Transcript Industry & Competitive Analysis

Company Situation Analysis
Matching the company’s strategy to external market
circumstances and to internal resources and
competitive capabilities.
1. How well is the present strategy working?
2. What are the company’s resource strengths
/weaknesses and external opportunities and threats?
3. Are the company’s costs and prices competitive?
4. How strong is the company relative to rivals?
5. What strategic issues does the company face?
1. How well is the current strategy
working?
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What is the current strategy?
Is it achieving financial/strategic objectives?
Is market share increasing/decreasing?
Trends in profit margin, net profit, ROI, stock
price, sales?
2. SWOT Analysis
Identifying:
Company STRENGTHS & competitive
capabilities; Company WEAKNESSES &
resource deficiencies; Company market
OPPORTUNITIES; THREATS to a company’s
future profitability…..
SWOT - Strengths & Weaknesses
Sources of Strength or Weakness
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Skill or expertise (or lack of)
Physical assets - plant, equipment, location (or lack of)
Human assets / expertise (or lack of)
Organisation assets - quality control system, patents
Valuable intangible assets - brandname, loyalty, culture
Competitive capabilities - shorter development times,
customising capability, supplier relations.
Strategic Balance Sheet - Competitive Assets & Liabilities
Core & Distinctive Competencies
Core competence is something a company does well
relative to other internal activities.
Distinctive competence is something a company does
well relative to competitors.
Whether a core competence represents a distinctive
competence depends on how good the competence is
relative to what competitors are capable of.
SWOT Analysis - Opportunities/Threats
Not every industry opportunity/threat is a
company opportunity/threat - need to analyse
and compare:
• Impact on growth & profit potential
• Impact on existing / potential sources of
competitive advantage
• Match with company resource capabilities
Drawing Conclusions from SWOT Analysis
• How best to deploy resources in view of the
company’s internal/external situation
• Does the resource base need to be adjusted to
respond to emerging issues?
• Are there resource gaps that need to be
filled?
• In what ways does the company need to
strengthen its (future) resource base?
3. Are company prices/costs competitive?
Cost disparities can stem from:
•Difference in raw materials prices
•Difference in technology used
•Difference in age of plant/equipment
•Difference in production costs
•Difference in marketing, sales, promotion &
advertising costs
•Difference in exposure to inflation/taxes etc.
Strategic Cost Analysis - Benchmarking
Benchmark the costs of key activities to
understand the best practices involved in
performing an activity and to see if costs are
in line with other companies.
Use info. from published reports, trade groups,
industry analysts, customers, suppliers....
Used to identify areas of cost
advantage/disadvantage.
Strategic Cost Analysis
Business as a collection of activities with costs
= cost structure
Compare a company’s costs activity by activity
against those of rivals.
Learn which internal activities are a source of
cost advantage or disadvantage.
Cost Analysis - Company Value Chain
• Primary analytical tool of strategic cost
analysis
• Identifies the separate activities, functions
and processes used in designing, producing,
marketing, delivering and supporting a
product or service.
• Identifies the primary activities that create
value for customers and the related support
activities.
Cost Analysis - Company Value Chain
Primary
Activities
& Costs
Support
Activities
& Costs
Purchasing
Operations
Distribution
Sales &
Marketing
Service
R & D; Technology; HRM; Administration
Profit
Cost Analysis - Company Value Chain
Value chains of rival companies differ.
Company value chain is embedded in larger
Value Chain System - part of and affected by
value chains of upstream suppliers and
downstream customers.
SOFT DRINKS
Processing ingredients
Syrup manufacture
Bottling/Can Filling
Wholesale distribution
Retailing
SOFTWARE
Programming
Disk Loading
Marketing
Distribution
ACCOUNTANCY
Human Resource
Management
Customer Service
Value Chain Composition
Differs by Industry & by
Company
THE VALUE CHAIN SYSTEM
Upstream
Value Chains
Activities,
Costs, and
Margins of
Suppliers
Company
Value Chain
Downstream
Value Chains
Internally
Performed
Activities, Costs
and Margins
Activities,
Costs, Margins
of Forward
Channels
END
USER
Adapted from Michael Porter, Competitive Advantage, 1985.
