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8/7/2019 Sty Mgt Module 4 Aug 10
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McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
44
Chapter TitleChapter Title
16/e PPT16/e PPT
Evaluating a
Company·s
Resources and
Competitive Position
Screen graphics created by:
Jana F. Kuzmicki, Ph.D.Troy University-Florida Region
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The Basic Framework
Strategy: the Link between the Firm
and its Environment
THE FIRM Goals &
Values
Resources &
Capabilities
Structure &Systems
THEINDUSTRY
ENVIRONMENT
Competitors
Customers
Suppliers
STRATEGY
STRATEGY
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Sources of Superior Profitability
RATE OF PROFIT
ABOVE THE
COMPETITIVE LEVEL
How do we
make money?
INDUSTRY
ATTRACTIVENESS
Which
businesses
should we be in?
COMPETITIVEADVANTAGE
How should we
compete?
CORPORATE
STRATEGY
BUSINESS
STRATEGY
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Chapter Roadmap
� Question 1: How Well Is the Companys PresentStrategy Working?
� Question 2: What Are the Companys Resource
Strengths and Weaknesses and Its ExternalOpportunities and Threats?
� Question 3: Are the Companys Prices and CostsCompetitive?
�
Question 4: Is the Company CompetitivelyStronger or Weaker than Key Rivals?
� Question 5: What Strategic Issues and Problemsmerit F ront-Burner Managerial Attention?
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1. How well is the companyspresent strategy working?
2. What are the companys resource
strengths and weaknesses and itsexternal opportunities and threats?
3. Are the companys prices andcosts competitive?
4. Is the company competitively strongeror weaker than key rivals?
5. What strategic issues meritfront-burner managerial attention?
Company Situation Analysis:
The Key Questions
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Fig. 4.1: Identifying the Components of a Single-Business Companys Strategy
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Question 1: How Well Is the Companys
Present Strategy Working?
� Must begin by understanding what the strategy is
± Identify c ompetitive approach
� Low-cost leadership
� Differentiation
� Focus on a particular market niche
± Determine c ompetitive sc ope
� Broad or narrow geographic market coverage?
� In how many stages of industrys production/distribution chain doesthe company operate?
± Examine rec ent strategi c moves
± Identify f unc tional strategies
Key ConsiderationsKey Considerations
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� Qualitative assessment
Is the strategy well-c onc eived?
± 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?
Approaches to Assess How Well
the Present Strategy Is Working
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� 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.
Key Indicators of How Well
the Strategy Is Working
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�� S W O TS W O T represents the first letter in
±± SS trengths
±± W W eaknesses
±± OO pportunities
±± T T hreats
� For a companys strategy to be well-c onc eived, it mustbe
± Matched to its resource strengths and weaknesses
± Aimed at capturing its best market opportunities anderecting defenses against external threats to its well-being
S W
O T
Question 2: What Are the Companys Strengths,
Weaknesses, Opportunities and Threats ?
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� A strengt h 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 marketadvantage
± Alliances or cooperative ventures with partners
Resour c e strengt hs and c ompetitive
c apabilities are c ompetitive assets!
