1. Evaluating a Company’s Resources and Competitive Position
Screen graphics created by:
Jana F. Kuzmicki, Ph.D.
Troy University-Florida Region

2. W. Chan Kim and Renee Mauborgne
“Before executives can chart a new strategy, they must reach common understanding of the company’s current position.”
W. Chan Kim and Renee Mauborgne

3. 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. Company Situation Analysis: The Key Questions
1. How well is the company’s present strategy working?
2. What are the company’s resource strengths and weaknesses and its external opportunities and threats?
3. Are the company’s prices and costs competitive?
4. Is the company competitively stronger or weaker than key rivals?
5. What strategic issues merit front-burner managerial attention?

5. Fig. 4.1: Identifying the Components of a Single-Business Company’s Strategy

6. 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

7. Approaches to Assess How Well the Present Strategy Is Working
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?

8. 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.

11. Question 2: What Are the Company’s Strengths, Weaknesses, Opportunities and Threats ?
S W O T represents the first letter in
S trengths
W eaknesses
O pportunities
T hreats
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 S W O T

12. 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!

13. 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

14. 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

15. 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 cross-department collaboration
A core competence gives a company a potentially valuable competitive capability and represents a definite competitive asset

16. 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

17. 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
Is a basis for sustainable competitive advantage
# 1

18. Examples: Distinctive Competencies
Toyota
Low-cost, high-quality manufacturing of motor vehicles
Starbucks
Innovative coffee drinks and store ambience

19. 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?

20. Test Your Knowledge A distinctive competence
A. is a more important competitive asset than a core competence.
B. represents uniquely strong capability relative to rival companies—it qualifies as a competitively superior resource strength with competitive advantage potential.
C. is a competitively important value chain activity that a company performs better than its rivals.
D. can underpin and add real punch to a company's strategy.
E. All of the above.
Answer: E

21. 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!

24. 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

25. 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

26. 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

27. Fig. 4.2: The Three Steps of SWOT Analysis

28. 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?
The most important part of SWOT analysis is using the 4 lists to draw conclusions about a company’s overall situation and then acting on the conclusions in these lists to better match a company’s strategy to its resource strengths and market opportunities, correct the important weaknesses, and defend against external threats.

29. 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

30. 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

31. Fig. 4.3: A Representative Company Value Chain

32. Example: Value Chain Activities for a Bakery Goods Maker
Primary Activities
Supply chain management
Recipe development and testing
Mixing and baking
Packaging
Sales and marketing
Distribution
Support Activities
Quality control
Human resource management
Administration

33. Example: Value Chain Activities for a Department Store Retailer
Primary Activities
Merchandise selection and purchasing
Store layout and product display
Advertising
Customer service
Support Activities
Site selection
Hiring and training
Store maintenance
Administrative activities

34. 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

35. 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

36. 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

37. 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 end-user
The activities they perform affect end-user satisfaction

38. Fig. 4.4: Representative Value Chain for an Entire Industry

39. Example: Value Chain Activities
Pulp & Paper Industry
Timber farming
Logging
Pulp mills
Papermaking
Distribution

40. Example: Value Chain Activities
Home Appliance Industry
Parts and components manufacture
Assembly
Wholesale distribution
Retail sales

41. Example: Value Chain Activities
Soft Drink Industry
Processing of basic ingredients
Syrup manufacture
Bottling and can filling
Wholesale distribution
Advertising
Retailing
Albertson’s

42. Example: Value Chain Activities
Computer Software Industry
Programming
Disk loading
Marketing
Distribution

43. 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

44. 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

46. 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

47. 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

48. 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

49. 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
Forward
Channel Allies
Internally
Performed
Margins
Suppliers
Buyer/User
Value
Chains

50. 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

51. 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 cost-saving opportunities
Arrange for just-in-time deliveries from suppliers to lower inventory and internal logistics costs
Integrate backward into business of high-cost suppliers

52. Change to a more economical distribution strategy
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

53. Test Your Knowledge
For a company to translate performance of value chain activities into competitive advantage, it
A. must (1) develop core competencies and maybe a distinctive competence that rivals don’t have or can’t quite match and that are instrumental in helping it deliver attractive value to customers or (2) be more cost efficient in how it performs value chain activities such that it has a low-cost advantage.
B. has to develop more core competencies than rivals.
C. must be more adept than rivals in using benchmarking and activity-based costing.
D. has to position itself in the strategic group where profit margins are highest.
E. Must adopt more best practices than rival firms.
Answer: A

54. Translating Performance of Value Chain Activities into Competitive Advantage
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
Option 2: Do an overall better job than rivals of lowering combined costs of performing all the value chain activities

55. Fig. 4.5: Translating Company Performance of Value Chain Activities into Competitive Advantage

56. 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?

57. 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

60. 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)

61. 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.
Answer: B

62. 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!

63. 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

64. 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?

65. 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?
The purpose of the “worry list” is to identify the specific issues/problems that management needs to address, not to figure out what specific actions to take. Deciding what to do – which strategic actions to take and which strategic moves to make – comes later, i.e. when it is time to craft a company’s strategy and choose from among the various strategic alternatives.