Professional Documents
Culture Documents
Evaluating a
Chapter Title
Company’s
Resources and
Competitive Position
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 – Quantitative assessment –
Is the strategy well- What are the results?
conceived?
Is company achieving its
Covers all the bases? financial and strategic
Internally consistent? objectives?
Makes sense? Is company an above-
Timely and in step with average industry
marketplace? performer?
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.
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Question 2: What Are the Company’s Strengths,
Weaknesses, Opportunities and Threats ?
S W O T represents the first letter in
S trengths S W
W eaknesses
O pportunities
T hreats O 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 well-
being
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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
Toyota Starbucks
Low-cost, high-quality Innovative coffee drinks
manufacturing of motor and store ambience
vehicles
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Determining the Competitive
Power of a Company Resource
Toqualify as competitively valuable or to be the
basis for sustainable competitive advantage, a
“resource” must pass 4 tests:
A distinctive competence
A. is a more important competitive asset than a core
competence.
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Identifying External Threats
4-27
For Discussion: Your Opinion
4-28
Question 3: Are the Company’s
Prices and Costs Competitive?
Benchmarking
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Concept: Company Value Chain
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Example: Value Chain Activities
for a Bakery Goods Maker
Primary Activities Support Activities
Supply chain management Quality control
Recipe development and Human resource
testing management
Mixing and baking
Administration
Packaging
Sales and marketing
Distribution
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Example: Value Chain Activities
for a Department Store Retailer
Primary Activities Support Activities
Merchandise selection and Site selection
purchasing Hiring and training
Store layout and product Store maintenance
display
Administrative activities
Advertising
Customer service
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Example: Value Chain
Activities for a Hotel Chain
Primary Activities Support Activities
Site selection and Accounting
construction
Hiring and training
Reservations
Advertising
Operation of hotel
properties Building a brand and
Managing lineup reputation
of hotel locations General
administration
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Characteristics of Value Chain Analysis
Different technologies
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Example: Value Chain Activities
Timber farming
Logging
Pulp mills
Papermaking
Distribution
4-39
Example: Value Chain Activities
Assembly
Wholesale distribution
Retail sales
4-40
Example: Value Chain Activities
Retailing
4-41
Example: Value Chain Activities
Programming
Disk loading
Marketing
Distribution
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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 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
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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
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4-45
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
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Objectives of Benchmarking
4-49
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
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Options to Correct a
Supplier-Related Cost Disadvantage
Pressure suppliers for lower prices
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Fig. 4.5: Translating Company Performance of
Value Chain Activities into Competitive Advantage
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Question 4: Is the Company Stronger
or Weaker than Key Rivals?
4-56
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
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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-
by-measure – 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)
4-60
Test Your Knowledge
Which of the following statements is false?
A. The higher a company’s costs are above those of close rivals, the
more competitively vulnerable it becomes.
B. Because the value chains of rival companies tend to be quite
similar, costs outside a company’s own value chain do not affect
whether it is at a cost advantage or disadvantage vis-à-vis key
rivals.
C. A company’s 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 company’s financial performance and market
position, the more likely it has a well-conceived, well-executed
strategy.
E. A competence is something a company is good at doing whereas a
core competence is a proficiently performed internal activity that is
central to a company’s strategy and competitiveness.
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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
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