Identifying Resource Strengths
and Competitive Capabilities
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Competencies vs. Core Competencies vs. Distinctive
Competencies
� A c ompetenc e is the produc t of organizational learning and experienc e and represents realprof i c ienc y in performing an internal activity
� A c ore c ompetenc e is a well-performedinternal activity c entral (not peripheral or incidental) toa companys c ompetitivenessand prof itability
� A distinc tive c ompetenc e is a c ompetitively valuableac tivity a company per f orms better t han its rivals
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� Stem from skills, expertise, and experienc e usually representing an± Accumulation of learning over, time
± Gradual buildup of real prof i c ienc y in
per f orming an ac tivity � Involve deliberate eff orts 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 cooperativeeffort to create organizational ability
± A conscious effort to create intellectual capital
Company Competencies and
Capabilities
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Core Competencies
A Valuable Company Resource
� A c ompetenc e becomes a c ore c ompetenc e when thewell-performed activity is c entral to a companyscompetitiveness and profitability
� Often, a c ore c ompetenc e isknowledge-based, residing in people,not in assets on a balance sheet
� A c ore c ompetenc e is typically the result of c ross-department c ollaboration
� A c ore c ompetenc e gives a company apotentially valuable c ompetitive c apability and represents a definite c ompetitive asset
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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
� Capability to fill customer orders accurately and swiftly
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� A distinc tive c ompetenc e is a competitively valuableactivity that a company per f orms better t han itsc ompetitors
�
A distinc tive c ompetenc e is a c ompetitively potent resour c e sour c e because it
± Gives a company a c ompetitively valuablec apability unmat ched by rivals
±Can underpin and add real punchto a companys strategy
± Is a basis for sustainable c ompetitive advantage# 1
Distinctive Competence
A Competitively Superior Resource
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Examples: Distinctive Competencies
T oyota
Low-cost, high-quality
manufacturing of motor
vehicles
Starbuc ks
Innovative coffee drinks
and store ambience
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�� S W O TS W O T analysis involves more t han just developing t he 4 lists of strengths, weaknesses, opportunities, and threats
� The most important part of S W O TS W O T analysis is
± U sing t he 4 lists to draw c onc lusionsabout a c ompanys overall situation
± Ac ting on t he c onc lusions to
� Better match a companys strategy to itsresource strengths and market opportunities
� Correct the important weaknesses
� Defend against external threats
Role of SWOT Analysis in
Crafting a Better Strategy
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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
�
Resour c e weaknesses relate to
± Inferior or unproven skills,
expertise, or intellectual capital
± Lack of important physical,
organizational, or intangible assets
± Missing capabilities in key areas
Resour c e weaknesses and def i c ienc ies
are c ompetitive liabilities!
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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
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Fig. 4.2: The Steps of SWOT Analysis
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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?
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� Assessing whether a firms c osts are c ompetitivewith those of rivals is a crucial part of companysituation analysis
� Key analyti c al tools
± Value chain analysis
± Benchmarking
Question 3: Are the Companys
Prices and Costs Competitive?
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� A companys business consists of all ac tivities undertaken indesigning, producing, marketing, delivering, and supporting itsproduct or service
� All these activities that a company performs internally combine to
form a value chainso-called because the underlying intent of acompanys activities is to do things that ultimately c reate value f or buyers
� The value chain contains two types of ac tivities
± P rimary ac tivities (where most of the value for customers is created)
± Support ac tivities that facilitateperformance of the primary activities
Concept: Company Value Chain
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Fig. 4.3: A Representative Company Value Chain
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Example: Value Chain Activities
for a Bakery Goods Maker
P rimary Ac tivities
� Supply chain management
� Recipe development and
testing
� Mixing and baking
� Packaging
� Sales and marketing
� Distribution
Support Ac tivities
� Quality control
�
Human resourcemanagement
� Administration
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Example: Value Chain Activities
for a Department Store Retailer
P rimary Ac tivities
� Merchandise selection and
purchasing
� Store layout and productdisplay
� Advertising
� Customer service
Support Ac tivities
� Site selection
� Hiring and training
� Store maintenance
� Administrative activities
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Example: Value Chain
Activities for a Hotel Chain
P rimary Ac tivities
� Site selection and
construction
� Reservations
� Operation of hotel
properties
�
Managing lineupof hotel locations
Support Ac tivities
� Accounting
�
Hiring and training
� Advertising
� Building a brand and
reputation
� General
administration
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� C ombined c osts of all activities in a companys valuechain def ine the companys internal c ost struc ture
� C ompares a firms costs activity by activity against costs of key rivals
± From raw materials purchase to
± Price paid by ultimate customer
� P inpoints w hi ch internal ac tivities are asource of c ost advantage or disadvantage
Characteristics of Value Chain
Analysis
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� Several f ac tors give rise to di ff erenc esin value chains of rival companies
± Different strategies
± Different operating practices
± Different technologies
± Different degrees of vertical integration
± Some companies may perform particular activities internally whileothers outsource them
� Di ff erenc es among t he value chains of c ompeting c ompaniesc ompli c ate task of assessingrivals relative c ost positions
Why Do Value Chains of Rivals
Differ?
