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3 Must begin by understanding what the strategy is.  Identify competitive approach  Low-cost leadership?  Differentiation?  Best-cost provider?  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

- Servin Dersamet - 4 Qualitative assessment – Is the strategy well-conceived?  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?

- Servin Dersamet - 5  Trend in sales and market share  Acquiring and/or retaining customers  Trend in profit margins  Trend in net profits, EPS, and ROE  Overall financial strength and credit rating  Efforts at continuous improvement activities  Trend in stock price  Image and reputation with customers  Leadership role(s) – Technology, product quality, innovation, etc.

6 StrengthsWeaknesses OpportunitiesThreats For a company’s strategy to be well-conceived, It must be proper to its resource strengths and weaknesses It must be aimed at capturing its best market opportunities and erecting defenses against external threats to its well-being - Servin Dersamet -

7 A strength is something a firm does well and also an attribute that increases its competitiveness. Resource strengths and competitive capabilities are competitive assets! - Servin Dersamet -

8 Competence is the product of organizational learning and experience and represents real proficiency in performing an internal activity. Company competencies arise from skills, expertise, and experience and include deliberate efforts to develop the ability to do something. Core competence is a well-performed internal activity central to a company’s competitiveness and profitability. A core competence gives a company a potentially valuable competitive capability and represents a definite competitive asset. - Servin Dersamet -

9  Distinctive competence is a competitively valuable activity a company performs better than its rivals.  A distinctive competence gives a company a competitively valuable capability unmatched by rivals and It can add real punch to a company’s strategy. Shortly,a distinctive competence is a basis for sustainable competitive advantage Low Cost High Quality Manufacturing Toyota Innovative Cofee Drinks Store Ambience Starbucks - Servin Dersamet -

10 A weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage. Resource weaknesses and deficiencies are competitive liabilities. - Servin Dersamet -

11  Opportunities most relevant to a company are those offering: Good Match with its Financial and Organizational Resources Capabilities Best Prospects for Profitable Long Term Growth Potential For Competitive Advantage - Servin Dersamet -

12 Emergence of Cheaper/Better Technologies Introduction of Better Products by Rivals Entry of Lower-Costs Foreign Competitors Onerous RegulationsUnfavorable Demographic Shifts Adverse Shits in Foreign Exchange Rates - Servin Dersamet -

13 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 a company performs internally combine to form a value chain The Value Chain Contains two types of activities Primary activities Support Activities Where most of the value for customers is created Facilitate performance of primary activities - Servin Dersamet -

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15 The value chain model is a useful analysis tool for defining a firm's core competencies and the activities in which it can pursue a competitive advantage as follows: By better understanding costs and squeezing them out of the value-adding activities. By focusing on those activities associated with core competencies and capabilities in order to perform them better than do competitors. Cost Advantage Differenciation - Servin Dersamet -

16 Different Strategies Different Operating Practices Different Technologies Different Degrees of Vertical Integration Some companies may perform particular activities internally while others outsource them Several factors give rise to differences in value chains of rival companies: - Servin Dersamet -

17 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 end-user Activities they perform affect end- user satisfaction - Servin Dersamet -

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19 Soft Drink Industry Processing of basic ingredients Syrup manufacture Bottling and can filling Wholesale distribution Retailing Advertising - Servin Dersamet -

20 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 the Market Training of Employees Processing of Payrolls - Servin Dersamet -

21  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. - Servin Dersamet -

22  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. Activities Performed by Suppliers Activities Performed by Forward Channel Allies A Company’s Own İnternal Activities - Servin Dersamet -

23 Options to Correct Internal Cost Disadvantages Options to Correct a Supplier-Related Cost Disadvantage Options to Correct a Cost Disadvantage Associated With Activities of Forward Channel Allies Implement use of best practices throughout company Relocate high-cost activities to lower-cost geographic areas See if high-cost activities can be performed cheaper by outside vendors/suppliers Pressure suppliers for lower prices Arrange for just-in-time deliveries from suppliers to lower inventory and internal logistics costs Switch to lower-priced substitutes 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 - Servin Dersamet -

24 A company can create competitive advantage by out-managing 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 and thereby create a resource or capability-based competitive advantage. Option 2: Perform value chain activities at a lower overall cost than rivals and thereby create a cost- based competitive advantage. - Servin Dersamet -

25 Whether a company is competitively stronger or weaker than key rivals hinges on the answers to two questions:  How does the company rank relative to competitors on each important factor that determines market success?  Does the company have a net competitive advantage or disadvantage vis-à-vis major competitors? - Servin Dersamet -

26 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 strength of firm - Servin Dersamet -

27 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! - Servin Dersamet -

28 Issues are best couched in such phrases as Issues need to be precisely stated and “cut straight to the chase” What should be done about...? Where to...? How to...? The issues on management’s “worry list” represent an agenda for action Sharp, clear understanding of the issues is a big assist in figuring out what to do to address and resolve them ! - Servin Dersamet -

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