportunities and Threats ?

] Õ represents the first letter in

 Õ trengths
 ë eaknesses
  pportunities
 a hreats
] For a company¶s 
 to be 




 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

|
 Identifying Resource Strengths
and Competitive Capabilities
] A 
 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

|
 Competencies vs. Core Competencies
vs. Distinctive Competencies
] A




is the 
u






and represents real u


 in
performing an internal activity

] A






is a well performed
internal activity

 (not peripheral or incidental)
to a company¶s



u

] A 






is a


 


 a company 
u

 

|
 Core Competencies -- A
Valuable Company Resource
] A




becomes a






when the well
performed activity is

 to a company¶s
competitiveness and profitability
] Often, a core competence results from

among different parts of a company
] a







reside in a company¶s


 not in assets on a balance sheet
] A






gives a company a
potentially valuable




and represents a definite




|

 ë amples: Core Competencies

] Expertise in integrating multiple technologies
to create families of new products
] Know how in creating operating systems
for cost efficient supply chain management
] Speeding new/next generation products to market

] etter after sale service capability

] Skills in manufacturing a high quality product

] System to fill customer orders accurately and swiftly

|


 Distinctive Competence -- A
Competitively Superior Resource
] A 






is a competitively significant
activity that a company 
u

 



] A distinctive competence
 Represents a


  


 rivals do not have
 Presents attractive potential for
being a


u

 Can provide a




in the marketplace ²
because it represents a competitively  
 resource
strength
|

 ë amples: Distinctive
Competencies
] Õ 
 Expertise in flat panel display technology
] a 
 Gow cost, high quality manufacturing
capability and short design to market cycles
] w

 Ability to design and manufacture
ever more powerful microprocessors for PCs
] ë!
 Gow cost distribution and use of
state of the art retail technology
|

 Determining the Competitive
Value of a Company Resource
] To qualify as competitively valuable or to be the basis for
 




 a "
 

#must
pass | tests:

p Is the resource 



Does the resource have 
 

is it  


 Is the resource really



 


 Can the resource be  
 by

the different capabilities of rivals?

|
|
 Identifying Resource Weaknesses
and Competitive Deficiencies
] A 
$
 is something a firm lacks, does poorly, or a
condition placing it at a disadvantage
] á
 


$

 relate to
 Inferior or unproven skills,
expertise, or intellectual capital
 Gack of important physical,
organizational, or intangible assets
 Missing capabilities in key areas

á
 


$


u









%
|

 Identifying a Company·s
Market Opportunities
] Opportunities 

to a
company are those offering

 º
with its financial and
organizational resource capabilities

 


for u




 ˜
for




|

 Identifying ë ternal 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
|

 Role of SWOT Analysis in
Crafting a Better Strategy
] The most important part of Õ analysis is not
developing the | lists of strengths, weaknesses,
opportunities, and threats, but rather
 
  
 

about a company¶s overall situation 
 V

 
 
 to
´ etter match a company¶s strategy to its
resource strengths and market opportunities,
´ Correct the important weaknesses, 
´ Defend against external threats

|

 Q #4: Are the Company·s
Prices and Costs Competitive?
] V
 whether a firm¶s
 are


with
those of rivals is a crucial part of company analysis

] Key 


 Value chain analysis

 enchmarking

|

 The Concept of a
Company Value Chain
] A company¶s  
 consists of 



$
 in designing, producing, marketing,
delivering, and supporting its product or service
] A company¶s 

 consists of a linked set of
value creating activities performed internally
] The 

 contains 
 of 


 ˜

  where most of
the value for customers is created
 Õ 

  facilitate
performance of the primary activities
| 

 Why Do Value
Chains of Rivals Differ?
] Several u
 can
 
uu




in 

 of rival companies
 Internal operations

 Strategy

 Approaches used in execution of the strategy

 Underlying economics of the activities

] £uu






$ of 

rivals¶ 



| 

 The Value Chain System
for an ëntire Industry
] Assessing a company¶s




 involves


 all along the industry¶s value chain
] Õ 
&

 are relevant because
 Costs, performance features, and quality of inputs
provided by suppliers influence a firm¶s own costs
and product performance
] 