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� Assessing a companys c ost c ompetitiveness involvesc omparing c osts all along the industrys value chain
� Suppliers value chains are relevant because
±
Costs, performance features, and quality of inputsprovided by suppliers influence a firms own costsand product performance
� V alue chains of distributors and retailers arerelevant because
± Their costs and profit margins represent value addedand are part of the price paid by ultimate end-user
± The activities they perform affect end-user satisfaction
The Value Chain System
for an Entire Industry
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Fig. 4.4: Representative Value Chain for an Entire Industry
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Example: Value Chain Activities
Pulp & Paper Industry
Timber farming
Logging
Pulp mills
Papermaking
Distribution
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Example: Value Chain Activities
Parts and components manufacture
Assembly
Wholesale distribution
Retail sales
Home Appliance Industry
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Processing of basic ingredients
Syrup manufacture
Bottling and can filling
Wholesale distributionAdvertising
Retailing
Example: Value Chain Activities
Albertson¶s
Soft Drink Industry
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Example: Value Chain Activities
Computer Software Industry
Programming
Disk loading
Marketing
Distribution
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Developing Data to Measure a
Companys Cost Competitiveness
� After identifying key value chain activities, the next stepinvolves determining costs of performing specific value chainactivities is, using ac tivity-based c osting
� Appropriate degree of disaggregation depends on
± Economics of activities
± Value of comparing narrowly defined versus broadly defined activities
� Guideline Develop separate cost
estimates for activities± Having different economics
± Representing a significant or growing proportion of costs
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� Determining, whether a companys costs are inline with those of rivals, requires
± Measuring, how a companys costs, compare withthose of rivals, activity-by-activity
� Requires having accounting data to measure costof each value chain activity
� Activity-based costing entail (require)
±
Defining expense categories accordingto specific activities performed and
± Assigning costs to the activityresponsible for creating the cost
Activity-Based Costing: A Key
Tool in Analyzing Costs
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� Overall c ompetitive position involvesanswering two questions
± How does a c ompany rank relativeto c ompetitors on each importantfactor that determines market success?
± Does a company have a netc ompetitive advantage or disadvantagevis-à-vis major competitors?
Question 4: Is the Company Stronger
or Weaker than Key Rivals?
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� Focuses on c ross-c ompany c omparisons of how certainactivities are performed and c osts associated withthese 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
Benchmarking Costs of
Key Value Chain Activities
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� I denti f y best and most efficient means of performingvarious value chain activities
� Learn what is the best way to perform a particular
activity from those companies who have demonstratedthat they are best-in-industry or best-in-world atperforming the activity
� Learn what other firms do to perform
an activity at lower cost� F igure out w hat ac tions to take to improve a
companys own cost competitiveness
Objectives of Benchmarking
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WeightedUn weighted
Competitive Strength
Assessment
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� Reveals strength of firms competitive positionvis-à-vis key rivals
� Shows how firm stacks up against rivals, measure-by-measure pinpoints firms competitivestrengths and competitive weaknesses
� Indicates whether firm is at a competitiveadvantage / disadvantage against each rival
� Identifies possible offensive attacks (pit companystrengths against rivals weaknesses)
� Identifies possible defensive actions (a need tocorrect competitive weaknesses)
Why Do a Competitive
Strength Assessment ?
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Test Your Knowledge
Which of the following statements is f alse?
A. The higher a companys costs are above those of close rivals, the morecompetitively vulnerable it becomes.
B. Because the value chains of rival companies tend to be quite similar, costsoutside a companys own value chain do not affect whether it is at a cost
advantage or disadvantage vis-à-vis key rivals.
C. A companys cost competitiveness depends not only on the costs of internally performed value chain activities but also on the costs of activities performed by its suppliers and forward channel allies.
