Transcript BA 469 Chap004.ppt

Evaluating a
Company’s Resources
and Competitive
Position
4-1
“Before executives can
chart a new strategy, they
must reach common
understanding of the
company’s current
position.”
W. Chan Kim and Renee Mauborgne
4-2
Chapter Roadmap
• Question 1: How Well Is the Company’s Present
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?
4-3
Company Situation Analysis:
The Key Questions
1.
2.
3.
4.
5.
How well is the company’s
present strategy working?
What are the company’s resource
strengths and weaknesses and its
external opportunities and threats?
Are the company’s prices and
costs competitive?
Is the company competitively stronger
or weaker than key rivals?
What strategic issues merit
front-burner managerial attention?
4-4
Fig. 4.1: Identifying the Components of
a Single-Business Company’s Strategy
4-5
Question 1: How Well Is the Company’s
Present Strategy Working?
Key Considerations
• Must begin by understanding what the strategy is
– Identify competitive approach
• Low-cost leadership
• Differentiation
• 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
4-6
Approaches to Assess How Well
the Present Strategy Is Working
• Qualitative
assessment –
Is the strategy wellconceived?
• Quantitative
assessment – What
are the results?
– Is company achieving
its financial and
strategic objectives?
– Covers all the bases?
– Internally consistent?
– Makes sense?
– Is company an aboveaverage industry
performer?
– Timely and in step with
marketplace?
4-7
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, 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.
4-8
4-9
4-10
Question 2: What Are the Company’s
Strengths, Weaknesses, Opportunities and
Threats ?
• S W O T represents the first letter in
S
– S trengths
W
– W eaknesses
– O pportunities
O
– T hreats
T
• For a company’s strategy 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 wellbeing
4-11
Identifying Resource Strengths
and Competitive Capabilities
• A strength 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 market advantage
– Alliances or cooperative ventures with partners
Resource strengths and competitive
capabilities are competitive assets!
4-12
Competencies vs. Core Competencies vs.
Distinctive Competencies
• A competence is the product of organizational
learning and experience and represents real
proficiency in performing an internal activity
• A core competence is a well-performed
internal activity central (not peripheral or incidental) to a
company’s competitiveness
and profitability
• A distinctive competence is a competitively valuable
activity a company performs better than its rivals
4-13
Company Competencies and
Capabilities
• Stem from skills, expertise, and
experience usually representing an
– Accumulation of learning over time and
– Gradual buildup of real proficiency in
performing an activity
• Involve deliberate efforts 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
cooperative effort to create organizational ability
– A conscious effort to create intellectual capital
4-14
Core Competencies –
A Valuable Company Resource
• A competence becomes a core competence when the
well-performed activity is central to a company’s
competitiveness and profitability
• Often, a core competence is
knowledge-based, residing in people,
not in assets on a balance sheet
• A core competence is typically the result of crossdepartment collaboration
• A core competence gives a company a
potentially valuable competitive capability
and represents a definite competitive asset
4-15
Examples: Core Competencies
• Expertise in integrating multiple technologies
to 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
4-16
Distinctive Competence –
A Competitively Superior Resource
• A distinctive competence is a competitively valuable
activity that a company performs better than its
competitors
• A distinctive competence is a competitively potent
resource source because it
– Gives a company a competitively valuable
capability unmatched by rivals
– Can underpin and add real punch
to a company’s strategy
#1
– Is a basis for sustainable competitive advantage
4-17
Examples: Distinctive
Competencies
Toyota
Starbucks
Low-cost, high-quality
manufacturing of motor
vehicles
Innovative coffee drinks and
store ambience
4-18
Determining the Competitive
Power of a Company Resource
• To qualify as competitively valuable or to be the basis for
sustainable competitive advantage, a “resource”
must pass 4 tests:
1. Is the resource hard to copy?
2. Is the resource durable – does it have staying
power?
3. Is the resource really competitively superior?
4. Can the resource be trumped by
the different capabilities of rivals?
4-19
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 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 deficiencies
are competitive liabilities!
4-20
4-21
4-22
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 profitable
long-term growth
– Potential for competitive advantage
4-23
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
4-24
Role of SWOT Analysis in
Crafting a Better Strategy
• S W O T analysis involves more than just developing the 4 lists
of strengths, weaknesses, opportunities, and threats
• The most important part of S W O T analysis is
– Using the 4 lists to draw conclusions
about a company’s overall situation
– Acting on the conclusions to
• Better match a company’s strategy to its
resource strengths and market opportunities
• Correct the important weaknesses
• Defend against external threats
4-25
Fig. 4.2: The Three Steps of SWOT Analysis
4-26
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?
4-27
Question 3: Are the Company’s
Prices and Costs Competitive?
• 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
4-28
Concept: 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 that a company performs internally combine to
form a value chain—so-called because the underlying intent of a
company’s activities is to do things that ultimately create value for
buyers
• The value chain contains two types of activities
– Primary activities (where most of
the value for customers is created)
– Support activities that facilitate
performance of the primary activities
4-29
Fig. 4.3: A Representative Company Value Chain
4-30
Example: Value Chain Activities
for a Bakery Goods Maker
Primary Activities
• Supply chain
management
• Recipe development and
testing
• Mixing and baking
Support Activities
• Quality control
• Human resource
management
• Administration
• Packaging
• Sales and marketing
• Distribution
4-31
Example: Value Chain Activities
for a Department Store Retailer
Primary Activities
Support Activities
• Merchandise selection
and purchasing
• Site selection
• Store layout and product
display
• Store maintenance
• Advertising
• Hiring and training
• Administrative activities
• Customer service
4-32
Example: Value Chain
Activities for a Hotel Chain
Primary Activities
• Site selection and
construction
• Reservations
• Operation of hotel
properties
• Managing lineup
of hotel locations
Support Activities
• Accounting
• Hiring and training
• Advertising
• Building a brand and
reputation
• General
administration
4-33
Characteristics of Value Chain
Analysis
• Combined costs of all activities in a company’s value
chain define the company’s internal cost structure
• Compares a firm’s costs activity
by activity against costs of key rivals
– From raw materials purchase to
– Price paid by ultimate customer
• Pinpoints which internal activities are a
source of cost advantage or disadvantage
4-34
Why Do Value Chains of Rivals
Differ?
