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McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved. 4-1

Analyzing a

Companys Resourcesand Competitive Position

4Chapter

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

Troy State University-Florida and Western Region

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Chapter Roadmap

Question 1: How Well Is the Companys PresentStrategy Working?Question 2: What Are the Companys ResourceStrengths and Weaknesses and Its External Opportunitiesand Threats?Question 3: Are the Companys Prices and CostsCompetitive?

Question 4: Is the Company Competitively Stronger orWeaker than Key Rivals?Question 5: What Strategic Issues and Problems MeritFront-Burner Managerial Attention?

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Fig. 4.1: Identifying the Components ofa Single- Business Companys Strategy

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Q #1: How Well Is the CompanysPresent Strategy Working?

Identify competi tive approachLow-cost leadership

DifferentiationFocus on a particular market niche

Determine competi ti ve scopeGeographic market coverage

Operating stages in industrys production/distribution chain

Examine recent str ategic moves

Identify functional str ategies

Key Issues

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Approaches to Assess How Wellthe Present Strategy Is Working

Quali tative assessment What is the strategy?

Completeness

Internal consistencyRationale

Relevance

Quanti tative assessment What are the results?

Is company achieving itsfinancial and strategic

objectives?Is company an above-average industry

performer?

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Key Indicators of How Wellthe Strategy Is Working

Trend in sales and market shareAcquiring and/or retaining customers

Trend in profit margins

Trend in net profits, ROI, and EVAOverall financial strength and credit ranking

Efforts at continuous improvement activities

Trend in stock price and stockholder valueImage and reputation with customers

Leadership role(s) Technology, quality,innovation, e-commerce, etc.

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S W O T represents the first letter inS trengths

W eaknesses

O pportunitiesT hreats

For a companys strategy to be well-conceived, it must be

Matched to its resource strengths and weaknessesAimed at capturing its best market opportunities anderecting defenses against external threats to its well-being

S W

O T

Q #2: What Are the Companys Strengths,Weaknesses, Opportunities and Threats ?

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Identifying Resource Strengthsand Competitive Capabilities

A strength is something a firm does well or an attribute thatenhances its competitiveness

Valuable competencies or know-howValuable physical assetsValuable human assetsValuable organizational assetsValuable intangible assetsImportant competitive capabilitiesAn attribute that places a company in a position of market

advantageAlliances or cooperative ventures with partners

Resource str engths and competi tivecapabil i ties are competi tive assets!

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Competencies vs. Core Competenciesvs. Distinctive Competencies

A competence is the product of organizational learningand exper ience and represents real proficiency in

performing an internal activity

A core competence is a well-performedinternal activity central (not peripheral or incidental)to a companys competi tiveness and profi tabil i ty

A distinctive competence is a competi tively valuableactivity a company performs better than i ts r ivals

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A competence becomes a core competence when the well- performed activity is central to a companyscompetitiveness and profitability

Often, a core competence results from collaborationamong different parts of a company

Typically, core competencies reside in a companyspeople, not in assets on a balance sheet

A core competence gives a company a potentially valuable competi tive capabi l i tyand represents a definite competi ti ve asset

Core Competencies -- AValuable Company Resource

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Distinctive Competence -- ACompetitively Superior Resource

A distinctive competence is a competitively significantactivity that a company performs better than i tscompetitors

A distinctive competenceRepresents a competitively valuablecapability rivals do not have

Presents attractive potential for

being acornerstone of str ategy

Can provide a competi tive edge in the marketplace

because it represents a competitively superior resourcestrength

# 1

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To qualify as competitively valuable or to be the basis forsustainable competi tive 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 competi tively super ior?

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

Determining the CompetitiveValue of a Company Resource

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Opportunities most relevant to acompany are those offering

Good match with its financial andorganizational resource capabilities

Best prospects for profitablelong-term growth

Potential for competi tive advantage

Identifying a Companys Market Opportunities

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Identifying External Threats

Emergence of cheaper/better technologiesIntroduction of better products by rivals

Entry of lower-cost foreign competitors

Onerous regulationsRise in interest rates

Potential of a hostile takeover

Unfavorable demographic shiftsAdverse shifts in foreign exchange rates

Political upheaval in a country

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Fig. 4.2: The Three Stepsof SWOT Analysis

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Q #3: Are the Companys Prices and Costs Competitive?

Assessing whether a firms costs are competitive withthose of rivals is a crucial part of company analysis

Key analytical tools

Value chain analysis

Benchmarking

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Fi 4 3 R i

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Fig. 4.3: RepresentativeCompany Value Chain

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Fig. 4.4: Representative ValueChain for an Entire Industry

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B h ki C f

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Benchmarking Costs ofKey Value Chain Activities

Focuses on cross-company comparisons of how certainactivities are performed and costs associated with theseactivities

Purchase of materials

Payment of suppliersManagement of inventoriesGetting new products to marketPerformance of quality controlFilling and shipping of customer ordersTraining of employeesProcessing of payrolls

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Fig. 4.5: Translating Performance of ValueChain Activities into Competitive Advantage

Q #4 I th C St

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Q. #4: Is the Company Strongeror Weaker than Key Rivals?

Overall competi tive posi tion involvesanswering two questions

How does a company rank relativeto competi tors on each importantfactor that determines market success?

Does a company have a netcompeti tive advantage or disadvantage vis--vis major competitors?

A i C

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Assessing a CompanysCompetitive Strength vs. Key Rivals

1. List industry key success factors and other relevantmeasures 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 ratingsystem (a weighted system is superior because chosenstrength measures are unlikely to be equally important)

4. Sum individual ratings to get an overall measure ofcompetitive strength for each rival

5. Based on overall strength ratings, determine overallcompetitive position of firm

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2005 The McGraw Hill Companies Inc All rights reserved

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What Strategic IssuesMerit Managerial Attention?

Based on results of both industry and competitiveanalysis and an evaluation of a companyscompetitiveness, what items should beon a companys worry list?

Requires thinking strategical ly aboutPluses and minuses in the industryand competitive situationCompanys resource strengths and weaknesses and

attractiveness of its competitive position

A good strategy must address what to do about each and every str ategic issue!

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Identifying the Strategic Issues

How to stave off market challenges from new foreigncompetitors?

How to combat price discounting of rivals?

How to reduce a companys high costs?

How to sustain a companys present growth in light of slowing buyer demand?

Whether to expand a companys 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 companyscustomer base?

Documents

Strat Chap004