D. The stronger a companys financial performance and market position, themore likely it has a well-conceived, well-executed strategy.
E. A competence is something a company is good at doing whereas a corecompetence is a proficiently performed internal activity that is central toa companys strategy and competitiveness.
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Test Your Knowledge
Which of the following statements is f alse?
A. The higher a companys costs are above those of close rivals, the morecompetitively vulnerable it becomes.
B. Because the value chains of rival companies tend to be quite similar, costsoutside a companys own value chain do not affect whether it is at a cost
advantage or disadvantage vis-à-vis key rivals.
C. A companys cost competitiveness depends not only on the costs of internally performed value chain activities but also on the costs of activities performed by its suppliers and forward channel allies.
D. The stronger a companys financial performance and market position, themore likely it has a well-conceived, well-executed strategy.
E. A competence is something a company is good at doing whereas a corecompetence is a proficiently performed internal activity that is central toa companys strategy and competitiveness.
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� 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?
� Requires t hinking strategi c ally about
± Pluses and minuses in the industry
and competitive situation± Companys resource strengths and weaknesses and
attractiveness of its competitive positionA good strategy must address w hat to do
about each and every strategi c issue!
Question 5: What Strategic Issues
Merit Managerial Attention?
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Stating the Issues Clearly and
Precisely
� A well-stated issue involves such phrases as
± How to . . . ?
± W het her to . . . ?
±
W hat should be done about . . . ? � Issues need to be precise, specific,
and c ut straight to t he chase
� Issues on the t he worry list
raise questions about± What actions need to be considered
± What to think about doing
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� 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?
Identifying the Strategic Issues:
Some Possibilities
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For Discussion: Your Opinion
Why is it important for company managers to
develop a worry list of strategic issues and
problems that they need to address and toresolve? Why cant managers just skip this step
and go directly to the task of choosing what
strategy to employ?
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The purpose of the worry list is to identi f y t he spec i f i c
issues/problems t hat management needs to address,
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 companys strategy andchoose from among the various strategic alternatives
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� C ost c ompetitiveness depends on how well a
company manages its value chain relative to how
well competitors manage their value chains
� When a companys costs are out-of-line, theactivities responsible for the higher costs may be
due to any of three parts of industry value chain
1. Ac tivities per f ormed by suppliers
2. A companys own internal ac tivities
3. Ac tivities per f ormed by f orward channel alliesActivities,
Costs, &
Margins of
Forward
Channel Allies
Internally
Performed
Activities,
Costs, &
Margins
Activities,
Costs, &
Margins of
Suppliers
Buyer/User
Value
Chains
What Determines If a
Company Is Cost Competitive?
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� A company can create c ompetitive advantage byout-managing rivals in performing value chainactivities in either/both of two ways
Option 1: Develop competencies and capabilitiesthat rivals dont have or cant match
Option 2: Do an overall better job than rivals of lowering combined costs of performingall the value chain activities
Translating Performance of Value Chain Activities
into Competitive Advantage
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Fig. 4.5: Translating Company Performance of
Value Chain Activities into Competitive Advantage
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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 position of firm
Assessing a Companys
Competitive Strength vs. Key Rivals
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� Reveals strength of firms competitive positionvis-à-vis key rivals
� Shows how firm stacks up against rivals, measure-by-measure pinpoints firms competitivestrengths and competitive weaknesses
� Indicates whether firm is at a competitiveadvantage / disadvantage against each rival
� Identifies possible offensive attacks (pit companystrengths against rivals weaknesses)
� Identifies possible defensive actions (a need tocorrect competitive weaknesses)
Why Do a Competitive
Strength Assessment ?
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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 clarifyexpectations and avoid
misunderstandings
� Be honest and complete
� Treat benchmarking interchange asconfidential
� Use information obtained only forstated purposes
� Respect corporate culture of partner
companies� Use benchmarking contacts
designated by partner company
� Be fully prepared for each exchange
� Provide partners with agenda andquestionnaire prior to exchange
�
Follow through with commitmentsto partner in a timely manner
� Understand how partner wantsinformation provided used
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