Analysing Competitive Envirionment

8/4/2019 Analysing Competitive Envirionment

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Analyzing a

Companys Resourcesand Competitive Position

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Chapter

Screen graphics created by:

Jana F. Kuzmicki, Ph.D.Troy State University-Florida and Western Region


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Before executives canchart a new strategy, they

must reach commonunderstanding of the

companys current position.

W. Chan Kim and Renee Mauborgne


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Chapter Roadmap

Question 1: How Well Is the Companys Present StrategyWorking?

Question 2: What Are the Companys Resource Strengths and

Weaknesses and Its External Opportunities and Threats?

Question 3: Are the Companys 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?


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Company Situation Analysis:The Key Questions

1. How well is the companyspresent strategy working?

2. What are the companys resource

strengths and weaknesses and its

external opportunities and threats?

3. Are the companys prices and

costs competitive?

4. Is the company competitively strongeror weaker than key rivals?

5. What strategic issues merit

front-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?

Identifycompetitive approach

Low-cost leadership

DifferentiationFocus on a particular market niche

Determinecompetitive scope

Geographic market coverage

Operating stages in industrys production/distribution chain

Examinerecent strategic moves

Identifyfunctional strategies

Key Issues


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Approaches to Assess How Wellthe Present Strategy Is Working

Qualitative assessmentWhat is thestrategy?

Completeness

Internal consistency

Rationale

Relevance

Quantitative assessmentWhatare theresults?

Is company achieving its

financial 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 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.


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S W O T represents the first letter inS trengths

Weaknesses

O pportunitiesThreats

For a companysstrategy to be well-conceived, it must be

Matched to its resource strengths and weaknesses

Aimed at capturing its best market opportunities and erecting

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

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

Valuable competencies or know-how

Valuable physical assets

Valuable human assets

Valuable organizational assets

Valuable intangible assets

Important competitive capabilities

An attribute that places a company in a position of market advantage

Alliances or cooperative ventures with partners

Resource strengths and competitivecapabilities are competitive assets!


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Competencies vs. Core Competenciesvs. Distinctive Competencies

Acompetence is theproduct of organizational learning andexperience and represents realproficiency in performing an

internal activity

Acore competence is a well-performed

internal activitycentral(not peripheral or incidental)

to a companyscompetitiveness and profitability

Adistinctive competence is acompetitively valuable activity a

companyperforms better than its rivals


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Company Competenciesand Capabilities

Stem fromskills, expertise, andexperience usually representing an

Accumulation oflearning over timeand

Gradual buildup of realproficiency in

performing an activity Involvedeliberate efforts to develop the ability to do

something, often entailing

Selecting people with requisite knowledge and skills

Upgrading or expanding individual abilitiesMolding work products of individuals into a cooperative effort to

create organizational ability

A conscious effort to create intellectual capital


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Acompetence becomes acore competence when the well-performed activity iscentralto a companys

competitiveness and profitability

Often, acore competence results fromcollaboration

among different parts of a company

Typically, core competencies reside in a companys

people, not in assets on a balance sheet

Acore competence gives a company a

potentially valuablecompetitive capability

and represents a definite competitive asset

Core Competencies -- AValuable Company Resource


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Examples: Core Competencies

Expertise in integrating multiple technologiesto create families of new products

Know-how in creating operating systems

for cost efficient supply chain management

Speeding new/next-generation products to market

Better after-sale service capability

Skills in manufacturing a high quality product

System to fill customer orders accurately and swiftly


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Distinctive Competence -- ACompetitively Superior Resource

Adistinctive competence is a competitively significant activitythat a companyperforms better than its competitors

A distinctive competence

Represents acompetitivelyvaluable

capabilityrivals do not have

Presents attractive potential for

being acornerstone of strategy

Can provide acompetitive edge in the marketplacebecause itrepresents a competitivelysuperior resource strength

# 1

E l Di ti ti


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Examples: DistinctiveCompetencies

Sharp CorporationExpertise in flat-panel display technology

Toyota and Honda

Low-cost, high-quality manufacturing

capability and short design-to-market cycles

Intel

Ability to design and manufacture

ever more powerful microprocessors for PCs

Wal-Mart

Low-cost distribution and use of

state-of-the-art retail technology


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To qualify as competitively valuable or to be the basis forsustainable competitive advantage,a resourcemustpass 4 tests:

1. Is the resourcehard to copy?

2. Does the resource havestaying poweris itdurable?

3. Is the resource reallycompetitively superior?

4. Can the resource betrumpedbythe different capabilities of rivals?

Determining the CompetitiveValue of a Company Resource


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

Resource weaknesses relate to

Inferior or unproven skills,

expertise, or intellectual capital

Lack of important physical,

organizational, or intangible assets

Missing capabilities in key areas

Resource weaknesses and deficienciesare competitive liabilities!

