1. - Servin Dersamet - 2 3 Must begin by understanding what the strategy is. Identify competitive approach Low-cost leadership? Differentiation?

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Ege UniversityFaculty of Economics and Administrative Sciences

Department of Business Administration

Evaluating a Company’s Resources and Competitive Position

Servin Dersamet

Strategic Management and Business Policies

İzmir, 2011

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Components of a Single-Business Company’s Strategy



Question 1: How well is the Company’s Present Strategy Working?

Must begin by understanding what the strategy is.

Identify competitive approach

Low-cost leadership? Differentiation? Best-cost provider? Focus on a particular market niche?

Determine competitive scope

Broad or narrow geographic market coverage? In how many stages of industry’s production/distribution chain does the company operate?

Examine recent strategic moves

Identify functional strategies



Approaches to Assesing How Well the Present Strategy is Working

Qualitative assessment – Is the strategy well-conceived?

Covers all the bases? Internally consistent? Makes sense? Timely and in step with marketplace?

Quantitative assessment – What are the results?

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, EPS, and ROE Overall financial strength and credit rating Efforts at continuous improvement activities Trend in stock price Image and reputation with customers Leadership role(s) – Technology, product quality, innovation, etc.

6Evaluating a Company’s Resources and Competitive Position

Strengths Weaknesses

Opportunities Threats

For a company’s strategy to be well-conceived,

It must be proper to its resource strengths and weaknesses

It must be aimed at capturing its best market opportunities and erecting defenses against external threats to its well-being

Question 2: What are the Company’s Strengths, Weaknesses, Opportunities and Threaths?

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Identifying Resource Strengths and Competitive Capabilities

A strength is something a firm does well and also an attribute that increases its

competitiveness.

Resource strengths and competitive capabilities are competitive assets!

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Competencies vs Core Competencies vs Distinctive Competencies

Competence is the product of organizational learning and experience and represents real proficiency in performing an internal activity.

Company competencies arise from skills, expertise, and experience and include deliberate efforts to develop the ability to do something .

Core competence is a well-performed internal activity central to a company’s competitiveness and profitability.

A core competence gives a company a potentially valuable competitive capability and represents a definite competitive asset.

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Distinctive Competence

Distinctive competence is a competitively valuable activity a company performs better than its rivals.

A distinctive competence gives a company a competitively valuable capability unmatched by rivals and It can add real punch to a company’s strategy.

Shortly,a distinctive competence is a basis for sustainable competitive advantage

Toyota •Low Cost•High Quality Manufacturing

Starbucks •Innovative Cofee Drinks •Store Ambience

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Identifying Resource Weaknesses and Competitive Deficiencies

A weakness is something a firm lacks, does poorly, or a condition placing it at a

disadvantage.

Resource weaknesses and deficiencies are competitive liabilities.

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Identifying a Company’s Market Opportunies

Opportunities most relevant to a company are those offering:

Good Match with its Financial and Organizational

Resources Capabilities

Best Prospects for Profitable Long Term Growth

Potential For Competitive Advantage

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Identifying External Threats

Emergence of Cheaper/Better Technologies

Introduction of Better Products by Rivals

Entry of Lower-Costs Foreign Competitors

Onerous Regulations

Unfavorable Demographic Shifts

Adverse Shits in Foreign Exchange Rates

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Are the Company’s Prices and Costs Competitive ?

Company Value Chain

A company’s business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service

All these activities a company performs internally combine to form a value chain

The Value Chain Contains two types of activities

Primary activitiesSupport ActivitiesWhere most of the value for customers is created

Facilitate performance of primary activities

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A Representative Company Value Chain

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Characteristics of Value Chain Analysis

The value chain model is a useful analysis tool for defining a firm's core competencies and the activities in which it can pursue a competitive advantage as follows:

By better understanding costs and squeezing them out of the value-adding

activities.

By focusing on those activities associated with core

competencies and capabilities in order to perform them better

than do competitors.

Cost Advantage Differenciation

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Why DoValue Chains of Rivals Differ?