Strategic Options for Achieving Cost
Competitiveness
Options to combat upstream disadvantage:
•Negotiate more favourable prices with suppliers
•Work with suppliers to help reduce costs
•Integrate backwards
•Source cheaper substitutes
•Manage linkage between supplier & co. Eg JIT
Strategic Options for Achieving Cost
Competitiveness
Options to combat downstream disadvantage:
•Push distributors/forward channels to markups
•Look for win-win opportunities to costs
•Change to more economical distribution strategy
•Forward integrate
Strategic Options for Achieving Cost
Competitiveness
Options to combat internal disadvantage:
•Streamline high cost activities
•Reengineer business processes / work practices
•Re-vamp value chain to eliminate some activities
•Outsource activities if more economical
•Invest in cost-saving technology
•Simplify product design
4. How strong is the company’s competitive
position?
• Whether mkt position will improve/deteriorate
if present strategy continued?
• How the firm ranks relative to key rivals on
each industry success factor and each relevant
measure of competitive strength
• Whether the firm has a competitive advantage
/ disadvantage v.a.v rivals
• Firm’s ability to defend mkt position in light
of industry driving forces
Competitive Strength Assessment
•Identify industry’s KSFs/determinants of
competitive advantage/disadvantage (usually 6 - 10
measures)
•Rate firm and key rivals on each indicator (scale 110)
•Sum individual ratings = competitive strength
Note which companies are strongest and areas of
relative strength & weakness
Competitive Strength Assessment
EXAMPLE
KEY INDICATORS
PRODUCT QUALITY
BRAND IMAGE
CUSTOMER SERVICE
OPERATING COSTS
EXPERTISE
R&D
Overall Strength Rating
CO.A
CO.B
CO.C
8
9
7
4
8
9
6
6
8
7
8
7
3
3
5
8
6
1
45
42
29
Weighted CSA
Key indicators
Weighting
Product quality
.2
Brand image
.05
Customer service
.2
Operating costs
.3
Expertise
.1
R&d
.15
Sum of weights
1.0
Weighted overall strength rating
co.A
co.B
co.C
8/1.6
9/.45
7/1.4
4/1.2
8/.8
9/1.35
6/1.2
6/.3
8/1.6
7/2.1
8/.8
7/1.05
3/.6
3/.15
5/1.0
8/2.4
6/.6
1/.15
6.8
7.05
4.9
Strategic Group Mapping
•Identify characteristics that differentiate firms in the
industry
•Identify and group firms with similar competitive
approaches
•Plot firms on a two variable map using pairs of these
differentiating characteristics
•Draw circles around each group proportionate to size
of groups’ respective share of total industry sales
revenue
Strategic Group Mapping
•Distinguishing characteristics: price/quality
range; geog scope; vertical integration; pdt line
breadth; distribution channels; service; pdt
attributes; technology
•Number of groups - spread of groups
•A number of maps can be useful
•Whether some groups affected more by certain
ind. forces
•Movement between groups
Strategic Mapping - Jewellery Industry
High
PRICE
QUALITY
IMAGE
Med
Low
Specialty
Full line craft Ltd category
Diamonds/ jewellers
merchandise
Watches etc
retailers
PRODUCT LINE BREADTH
Broad
category
retailers
5. What strategic issues does the
company face?
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Does the company have a competitive advantage?
Does it capitalise on resource strengths?
Which opportunities should be prioritised?
What corrective measures need to be taken?
How does the cost position compare to that of
rivals?
• Does the present strategy defend against the 5
forces?
• Is it closely matched to the industry’s KSFs?
• Should it be adjusted to better respond to driving
forces?