Chapter 4: Analyzing a Company’s Resources and Competitive Position

Analyzing a Company’s Resources and Competitive Position4ChapterScreen graphics created by:Jana F. Kuzmicki, Ph.D.Troy State University-Florida and Western Region Chapter RoadmapQuestion 1: How Well Is the Company’s Present Strategy Working?Question 2: What Are the Company’s Resource Strengths and Weaknesses and Its External Opportunities and Threats?Question 3: Are the Company’s Prices and Costs Competitive?Question 4: Is the Company Competitively Stronger or Weaker than Key Rivals?Question 5: What Strategic Issues and Problems Merit Front-Burner Managerial Attention?Fig. 4.1: Identifying the Components of a Single-Business Company’s StrategyQ #1: How Well Is the Company’s Present Strategy Working?Identify competitive approachLow-cost leadershipDifferentiationFocus on a particular market nicheDetermine competitive scopeGeographic market coverageOperating stages in industry’s production/distribution chainExamine recent strategic movesIdentify functional strategiesKey IssuesApproaches to Assess How Well the Present Strategy Is WorkingQualitative assessment –What is the strategy?CompletenessInternal consistencyRationaleRelevanceQuantitative assessment – What are the results?Is company achieving its financial and strategic objectives?Is company an above-average industry performer?Key Indicators of How Wellthe Strategy Is WorkingTrend in sales and market shareAcquiring and/or retaining customersTrend in profit marginsTrend in net profits, ROI, and EVAOverall financial strength and credit rankingEfforts at continuous improvement activitiesTrend in stock price and stockholder valueImage and reputation with customersLeadership role(s) – Technology, quality, innovation, e-commerce, etc.S W O T represents the first letter inS trengthsW eaknessesO pportunitiesT hreatsFor a company’s strategy to be well-conceived, it must beMatched to its resource strengths and weaknessesAimed at capturing its best market opportunities and erecting defenses against external threats to its well-beingSWOTQ #2: What Are the Company’s Strengths, Weaknesses, Opportunities and Threats ? Identifying Resource Strengthsand Competitive CapabilitiesA strength is something a firm does well or an attribute that enhances its competitivenessValuable 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 partnersResource strengths and competitivecapabilities are competitive assets!Competencies vs. Core Competencies vs. Distinctive CompetenciesA competence is the product of organizational learning and experience and represents real proficiency in performing an internal activityA core competence is a well-performedinternal activity central (not peripheral or incidental)to a company’s competitiveness and profitabilityA distinctive competence is a competitively valuable activity a company performs better than its rivalsA competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitabilityOften, a core competence results from collaboration among different parts of a companyTypically, core competencies reside in a company’s people, not in assets on a balance sheetA core competence gives a company apotentially valuable competitive capabilityand represents a definite competitive asset Core Competencies -- AValuable Company ResourceDistinctive Competence -- ACompetitively Superior ResourceA distinctive competence is a competitively significant activity that a company performs better than its competitorsA distinctive competence Represents a competitively valuablecapability rivals do not have Presents attractive potential for being a cornerstone of strategyCan provide a competitive edge in the marketplace —because it represents a competitively superior resource strength# 1To qualify as competitively valuable or to be the basis for sustainable competitive 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 competitively superior?4. Can the resource be trumped by the different capabilities of rivals?Determining the CompetitiveValue of a Company ResourceOpportunities most relevant to acompany are those offeringGood match with its financial andorganizational resource capabilitiesBest prospects for profitable long-term growthPotential for competitive advantageIdentifying a Company’sMarket OpportunitiesIdentifying External ThreatsEmergence of cheaper/better technologiesIntroduction of better products by rivalsEntry of lower-cost foreign competitorsOnerous regulationsRise in interest ratesPotential of a hostile takeoverUnfavorable demographic shiftsAdverse shifts in foreign exchange ratesPolitical upheaval in a countryFig. 4.2: The Three Stepsof SWOT AnalysisQ #3: Are the Company’sPrices and Costs Competitive?Assessing whether a firm’s costs are competitive with those of rivals is a crucial part of company analysisKey analytical toolsValue chain analysisBenchmarkingThe Concept of aCompany Value ChainA company’s business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service A company’s value chain consists of a linked set of value-creating activities performed internally The value chain contains two types of activitiesPrimary activities – where most ofthe value for customers is createdSupport activities – facilitateperformance of the primary activitiesFig. 4.3: RepresentativeCompany Value ChainFig. 4.4: Representative Value Chain for an Entire IndustryBenchmarking Costs ofKey Value Chain ActivitiesFocuses on cross-company comparisons of how certain activities are performed and costs associated with these activitiesPurchase of materialsPayment of suppliersManagement of inventoriesGetting new products to marketPerformance of quality controlFilling and shipping of customer orders Training of employeesProcessing of payrollsTable 4.3: Options for Attacking Cost Disadvantages Associated with Supply Chain Activities or Forward Channel AlliesFig. 4.5: Translating Performance of Value Chain Activities into Competitive Advantage Q. #4: Is the Company Stronger or Weaker than Key Rivals?Overall competitive position involvesanswering two questionsHow does a company rank relativeto competitors on each importantfactor that determines market success?Does a company have a netcompetitive advantage or disadvantagevis-à-vis major competitors? Assessing a Company’s Competitive Strength vs. Key Rivals1. List industry key success factors and other relevant measures 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 rating system (a weighted system is superior because chosen strength measures are unlikely to be equally important)4. Sum individual ratings to get an overall measure of competitive strength for each rival5. Based on overall strength ratings, determine overall competitive position of firmWhat Strategic IssuesMerit Managerial Attention?Based on results of both industry and competitive analysis and an evaluation of a company’s competitiveness, what items should beon a company’s “worry list”?Requires thinking strategically aboutPluses and minuses in the industryand competitive situationCompany’s resource strengths and weaknesses and attractiveness of its competitive positionA “good” strategy must address “what to do”about each and every strategic issue!Identifying the Strategic IssuesHow 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 growthin 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?