Different Strategies

Different Operating Practices

Different Technologies

Different Degrees of Vertical Integration

Several factors give rise to differences in value chains of rival companies:

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The Value Chain System for an Entire Industry

Suppliers’ value chains are relevant because

Costs, performance features, and quality of inputs provided by suppliers

influence a firm’s own costs and product performance

Value chains of distributors and retailers are relevant because

Their costs and profit margins represent - ”value added” and are part of the price paid by ultimate

end-user

Activities they perform affect end-user satisfaction

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Representative Value Chain for an Entire Industry

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Example: Value Chain Activities

Soft Drink Industry

Processing of basic ingredients

Syrup manufacture

Bottling and can filling

Wholesale distribution

Retailing

Advertising

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Benchmarking Costs of Key Value Chain Activities

Focuses on cross-company comparisons of how certain activities are performed and costs associated with these activities .

Purchase of

Materials

Payment of

Suppliers

Getting New

Products to the

Market

Training of Employee

s

Processing of Payrolls

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Identify best and most efficient means of performing various value chain activities.

Learn what is the “ best” way to perform a particular activity from those companies who have demonstrated that they are “best-in-industry” or “best-in-world “ at performing the activity.

Learn what other firms do to perform an activity at lower cost.

Figure out what actions to take to improve a company’s own cost competitiveness.

Objectives of Benchmarking

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What Determines if a Company is Cost Competitive

Cost competitiveness depends on how well a company manages its value chain relative to how well competitors manage their value chains.

When a company’s costs are out-of-line, the activities responsible for the higher costs may be due to any of three parts of industry value chain.

Activities Performed by

Suppliers

Activities Performed by

Forward Channel Allies

A Company’s Own İnternal

Activities

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Options to Correct Internal Cost

Disadvantages

Options to Correct a Supplier-Related Cost

Disadvantage

Options to Correct a Cost Disadvantage Associated

With Activities of Forward Channel Allies

Implement use of best practices throughout company

Relocate high-cost activities to lower-cost geographic areas

See if high-cost activities can be performed cheaper by outside vendors/suppliers

Pressure suppliers for lower prices

Arrange for just-in-time deliveries from suppliers to lower inventory and internal logistics costs

Switch to lower-priced substitutes

Pressure dealer-distributors and other forward channel allies to reduce their costs to make the final price to buyers more competitive with prices of rivals

Work closely with forward channel allies to identify win-win opportunities to reduce costs

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Translating Performance of Value Chain Activities into Competitive Advantage

A company can create competitive advantage by out-managing rivals in performing value chain activities in either/both of two ways.

Option 1: Develop competencies and capabilities that rivals don’t have or can’t match and thereby create a resource or capability-based competitive advantage.

Option 2: Perform value chain activities at a lower overall cost than rivals and thereby create a cost-based competitive advantage.

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Question 4: Is the Company Stronger or Weaker than Key Rivals ?

Whether a company is competitively stronger or weaker than key rivals hinges on the answers to two questions:

How does the company rank relative to competitors on each important factor that determines market success?

Does the company have a net competitive advantage or disadvantage vis-à-vis major competitors?

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Assesing a Company’s Competitive Strength vs. Key Rivals

1. List industry key success factors and other relevant measures of competitive strength

2. 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 rival

5. Based on overall strength ratings, determine overall competitive strength of firm

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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 company’s competitiveness, what items should be on a company’s “worry list”?

Requires thinking strategically about

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

A “good” strategy must address “what to do” about each and every strategic issue!

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A Clear Grasp of the Issues is a Prerequisite to Effective Action

Issues are best couched in such phrases as

Issues need to be precisely stated and “cut straight to the chase”

What should be

done about...?

Where to...?

How to...?

The issues on management’s “worry list” represent an agenda for action

Sharp, clear understanding of the issues is a big assist in figuring out what to do to address and resolve them !

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1. - Servin Dersamet - 2 3 Must begin by understanding what the strategy is. Identify competitive approach Low-cost leadership? Differentiation?