Company Situation Analysis

Matching the companys strategy to external market circumstances and to internal resources and competitive capabilities.
1. How well is the present strategy working? 2. What are the companys resource strengths /weaknesses and external opportunities and threats? 3. Are the companys costs and prices competitive? 4. How strong is the company relative to rivals? 5. What strategic issues does the company face?

1. How well is the current strategy working?

What is the current strategy? Is it achieving financial/strategic objectives? Is market share increasing/decreasing? Trends in profit margin, net profit, ROI, stock price, sales?

2. SWOT Analysis
Identifying: Company STRENGTHS & competitive capabilities; Company WEAKNESSES & resource deficiencies; Company market OPPORTUNITIES; THREATS to a companys future profitability..

SWOT - Strengths & Weaknesses

Sources of Strength or Weakness Skill or expertise (or lack of) Physical assets - plant, equipment, location (or lack of) Human assets / expertise (or lack of) Organisation assets - quality control system, patents Valuable intangible assets - brandname, loyalty, culture Competitive capabilities - shorter development times, customising capability, supplier relations.

Strategic Balance Sheet - Competitive Assets & Liabilities

Core & Distinctive Competencies

Core competence is something a company does well relative to other internal activities. Distinctive competence is something a company does well relative to competitors. Whether a core competence represents a distinctive competence depends on how good the competence is relative to what competitors are capable of.

SWOT Analysis - Opportunities/Threats

Not every industry opportunity/threat is a company opportunity/threat - need to analyse and compare: Impact on growth & profit potential Impact on existing / potential sources of competitive advantage Match with company resource capabilities

Drawing Conclusions from SWOT Analysis

How best to deploy resources in view of the companys internal/external situation Does the resource base need to be adjusted to respond to emerging issues? Are there resource gaps that need to be filled? In what ways does the company need to strengthen its (future) resource base?

3. Are company prices/costs competitive?

Cost disparities can stem from: Difference in raw materials prices Difference in technology used Difference in age of plant/equipment Difference in production costs Difference in marketing, sales, promotion & advertising costs Difference in exposure to inflation/taxes etc.

Strategic Cost Analysis - Benchmarking

Benchmark the costs of key activities to understand the best practices involved in performing an activity and to see if costs are in line with other companies. Use info. from published reports, trade groups, industry analysts, customers, suppliers.... Used to identify areas of cost advantage/disadvantage.

Strategic Cost Analysis

Business as a collection of activities with costs = cost structure Compare a companys costs activity by activity against those of rivals.
Learn which internal activities are a source of cost advantage or disadvantage.

Cost Analysis - Company Value Chain

Primary analytical tool of strategic cost analysis Identifies the separate activities, functions and processes used in designing, producing, marketing, delivering and supporting a product or service.
Identifies the primary activities that create value for customers and the related support activities.

Cost Analysis - Company Value Chain

Primary Activities & Costs

Purchasing

Operations

Distribution

Sales & Marketing

Service

Profit

Support Activities & Costs

R & D; Technology; HRM; Administration

Cost Analysis - Company Value Chain

Value chains of rival companies differ. Company value chain is embedded in larger Value Chain System - part of and affected by value chains of upstream suppliers and downstream customers.

SOFT DRINKS
Processing ingredients Syrup manufacture Bottling/Can Filling Wholesale distribution Retailing

SOFTWARE
Programming Disk Loading Marketing Distribution

ACCOUNTANCY
Human Resource Management Customer Service

Value Chain Composition Differs by Industry & by Company

THE VALUE CHAIN SYSTEM Upstream Value Chains

Activities, Costs, and Margins of Suppliers

Company Value Chain

Internally Performed Activities, Costs and Margins

Downstream Value Chains

Activities, Costs, Margins of Forward Channels

END USER

Adapted from Michael Porter, Competitive Advantage, 1985.

Strategic Options for Achieving Cost Competitiveness

Options to combat upstream disadvantage: Negotiate more favourable prices with suppliers Work with suppliers to help reduce costs Integrate backwards Source cheaper substitutes Manage linkage between supplier & co. Eg JIT

Strategic Options for Achieving Cost Competitiveness

Options to combat downstream disadvantage: Push distributors/forward channels to markups Look for win-win opportunities to costs Change to more economical distribution strategy Forward integrate

Strategic Options for Achieving Cost Competitiveness

Options to combat internal disadvantage: Streamline high cost activities Reengineer business processes / work practices Re-vamp value chain to eliminate some activities Outsource activities if more economical Invest in cost-saving technology Simplify product design

4. How strong is the companys competitive position?

Whether mkt position will improve/deteriorate if present strategy continued? How the firm ranks relative to key rivals on each industry success factor and each relevant measure of competitive strength Whether the firm has a competitive advantage / disadvantage v.a.v rivals Firms ability to defend mkt position in light of industry driving forces

Competitive Strength Assessment

Identify industrys KSFs/determinants of competitive advantage/disadvantage (usually 6 - 10 measures)

Rate firm and key rivals on each indicator (scale 110)

Sum individual ratings = competitive strength Note which companies are strongest and areas of relative strength & weakness

Competitive Strength Assessment

EXAMPLE

KEY INDICATORS PRODUCT QUALITY BRAND IMAGE CUSTOMER SERVICE OPERATING COSTS EXPERTISE R&D
Overall Strength Rating

CO.A 8 9 7 4 8 9
45

CO.B 6 6 8 7 8 7
42

CO.C 3 3 5 8 6 1
29

Weighted CSA
Key indicators Weighting co.A 8/1.6 9/.45 7/1.4 4/1.2 8/.8 9/1.35 6.8 co.B 6/1.2 6/.3 8/1.6 7/2.1 8/.8 7/1.05 7.05 co.C 3/.6 3/.15 5/1.0 8/2.4 6/.6 1/.15 4.9

Product quality .2 Brand image .05 Customer service .2 Operating costs .3 Expertise .1 R&d .15 Sum of weights 1.0 Weighted overall strength rating

Strategic Group Mapping

Identify characteristics that differentiate firms in the industry Identify and group firms with similar competitive approaches Plot firms on a two variable map using pairs of these differentiating characteristics Draw circles around each group proportionate to size of groups respective share of total industry sales revenue

Strategic Group Mapping

Distinguishing characteristics: price/quality range; geog scope; vertical integration; pdt line breadth; distribution channels; service; pdt attributes; technology Number of groups - spread of groups A number of maps can be useful Whether some groups affected more by certain ind. forces Movement between groups

Strategic Mapping - Jewellery Industry

High
PRICE QUALITY IMAGE Med

Low

Specialty Full line craft Ltd category Diamonds/ jewellers merchandise Watches etc retailers PRODUCT LINE BREADTH

Broad category retailers

5. What strategic issues does the company face?

Does the company have a competitive advantage? Does it capitalise on resource strengths? Which opportunities should be prioritised? What corrective measures need to be taken? How does the cost position compare to that of rivals? Does the present strategy defend against the 5 forces? Is it closely matched to the industrys KSFs? Should it be adjusted to better respond to driving forces?