• Several factors give rise to differences
in value chains of rival companies
– Different strategies
– Different operating practices
– Different technologies
– Different degrees of vertical integration
– Some companies may perform particular activities internally
while others outsource them
• Differences among the value chains of competing companies
complicate task of assessing
rivals’ relative cost positions
4-35
The Value Chain System
for an Entire Industry
• Assessing a company’s cost competitiveness involves
comparing costs all along the industry’s value chain
• 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 enduser
– The activities they perform affect end-user satisfaction
4-36
Fig. 4.4: Representative Value Chain for an Entire
Industry
4-37
Example: Value Chain Activities
Pulp & Paper Industry
Timber farming
Logging
Pulp mills
Papermaking
Distribution
4-38
Example: Value Chain Activities
Home Appliance Industry
Parts and components manufacture
Assembly
Wholesale distribution
Retail sales
4-39
Example: Value Chain Activities
Soft Drink Industry
Processing of basic ingredients
Syrup manufacture
Bottling and can filling
Wholesale distribution
Advertising
Retailing
4-40
Albertson’s
Example: Value Chain Activities
Computer Software Industry
Programming
Disk loading
Marketing
Distribution
4-41
Developing Data to Measure a
Company’s Cost Competitiveness
• After identifying key value chain activities, the next step
involves determining costs of performing specific value
chain activities using activity-based costing
• 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
4-42
Activity-Based Costing: A Key
Tool in Analyzing Costs
• Determining whether a company’s costs are in line with
those of rivals requires
– Measuring how a company’s costs compare with
those of rivals activity-by-activity
• Requires having accounting data to measure cost
of each value chain activity
• Activity-based costing entails
– Defining expense categories according
to specific activities performed and
– Assigning costs to the activity
responsible for creating the cost
4-43
4-44
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
– Management of inventories
– Getting new products to market
– Performance of quality control
– Filling and shipping of customer orders
– Training of employees
– Processing of payrolls
4-45
Objectives of Benchmarking
• 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
4-46
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 clarify
expectations and avoid
misunderstandings
• Be honest and complete
• Treat benchmarking interchange as
confidential
• Use information obtained only for
stated purposes
• Respect corporate culture of
partner companies
• Use benchmarking contacts
designated by partner company
• Be fully prepared for each
exchange
• Provide partners with agenda and
questionnaire prior to exchange
• Follow through with commitments
to partner in a timely manner
• Understand how partner wants
information provided used
4-47
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
1. Activities performed by suppliers
2. A company’s own internal activities
3. Activities performed by forward channel allies
Activities,
Costs, &
Margins of
Suppliers
Internally
Performed
Activities,
Costs, &
Margins
Activities,
Costs, &
Margins of
Forward
Channel Allies
4-48
Buyer/User
Value
Chains
Options to Correct
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 performed
cheaper 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
4-49
Options to Correct a
Supplier-Related Cost Disadvantage
• Pressure suppliers for lower prices
• Switch to lower-priced substitutes
• Collaborate closely with suppliers to identify mutual costsaving opportunities
• Arrange for just-in-time deliveries from suppliers to lower
inventory and internal logistics costs
• Integrate backward into business
of high-cost suppliers
4-50
Options to Correct a Cost Disadvantage
Associated With Activities of Forward
Channel Allies
• 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
• Change to a more economical distribution strategy
– Switch to cheaper distribution channels
– Integrate forward into company-owned retail outlets
4-51
Translating Performance of Value Chain
Activities into Competitive Advantage
• A company can create competitive advantage by outmanaging 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
Option 2: Do an overall better job than rivals of
lowering combined costs of performing
all the value chain activities
4-52
Fig. 4.5: Translating Company Performance of
Value Chain Activities into Competitive Advantage
4-53
Question 4: Is the Company Stronger
or Weaker than Key Rivals?
• Overall competitive position involves
answering two questions
– How does a company rank relative
to competitors on each important
factor that determines market success?
– Does a company have a net
competitive advantage or disadvantage
vis-à-vis major competitors?
4-54
Assessing 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 position of firm
4-55
4-56
4-57
Why Do a Competitive
Strength Assessment ?
• Reveals strength of firm’s competitive position
vis-à-vis key rivals
• Shows how firm stacks up against rivals, measure-bymeasure – pinpoints firm’s 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)
4-58
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!
4-59
Stating the Issues Clearly and
Precisely
• 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 about
– What actions need to be considered
– What to think about doing
4-60
Identifying the Strategic Issues:
Some Possibilities
• How to stave off market challenges from new foreign
competitors?
• How to combat price discounting of rivals?
• How to reduce a company’s high costs?
• How to sustain a company’s present growth
in light of slowing buyer demand?
• Whether to expand a company’s 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 company’s
customer base?
4-61
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
to resolve? Why can’t managers just skip
this step and go directly to the task of
choosing what strategy to employ?
4-62