&

 are relevant
because
 Costs and margins are part of price paid
by ultimate end user
 Activities performed affect end user satisfaction

| 
 ë ample: Value Chain Activities
6 V  
 



 




V 

      

   

| 
 ë ample: Value Chain Activities
Õ



 
 
 

Õ
 




 

      

V  
 V 


  

| |
 Developing Data to Measure a
Company·s Cost Competitiveness
] After identifying key value chain activities, the 


involves breaking down departmental cost accounting
data into costs of performing specific activities
] Appropriate 


u
 depends on
 Economics of activities
 Value of comparing narrowly defined
versus broadly defined activities
] º 

 Develop separate cost estimates for activities
 Having different economics
 Representing a significant or growing proportion of costs
| 
 Benchmarking Costs of
Key Value Chain Activities
] Focuses on


 of  certain
activities are performed and
 associated with these
activities
 Purchase of materials
 Payment of suppliers
 Management of inventories
 ºetting new products to market
 Performance of quality control
 Filling and shipping of customer orders
 Training of employees
 Processing of payrolls
| 
 Objectives of Benchmarking
] w
u best practices in performing an activity

] 
 the best practices in performing

an activity  learn what is the ³best´ way
to do a particular activity from those
demonstrating they are ³best in world´

] G
 how other firms achieve lower costs

] a$

 to improve company¶s cost competitiveness

| 
 What Determines if a
Company Is Cost Competitive?
] 



 depends on how well a company

 its 

 relative to how well competitors
manage their value chains
] When costs are out of line,  


 can exist
in any of three areas in the industry value chain
p Õ 
&



Company¶s own 



 





Internally V tivities,
V tivities,
Performed Costs, & Buyer/User
Costs, &
V tivities, Margins of Value
Margins of
Costs, & Forward Chains
Suppliers
Margins Channel Vllies

| 
 Options to Correct
Internal Cost Disadvantages
] Implement use of best practices throughout company
] Eliminate some cost producing activities altogether by
revamping value chain system
] Relocate high cost activities to lower cost geographic areas
] See if high cost activities can be performed
cheaper by outside vendors/suppliers
] Invest in cost saving technology
] Innovate around troublesome cost components
] Simplify product design
] Make up difference by achieving savings in backward or
forward portions of value chain system
| 
 Translating Performance of Value Chain
Activities to Competitive Advantage
] A company can create



by
managing its value chain to
 w

knowledge and skills of employees in
competitively valuable ways
 G


economies of learning / experience
 
related activities in ways
that build valuable capabilities
  



in a value chain activity critical
to customer satisfaction or market success

| 

 Q. #4: Is the Company Stronger

or Weaker than Key Rivals?
] Overall


 involves
answering two questions

 How does a
$ 




 on each important
factor that determines market success?

 Does a company have a net




or 

vis  vis major competitors?

| 

 Assessing a Company·s
Competitive Strength vs. Key Rivals
p Gist industry key success factors and other relevant
measures of competitive strength

Rate firm and key rivals on each factor using rating scale
of
to

(
= very weak;  = average;

= very strong)
 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)
 Sum individual ratings to get an overall measure of
competitive strength for each rival
 ased on overall strength ratings, determine overall
competitive position of firm
| 
 Why Do a Competitive
Strength Assessment ?
] Reveals strength of firm¶s competitive position
vis  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)
| 
 What Strategic Issues
Merit Managerial Attention?
] ased on results of both industry and competitive
analysis and an evaluation of a company¶s
competitiveness, what items should be
on a company¶s "#
] Requires  $

 about
 Pluses and minuses in the industry
and competitive situation
 Company¶s resource strengths and weaknesses and
attractiveness of its competitive position

V"#
  
" #

 






%
| |
 Identifying the Strategic Issues
] 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?
| 
 Stating the Issues
Clearly and Precisely
] A well stated issue involves such phrases as
 " '''#
 "ë

'''#
 "ë   

 '''#
] Issues need to be precise, specific,
and "
 


#
] Issues on the "
#
raise questions about
 What actions need to be considered
 What to think about doing
|