1. Evaluating a Company’s Resources and Competitive Position
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

2. 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

3. 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?

4. 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.

7. 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

8. 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!

9. 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

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

11. 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?

12. 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

13. 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

14. Examine Your Company’s SWOTs

15. 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

16. Fig. 4.3: A Representative Company Value Chain

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

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

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

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

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

22. 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

23. 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

24. 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

25. 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?

26. 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

27. 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!

28. The Five Generic Competitive Strategies
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

29. “Competitive strategy is about being different
“Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value.”
Michael E. Porter

30. Fig. 5.1: The Five Generic Competitive Strategies

31. Low-Cost Provider Strategies
Keys to Success
Make achievement of meaningful lower costs than rivals the theme of firm’s strategy
Include features and services in product offering that buyers consider essential
Find approaches to achieve a cost advantage in ways difficult for rivals to copy or match
Low-cost leadership means low overall costs, not just low manufacturing or production costs!

32. Approach 1: Controlling the Cost Drivers
Capture scale economies; avoid scale diseconomies
Capture learning and experience curve effects
Control percentage of capacity utilization
Pursue efforts to boost sales and spread costs such as R&D and advertising over more units
Improve supply chain efficiency
Substitute use of low-cost for high-cost raw materials
Use online systems and sophisticated software to achieve operating efficiencies
Adopt labor-saving operating methods
Use bargaining power to gain concessions from suppliers
Compare vertical integration vs. outsourcing

33. Approach 2: Revamping the Value Chain
Use direct-to-end-user sales/marketing methods
Make greater use of online technology applications
Streamline operations by eliminating low-value-added or unnecessary work steps
Relocate facilities closer to suppliers or customers
Offer basic, no-frills product/service
Offer a limited product/service as opposed to a full product/service line

34. Wal-Mart’s Approach to Managing Its Value Chain
Institute extensive information sharing with vendors via online systems
Pursue global procurement of some items and centralize most purchasing activities
Invest in state-of-the-art automation at its distribution centers
Strive to optimize the product mix and achieve greater sales turnover
Install security systems and store operating procedures that lower shrinkage rates
Negotiate preferred real estate rental and leasing rates with real estate developers and owners of its store sites
Manage and compensate its workforce in a manner to yield lower labor costs

35. When Does a Low-Cost Strategy Work Best?
Price competition is vigorous
Product is standardized or readily available from many suppliers
There are few ways to achieve differentiation that have value to buyers
Most buyers use product in same ways
Buyers incur low switching costs
Buyers are large and have significant bargaining power
Industry newcomers use introductory low prices to attract buyers and build customer base

36. Differentiation Strategies
Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals
Find ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals
Not spending more to achieve differentiation than the price premium that can be charged
Objective
Keys to Success

37. Benefits of Successful Differentiation
A product / service with unique, appealing attributes allows a firm to
Command a premium price and/or
Increase unit sales and/or
Build brand loyalty
= Competitive Advantage
Which hat is unique?

38. Types of Differentiation Themes
Unique taste – Dr. Pepper
Multiple features – Microsoft Windows and Office
Wide selection and one-stop shopping – Home Depot, Amazon.com
Superior service -- FedEx, Ritz-Carlton
Spare parts availability – Caterpillar
Engineering design and performance – Mercedes, BMW
Prestige – Rolex
Product reliability – Johnson & Johnson
Quality manufacture – Karastan, Michelin, Toyota
Technological leadership – 3M Corporation
Top-of-line image – Ralph Lauren, Starbucks, Chanel

39. Signaling Value as Well as Delivering Value
Incomplete knowledge of buyers causes them to judge value based on such signals as
Price
Attractive packaging
Extensive ad campaigns
Ad content and image
Seller facilities or professionalism and personality of employees
Having a list of prestigious customers
Signals of value may be as important as actual value when
Nature of differentiation is hard to quantify
Buyers are making first-time purchases
Repurchase is infrequent
Buyers are unsophisticated

40. When Does a Differentiation Strategy Work Best?
There are many ways to differentiate a product that have value and please customers
Buyer needs and uses are diverse
Few rivals are following a similar differentiation approach
Technological change and product innovation are fast-paced

41. Best-Cost Provider Strategies
Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation
Make an upscale product at a lower cost
Give customers more value for the money
Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations
Be the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to underprice comparable brands
Objectives

42. Focus / Niche Strategies
Involve concentrated attention on a narrow piece of the total market
Serve niche buyers better than rivals
Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs
Develop unique capabilities to serve needs of target buyer segment
Objective
Keys to Success

43. Approaches to Defining a Market Niche
Geographic uniqueness
Specialized requirements in using product/service
Special product attributes appealing only to niche buyers

44. Examples of Focus Strategies
Animal Planet and History Channel
Cable TV
Google
Internet search engines
Porsche
Sports cars
Cannondale
Top-of-the line mountain bikes
Enterprise Rent-a-Car
Provides rental cars to repair garage customers
Bandag
Specialist in truck tire recapping

45. Your Opinion
Which of the five generic competitive strategies do you think the following companies are employing:
The Saturn division of General Motors
Abercrombie & Fitch
Amazon.com
Avon Products
Saturn division of General Motors – Focused low-cost strategy
Abercrombie & Fitch – Focused differentiation strategy
Amazon.com – Broad differentiation strategy
Avon Products – Broad low-cost strategy

46. Blue Nile Stock Price Chart