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THE FIRM THE

ͻ Goals & INDUSTRY
Values ENVIRONMENT
STRATEGY
ͻ Resources & STRATEGY ͻ Competitors
Capabilities
ͻ Customers
ͻ Structure &
Systems ͻ Suppliers
 Sources of Superior Profitability

INDUSTRY
ATTRACTIVENESS

  CORPORATE
RATE OF PROFIT   STRATEGY
ABOVE THE  
 

COMPETITIVE LEVEL

›
 

 

COMPETITIVE
ADVANTAGE

›
 
 BUSINESS

 
STRATEGY
 Chapter Roadmap
´ â
 How Well Is the Company͛s Present
Strategy Working?
´ â

What Are the Company͛s G 
and Weaknesses and Its External
Opportunities and Threats?
´ â
 Are the Company͛s ¢  
   

´ â
 Is the Company Competitively

  than Key G 

´ â
 What Strategic Issues and Problems

merit º  Managerial Attention?
 Company Situation Analysis:
The Key Questions
 How well is the company͛s
present strategy working?
 What are the company͛s resource
strengths and weaknesses and its
external opportunities and threats?
 Are the company͛s prices and
costs competitive?
ï Is the company competitively stronger
or weaker than key rivals?
 What strategic issues merit
front-burner managerial attention?
Fig. 4.1: Identifying the Components of
a Single-Business Company͛s Strategy
 Question 1: How Well Is the Company͛s
Present Strategy Working?
Ñ   
´ Must begin by understanding what the strategy is
Identify Y

Y
´ Low-cost leadership
´ Differentiation
´ Focus on a particular market niche
Determine Y

Y

´ Broad or narrow geographic market coverage?
´ In how many stages of industry͛s production/distribution chain does
the company operate?
Examine 
Y

Y

Identify A Y


 Approaches to Assess How Well
the Present Strategy Is Working
´ â 


  ´ â 


 What
Is the 

YY


Covers all the bases?
Internally consistent?
Makes sense?
Timely and in step with
marketplace?
are the 
 
Is company achieving its
financial and strategic
objectives?
Is company an above-
average industry 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
´ Leadership role(s)  Technology, quality,
innovation, e-commerce, etc.
 Question 2: What Are the Company͛s Strengths,
Weaknesses, Opportunities and Threats ?

´ ^ represents the first letter in

^ trengths ^ 
† eaknesses
* pportunities
@ hreats
 
´ For a company͛s 
 to be 
YY

 it must
be
Matched to its resource  and

Aimed at capturing its best     and
erecting s against 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 skills, competencies, or capabilities
Valuable physical assets
Valuable human assets
Valuable organizational assets
Valuable intangible assets
Important competitive capabilities
An attribute placing a company in a position of market
advantage
Alliances or cooperative ventures with partners
G
 Y

 Y


Y

Y



Competencies vs. Core Competencies vs. Distinctive
Competencies

´ A Y

Y
is the  YA





Y
and represents real
AY
Y in performing an internal activity

´ A Y
Y

Y
is a well-performed
internal activity Y
 (not peripheral or incidental) to
a company͛s Y



A

´ A Y
Y

Y
is a Y

 


Y a company 
A

 
 Company Competencies and
Capabilities
´ Stem from  






Y
usually representing an
Accumulation of 
 over, time
Gradual buildup of real AY
Y in

AY
´ Involve 



AA 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
 Core Competencies 
A Valuable Company Resource
´ A Y

Y
becomes a Y
Y

Y
when the
well-performed activity is Y
 to a company͛s
competitiveness and profitability
´ Often, a Y
Y

Y
is
knowledge-based, residing in 


not in assets on a balance sheet
´ A Y
Y

Y
is typically the result of Y


Y
´ A Y
Y

Y
gives a company a
potentially valuable Y

Y
and represents a definite Y



 Examples: Core Competencies
´ Expertise in integrating     
to create families of 
 
´ Know-how in     
for cost efficient   
´ Speeding 
   to market
´ Better after-sale    
´ Skills in manufacturing a    product
´ Capability to   orders accurately and swiftly
 Distinctive Competence 
A Competitively Superior Resource
´ A Y
Y

Y
is a competitively valuable
activity that a company 
A

 
Y

´ A Y
Y

Y
is a Y




 Y
 Y
because it
Gives a company a Y

 

Y Y
 by rivals
Can 
 and 
 Y
to a company͛s 

#1
Is a  for  
Y



Examples: Distinctive Competencies
@ ^ Y 
Low-cost, high-quality Innovative coffee drinks
manufacturing of motor and store ambience
vehicles
 Role of SWOT Analysis in
Crafting a Better Strategy
´ ^ analysis 

 ! 


 of
strengths, weaknesses, opportunities, and threats
´ The most important part of ^ analysis is
-
YY 
 Y"
 
