Transcript Chapter 4
Key Questions in Situation Analysis
Question 1: How well is the company’s
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?
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Situation Analysis Question 1: How
Well is the Company’s Strategy
Working?
1. Is the company achieving its
financial and strategic objectives?
2. Is the company an above-average
industry performer?
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Performance Indicators
Trends in sales and earnings growth
Trends in the company’s stock price
The company’s overall financial strength
The rate at which new customers are acquired
Image and reputation with customers
Evidence of improvement in internal processes
such as defect rate, order fulfillment, and days
of inventory
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Situation Analysis Question 2: The
Company’s Strengths, Weaknesses,
Opportunities and Threats
S W O T represents the first letter in
Strengths
Weaknesses
Opportunities
Threats
For a company’s strategy to be wellconceived, it must be
Matched to its resource strengths and
weaknesses
Aimed at capturing its best market opportunities
and defending against external threats to its wellbeing
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Identifying Resource Strengths
and Competitive Capabilities
Common types of resource strengths
include
Skills or specialized expertise in a
competitively important capability
Valuable physical assets
Valuable human assets or intellectual capital
Valuable organizational assets
Valuable intangible assets
Competitively valuable alliances or
cooperative ventures
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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 in the marketplace
Resource weaknesses relate to
Inferior or unproven skills,
expertise, or intellectual capital
Deficiencies in competitively important
physical, organizational, or intangible assets
Missing or competitive inferior capabilities in
key areas
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Identifying a Company’s
Market Opportunities
Opportunities most relevant to
a company are those offering
Good match with its
financial and
organizational resource
capabilities
Best prospects for growth
and profitability
Most potential for
competitive advantage
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Identifying External Threats to
Profitability and Competitiveness
Entry of lower-cost foreign competitors
Burdensome regulations
Rise in interest rates
Potential of a hostile takeover
Unfavorable demographic shifts
Adverse shifts in foreign exchange rates
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SWOT Analysis
Potential
Resource
Strengths
• Powerful
strategy
Resource
Company
Weaknesse Opportunitie
s
• No clear s
strategic
• Serving additional
Potential
External
Threats
• Entry
of potent new
• Strong financial
condition
• Strong brand name
image/reputation
• Widely recognized
market leader
• Proprietary
technology
• Cost advantages
• Strong advertising
• Product innovation
skills
• Good customer
service
• Better product
quality
• Alliances or JVs
direction
• Obsolete facilities
• Weak balance sheet;
excess debt
• Higher overall costs
than rivals
• Missing some key
skills/competencies
• Subpar profits
• Internal operating
problems . . .
• Falling behind in
R&D
• Too narrow product
line
• Weak marketing
skills
competitors
• Loss of sales to
substitutes
• Slowing market
growth
• Adverse shifts in
exchange rates &
trade policies
• Costly new
regulations
• Vulnerability to
business cycle
• Growing leverage of
customers or
suppliers
• Reduced buyer
needs for product
• Demographic
changes
customer groups
• Expanding to new
geographic areas
• Expanding product
line
• Transferring skills to
new products
• Vertical integration
• Take market share
from rivals
• Acquisition of rivals
• Alliances or JVs to
expand coverage
• Openings to exploit
new technologies
• Openings to extend
brand name/image
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Situation Analysis Question 3: How
Competitive Are the Company’s
Prices and Costs?
Assessing whether a firm’s costs are
competitive with those of rivals is a
crucial part of company situation analysis
Key analytical tools
Value chain analysis
Benchmarking
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Company Value Chain
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Developing Data to Measure a
Company’s Cost Competitiveness
After identifying key value
chain activities, the next step
involves determining costs
of value chain activities using
activity-based costing
Appropriate degree of disaggregation
Depends on the number of broad categories
of primary and support activities
Requires finer classifications if problematic
cost disadvantages exist
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Activity-Based Costing
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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 market
Performance of quality control
Filling and shipping of customer orders
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Industry Value Chain
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Vertical Integration: Operating
Across More Industry Value Chain
Segments
Extend a firm’s competitive scope
within the same industry
Backward into sources of supply
Forward toward end-users of final
product
Can aim at either full or partial
integration
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Advantages of a Vertical Integration
Strategy
Strengthen the firm’s competitive
position
Boost profitability
Must achieve same scale economies
as outside suppliers
Match or beat suppliers’ production
efficiency with no drop-off in quality
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Integrating Forward to Enhance
Competitiveness
Gain better access to
end users
Improve market
visibility
Include the purchasing
experience as a
differentiating feature
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Disadvantages of a Vertical
Integration Strategy
Boosts capital investment in
the industry
Increases business risk if
industry growth and profits sour
May slow technological
advances if the vertically
integrated company is saddled
with older technology
Poses all types of capacitymatching problems
May require radically different
skills and business capabilities
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The Case for Outsourcing
Activity can be performed better or
more cheaply by outside specialists
Activity is not crucial to achieve a
sustainable competitive advantage
It improves firm’s ability to innovate
Firm can concentrate on core value
chain activities and leverage its
resource strengths
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Building a Competitively Superior
Value Chain
There are three main areas of a
company’s overall value chain where
cost differences occur
1. Activities performed by
suppliers
2. A company’s own internal
activities
3. Activities performed by
forward channel allies
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Correcting Internal Cost
Disadvantages
Implement best practices throughout
the company
Try to eliminate some cost-producing
activities altogether by revamping value
chain
Relocate high-cost activities to lowercost geographic areas
See if high-cost activities can be
outsourced
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Correcting Internal Cost
Disadvantages
Invest in productivity enhancing, costsaving technology
Find ways to detour around activities or
items where costs are high
Redesign the product or its
components to reduce manufacturing
costs
Make up difference by achieving
savings in backward or forward
portions of value chain system
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Correcting Supplier-Related Cost
Disadvantages
Pressure suppliers for lower prices
Switch to lower-priced substitutes
Collaborate closely with suppliers to
identify mutual
cost-saving opportunities
Integrate backward
into business of
high-cost suppliers
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Correcting Cost Disadvantages
Associated With Forward Channel
Allies
Pressure dealer-distributors to reduce
their costs
Work closely with forward channel
allies to identify win-win opportunities to
reduce costs
Change to a more economical
distribution strategy
Switch to cheaper distribution channels
Integrate forward into company-owned retail
outlets
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Developing a Best Cost Advantage
Companies that do a first rate job of
managing value chain activities
relative to competitors can achieve
a Best Cost Advantage
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Developing a Best Cost Advantage
Best Cost Provider Strategies yield
unique industry positioning by exceeding
buyers’ expectations for differentiating
features and low prices
Contingent on
A superior value chain
configuration
Unmatched efficiency in managing
value chain activities
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Situation Analysis Question 4: What
Is the Company’s Competitive
Strength?
Overall competitive position involve
answering two questions
How does a company rank relative
to competitors on each industry key
success factor?
Does a company have a net
competitive advantage or disadvantage
vis-à-vis major competitors?
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Competitive Strength Assessments
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Interpreting the Competitive
Strength Assessments
Shows how firm stacks up against rivals,
measure-by-measure
Indicates whether firm is at a
competitive advantage or
disadvantage against each rival
Identifies possible offensive strategies
that can be waged against rivals’
weaknesses
Identifies the need for defensive
actions to correct competitive
weaknesses
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Situation Analysis Question 5: What
Strategic Issues Must be Addressed
by Management?
Final and most
important analytical step
in assessing
“Where are we now?”
Based on results of both industry and
competitive analysis
Pinpointing the precise things that should
be on management’s “worry list”?
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