Identifying Resource Weaknessesand Competitive Deficiencies


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Identif ing a Compan s


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Opportunitiesmost relevant to acompany are those offering

Good match with its financial and

organizational resource capabilities

Best prospects forprofitable

long-term growth

Potentialfor competitive advantage

Identifying a CompanysMarket Opportunities


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Identifying External Threats

Emergence of cheaper/better technologies Introduction of better products by rivals

Entry of lower-cost foreign competitors

Onerous regulations Rise in interest rates

Potential of a hostile takeover

Unfavorable demographic shifts Adverse shifts in foreign exchange rates

Political upheaval in a country

Role of SWOT Analysis in


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Role of SWOT Analysis inCrafting a Better Strategy

The most important part of S W O T analysis is notdeveloping the 4 lists of strengths, weaknesses, opportunities,

and threats, but rather

Using the 4 lists to draw conclusions

about a companys overall situationand

Acting on the conclusions to

Better match a companys strategy to its

resource strengths and market opportunities, Correct the important weaknesses,and

Defend against external threats

Fig 4 2: The Three Steps


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Fig. 4.2: The Three Stepsof SWOT Analysis

Q #4: Are the Companys


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Q #4: Are the CompanysPrices and Costs Competitive?

Assessingwhether a firmscosts arecompetitive with those ofrivals is a crucial part of company analysis

Keyanalytical tools

Value chain analysis

Benchmarking

The Concept of a


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The Concept of aCompany Value Chain

A companysbusiness consists ofall activities undertaken indesigning, producing, marketing, delivering, and supporting its

product or service

A companys value chain consists of a linked set of value-

creating activities performed internally

The value chain containstwo types ofactivities

Primary activitieswhere most of

the value for customers is created

Support activitiesfacilitate

performance of the primary activities

Fig 4 3: Representative


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Fig. 4.3: RepresentativeCompany Value Chain

Characteristics of


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Characteristics ofValue Chain Analysis

Combined costsof all activities in a companys value chaindefinethe companys internal cost structure

Comparesa firms costs activity

by activity against costs of key rivals

From raw materials purchase to

Price paid by ultimate customer

Pinpoints which internalactivities are a

source ofcost advantage ordisadvantage

Why Do Value


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Why Do ValueChains of Rivals Differ?

Severalfactors cancause differencesin value chains of rival companies

Internal operations

Strategy

Approaches used in execution of the strategy

Underlying economics of the activities

Differences complicate task ofassessing

rivalsrelative cost positions

The Value Chain System


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The Value Chain Systemfor an Entire Industry

Assessing a companyscost competitiveness involvescomparing costsall along the industrys value chain

Suppliers value chains are relevant because

Costs, performance features, and quality of inputs

provided by suppliers influence a firms own costsand product performance

Forward channel allies value chains are relevant because

Costs and margins are part of price paid

by ultimate end-user

Activities performed affect end-user satisfaction

Fig 4 4: Representative Value


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Fig. 4.4: Representative ValueChain for an Entire Industry

E l V l Ch i A ti iti


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Example: Value Chain Activities

Timber farming

Logging

Pulp mills

Papermaking

Distribution

Pulp & Paper Industry



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Home Appliance Industry

Parts and components manufacture

Assembly

Wholesale distribution

Retail sales


E ample: Val e Chain Acti ities


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Processing of basic ingredients

Syrup manufacture

Bottling and can filling

Wholesale distribution

Advertising

Retailing

Albertsons


Soft Drink Industry



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Programming

Disk loading

Marketing

Distribution


Software Computer Industry

Developing Data to Measure a


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Developing Data to Measure aCompanys Cost Competitiveness

After identifying key value chain activities, thenext stepinvolves breaking down departmental cost accounting data into

costs of performing specific activities

Appropriatedegree of disaggregation depends on

Economics of activities

Value of comparing narrowly defined

versus broadly defined activities

GuidelineDevelop separate cost estimates for activitiesHaving different economics