#Y
YY  to
´ Better match a company͛s strategy to its
resource strengths and market opportunities
´ Correct the important weaknesses
´ Defend against external threats
 Determining the Competitive
Power of a Company Resource
´ To qualify as competitively valuable or to be the basis
for  
Y


 a $
 Y
%
must pass 4 tests:

 Is the resource Y

 Is the resource  
 does it have 


 Is the resource really Y

 


ï 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
´ G
 Y

 

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

 


AY
Y


Y



 Identifying a Company͛s
Market Opportunities
´ Opportunities 

to a
company are those offering

pY with its financial and

organizational resource capabilities

[

Yfor A




¢
for Y



 Identifying External Threats
´ Emergence of cheaper/better technologies
´ Introduction of better products by rivals
´ Entry of lower-cost foreign competitors
´ Rigorous regulations
´ Rise in interest rates
´ Potential of a hostile takeover
´ Unfavorable demographic shifts
´ Adverse shifts in foreign exchange rates
´ Political upheaval in a country
Fig. 4.2: The Steps of SWOT Analysis
 For Discussion: Your Opinion
In doing SWOT analysis, why is it not sufficient
just to compile 4 lists (one each for resource
strengths, resource weaknesses, market
opportunities, and external threats) and then
move on?
 Question 3: Are the Company͛s
Prices and Costs Competitive?
´ #
 whether a firm͛s Y are Y


with those of rivals is a crucial part of company
situation analysis

´ Key Y

Value chain analysis

Benchmarking
 Concept: Company Value Chain
´ A company͛s  
 consists of Y
 

 in
designing, producing, marketing, delivering, and supporting its
product or service
´ All these activities that a company performs internally combine to
form a 

 Ôso-called because the underlying intent of a
company͛s activities is to do things that ultimately Y


A
 

´ The 
Y  contains 
 of Y

¢Y
 (where most of
the value for customers is created)
^ Y
 that facilitate
performance of the primary activities
Fig. 4.3: A Representative Company Value Chain
 Example: Value Chain Activities
for a Bakery Goods Maker
¢#Y
 ^ #Y

´ Supply chain management ´ Quality control
´ Recipe development and
´ Human resource
testing
management
´ Mixing and baking
´ Administration
´ Packaging
´ Sales and marketing
´ Distribution
 Example: Value Chain Activities
for a Department Store Retailer
¢#Y
 ^ #Y

´ Merchandise selection and ´ Site selection
purchasing ´ Hiring and training
´ Store layout and product ´ Store maintenance
display
´ Administrative activities
´ Advertising
´ Customer service
 Example: Value Chain
Activities for a Hotel Chain
¢#Y
 ^ #Y

´ Site selection and ´ Accounting
construction
´ Hiring and training
´ Reservations
´ Operation of hotel ´ Advertising
properties ´ Building a brand and
´ Managing lineup reputation
of hotel locations
´ General
administration
 Characteristics of Value Chain
Analysis
´ i
Y of all activities in a company͛s value
chain 
A
the company͛s 
Y Y 

´ i
 a firm͛s    

    against costs of key rivals
From raw materials purchase to

Price paid by ultimate customer

´ ¢ Y internal Y
 are a

source of Y
or 

 Why Do Value Chains of Rivals
Differ?
´ Several AY give rise to AA

Y

in 
Y  of rival companies
Different strategies
Different operating practices
Different technologies
Different degrees of vertical integration
Some companies may perform particular activities internally while
others outsource them

´ AA

Y


Y AY
Y


YY
 of 

rivals͛ 

Y
 The Value Chain System
for an Entire Industry
´ Assessing a company͛s YY


 involves
YY all along the industry͛s value chain
´ ^ 
"
Y  are 

 because
Costs, performance features, and quality of inputs
provided by suppliers influence a firm͛s own costs
and product performance
´ å
Y A 

 are


because
Their costs and profit margins represent ͞value added͟
and are part of the price paid by ultimate end-user
The activities they perform affect end-user satisfaction
Fig. 4.4: Representative Value Chain for an Entire Industry
Example: Value Chain Activities



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Example: Value Chain Activities
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Example: Value Chain Activities
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Example: Value Chain Activities
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 Developing Data to Measure a
Company͛s Cost Competitiveness
´ After identifying key value chain activities, the 


involves determining costs of performing specific value chain
activities is, using ͞Y
Y%
´ Appropriate 


A
 depends on
Economics of activities
Value of comparing 
  
versus       
´ p 

 Develop separate cost
estimates for activities
Having different economics
Representing a significant or growing proportion of costs
 Activity-Based Costing: A Key
Tool in Analyzing Costs
´   , whether a company͛s costs are in
line with those of rivals,  
Measuring, 
   ! 