Representing a significant or growing proportion of costs

Activity-Based Costing: A Key


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c y ased Cos g: eyTool in Analyzing Costs

Determining whether a companys costs are in line with thoseof rivals requires

Measuring how a companys costs compare with those of rivals

activity-by-activity

Requires having accounting data to measure costof each value chain activity

Activity-based costing entails

Defining expense categories according

to specific activities performedand

Assigning costs to the activity

responsible for creating the cost


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Benchmarking Costs of


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gKey Value Chain Activities

Focuses oncross-company comparisons ofhow certainactivities are performed andcosts associated with these

activities

Purchase of materials

Payment of suppliersManagement 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


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Objectives of Benchmarking

Identify best practices in performing an activity

Understandthe best practices in performing

an activitylearn what is the best way

to do a particular activity from thosedemonstrating they are best-in-world

Learn how other firms achieve lower costs

Take actionto improve companys cost competitiveness

Ethical Standards in


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Benchmarking: Dos and Donts

Avoid talk about pricing or competitivelysensitive costs

Dont ask rivals for sensitive data

Dont share proprietary data without clearance

Have impartial third party assemble and present competitively

sensitive cost data with no names attached

Dont disparage a rivals business to outsiders based on data

obtained

What Determines if a


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Company Is Cost Competitive?

Cost competitiveness depends on how well a companymanages its value chain relative to how well competitors

manage their value chains

When costs are out-of-line,high-cost activities can exist in any

of three areas in the industry value chain1.Suppliers activities

2. Companys own internal activities

3.Forward channel activities

Activities,Costs, &

Margins ofForward

Channel Allies

InternallyPerformedActivities,Costs, &Margins

Activities,Costs, &

Margins ofSuppliers

Buyer/UserValue

Chains

Options to Correct


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Internal Cost Disadvantages

Implement use of best practices throughout company

Eliminate some cost-producing activities altogether by revamping

value chain system

Relocate high-cost activities to lower-cost geographic areas

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

Invest in cost-saving technology

Innovate around troublesome cost components

Simplify product design

Make up difference by achieving savings in backward or forward

portions of value chain system


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Translating Performance of Value Chain


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Activities to Competitive Advantage

A company can createcompetitive advantage by managing itsvalue chain to

Integrate knowledge and skills of employees in competitively

valuable ways

Leverage economies of learning / experience

Coordinate related activities in ways

that build valuable capabilities

Build dominating expertisein a value chain activity critical

to customer satisfaction or market success

Fig. 4.5: Translating Performance of Value


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Chain Activities into Competitive Advantage

Q. #4: Is the Company StrongerW k th K Ri l ?


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or Weaker than Key Rivals?

Overallcompetitive position involvesanswering two questions

How does acompany rankrelative

to competitors on each importantfactor that determines market success?

Does a company have a net

competitive advantage ordisadvantage

vis--vis major competitors?

Assessing a Companys


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Competitive Strength vs. Key Rivals

1. List industry key success factors and other relevant measuresof 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 rival5. Based on overall strength ratings, determine overall

competitive position of firm


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Why Do a CompetitiveSt th A t ?


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Strength Assessment ?

Reveals strength of firms competitive position

vis--vis key rivals

Shows how firm stacks up against rivals, measure-by-measure

pinpoints firms 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 rivals weaknesses)

Identifies possible defensive actions (a need to correct

competitive weaknesses)

What Strategic IssuesMerit Managerial Attention?


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Merit Managerial Attention?

Based on results of both industry and competitive analysis and

an evaluation of a companys competitiveness, what items

should be

on a companys worry list?

Requiresthinking strategically aboutPluses and minuses in the industry

and competitive situation

Companys resource strengths and weaknesses and attractiveness

of its competitive position

A good strategy must address what to do

about each and every strategic issue!

Identifying the Strategic Issues


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y g g

How to stave off market challenges from new foreign competitors?

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 companys customer

base?

Stating the IssuesClearly and Precisely


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A well-stated issue involves such phrases as

How to . . . ?

Whether to . . . ?

What should be done about . . . ?

Issues need to be precise, specific,

and cut straight to the chase

Issues on the the worry list

raise questions aboutWhat actions need to be considered

What to think about doing

Clearly and Precisely

Documents

Analysing Competitive Envirionment