   !      
´ Requires     to measure cost
of each value chain activity
´ Activity-based costing entail (require)
Defining     according
to      performed 
ë   to the activity
responsible    
Question 4: Is the Company Stronger
or Weaker than Key Rivals?
´ Overall Y

 involves
answering two questions

How does a Y 


Y
 on each important
factor that determines market success?

Does a company have a net

Y


or 

vis-à-vis major competitors?
 Benchmarking Costs of
Key Value Chain Activities
´ Focuses on YYY of  certain
activities are performed and Y 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
 Objectives of Benchmarking
´ 
A best and most      
various     
´ ‰
 what is the Õ"
    
       who have demonstrated
that they are Õ   ͟ or Õ 
"at
performing the activity
´ ‰
 what other firms do to perform
an activity at lower cost
´ º 
  Y
to improve a
company͛s own cost competitiveness
 Competitive Strength
Assessment

Un weighted Weighted
 Why Do a Competitive
Strength Assessment ?
´ Reveals strength of firm͛s competitive position
vis-à-vis key rivals
´ Shows how firm stacks up against rivals, measure-
by-measure  pinpoints firm͛s 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 rivals͛ weaknesses)
´ Identifies possible defensive actions (a need to
correct competitive weaknesses)
 Test Your Knowledge


 
 

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 Question 5: What Strategic Issues
Merit Managerial Attention?
´ Based on results of both industry and competitive
analysis and an evaluation of a company͛s
competitiveness, what items should be
on a company͛s $%
´ Requires   
Y about
Pluses and minuses in the industry
and competitive situation
Company͛s resource strengths and weaknesses and
attractiveness of its competitive
#$%
 position

$ %
 
Y 


Y

 Stating the Issues Clearly and
Precisely
´ A well-stated issue involves such phrases as
$&'''%
$†

'''%
$†   

 '''%
´ Issues need to be precise, specific,
and $Y  
Y 
%
´ Issues on the $
%
raise questions about
What actions need to be considered
What to think about doing
 Identifying the Strategic Issues:
Some Possibilities
´ How to stave off market challenges from new foreign
competitors?
´ How to combat price discounting of rivals?
´ How to reduce a company͛s high costs?
´ How to sustain a company͛s present growth
in light of slowing buyer demand?
´ Whether to expand a company͛s 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 company͛s customer
base?
 For Discussion: Your Opinion
Why is it important for company managers to
develop a ͞worry list͟ of strategic issues and
problems that they need to address and to
resolve? Why can͛t managers just skip this step
and go directly to the task of choosing what
strategy to employ?
The purpose of the ͞worry list͟ is 
A

YAY

(
 




,
not to figure out what specific actions to take.

-Deciding what to do  which strategic actions to take

and which strategic moves to make  comes later,

-i.e. when it is time to craft a company͛s strategy and

choose from among the various strategic alternatives
 What Determines If a
Company Is Cost Competitive?
´ iY


 depends on how well a
company 
 its 
Y  relative to how
well competitors manage their value chains
´ When a company͛s costs are out-of-line, the
activities responsible for the higher costs may be
due to any of three parts of industry value chain
 #Y

A
 

 A company͛s own 
Y

 #Y

A
AY 




 %   ,
%   ,
  , ( 3
,
%   , *!  4

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, 2)
 
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%


Translating Performance of Value Chain Activities
into Competitive Advantage
´ A company can create Y


by
out-managing rivals in performing value chain
activities in either/both of two ways

*ΠDevelop competencies and capabilities

     

*
ΠDo an # than rivals of
lowering combined costs of performing
all the value chain activities
 Fig. 4.5: Translating Company Performance of
Value Chain Activities into Competitive Advantage
 Assessing a Company͛s
Competitive Strength vs. Key Rivals
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 Why Do a Competitive
Strength Assessment ?
´ Reveals  
  

 


vis-à-vis key rivals
´ Shows how firm stacks up against rivals, measure-
by-measure  pinpoints firm͛s competitive
 and competitive

´ Indicates whether firm is at a  



against each rival
´ Identifies possible 
(pit company
strengths against rivals͛ weaknesses)
´ Identifies possible 

(a need to
correct competitive weaknesses)
 Ethical Principles in Benchmarking
´ Avoid actions implying an interest in
Restraint of trade
Market and/or customer allocation
schemes
Price fixing
Bribery
´ Refrain from acquiring trade secrets
by any means viewed as improper
´ Be willing to provide same type of
information to a benchmarking
partner
´ Communicate early to clarify
expectations and avoid
misunderstandings
´ Be honest and complete
´ Treat benchmarking interchange as
confidential
´ Use information obtained only for
stated purposes
´ Respect corporate culture of partner
companies
´ Use benchmarking contacts
designated by partner company
´ Be fully prepared for each exchange
´ Provide partners with agenda and
questionnaire prior to exchange
´ Follow through with commitments
to partner in a timely manner
´ Understand how partner wants
information provided used
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