1. Analysing a Company’s Resources and Competitive Position
Chapter 4

2. Chapter Outline 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 and problems merit front managerial attention?

3. Question 1: How well is the company’s present strategy working?
What is the present strategy?
Is the company aiming to be a low cost producer or striving to differentiate its products from rivals?
Is the company serving a broad spectrum or concentrating on a niche?
What is geographic coverage?
Is company involved in only one stage of production/ distribution chain?
What recent moves have been made to improve competitive position?
Functional strategies – R & D, production, marketing etc

4. How well is the company’s present strategy working? (cont)
Best evidence of how well a company’s strategy is working are the results :
has company achieved stated financial and strategic objectives
whether company is an above average industry performer
Persistent shortfall in meeting performance targets and weak performance compared to rivals =
Poor strategy or Less than competent execution or Both!

5. Other Indicators
Growth rate of firm’s sales – faster, slower or same rate as market resulting in rising,eroding or stable market share
Is company acquiring new customers at a good rate as well as retaining existing customers
Is firm’s profit margins increasing/decreasing and how margins compare to those or rivals
Trends in firm’s net profitability and compared to others
Company’s overall financial strength and credit rating trends
Whether company demonstrates continuous improvements in internal performance e.g unit costs, delivery times

6. Other Indicators (cont)
Stock price trends and as compared to other companies in the industry
Firm’s image and reputation with its customers
How well firm compares to rivals on
technology,
product innovation,
customer service,
product quality,
delivery time,
getting new products on market quickly,
Other relevant factors buyers base their choice of brands on

7. Question 2: What are the company’s resources strengths and its external opportunities and threats?
Appraising a company’s strengths and weaknesses and external opportunities and threats SWOT analysis
Provides good overview of overall situation
Provide basis for crafting strategy
Capitalising on resources
Capturing opportunities
Correcting weaknesses
Defending against threats

8. Identifying Company Strengths and Competitive Capabilities
A strength is something a company is good at doing or an attribute that enhances its competitiveness
A strength can take many forms:
A skill or an expertise – low cost manufacturing, technological know-how
Valuable physical assets – state of he art plant and equipment, ownership of natural resources
Human assets – an experienced and capable workforce, managerial know-how
Organisational assets – quality control systems, patents
Intangible assets – a well known brand name, strong customer loyalty

9. Identifying Company Strengths and Competitive Capabilities (cont)
Competitive capabilities – product innovation capabilities, strong dealer network
Achievement or attribute that puts the company in position of market advantage – exceptional customer service, lower overall costs as compared to rivals
Alliances and cooperative ventures – partnerships with suppliers that reduce costs or enhance quality

10. Company competencies and competitive capabilities
A competence is something an organisation is good at doing
A core competence is a proficiently performed internal activity that is central to a company’s strategy and competitiveness
A distinctive competence is a competitively valuable activity that a company performs better than its rivals

11. Competence
A competence usually is the product of experience, representing buildup of proficiency
It originates with deliberate efforts to develop the organisational ability however imperfectly or inefficiently
When the company becomes proficient in performing the activity well and at an acceptable cost, the ability turns into a true competence and company capability
Example: proficiency in merchandising and product display, the capability to create attractive and easy to use web sites

12. Core Competence A core competence is more valuable than a competence
The well performed activity has a core role in the company’s strategy and for the competitive success
A core competence can relate to any aspect of the business
A company may have more than one core competence but rarely more than 2-3
Usually resides in people and the company’s intellectual capital
Likely to be cross department combinations of knowledge and expertise rather than single department or work group.Example: skills in manufacturing high quality products at a low cost

13. Distinctive Competence
A distinctive competence thus represents a competitively superior resource strength as compared to rivals
A core competence becomes a basis for competitive advantage only when it rises to the level of a distinctive competence
Example: Toyota and Honda in low cost high quality manufacturing and in short design to market cycles for new models are considerable competitive advantages in global market for motor vehicles
Competitive capabilities are not all equal – not having a competence or capability that rivals can result in competitive disadvantage

14. What is the competitive power of resource strength?
How powerful a competitive strength is can be measured by the following:
Is the resource strength hard to copy?-the more difficult and expensive to imitate, the greater the potential competitive value e.g when they are unique (patent), when must be built overtime (brand name),when carry big capital investments
Is the resource strength durable?- the longer the competitive value of a resource last, the greater its value vis a vis rapid speed at which technology and industry condition changes
Is the resource really competitively superior? Pepsi v/s Coca cola, BMW v/s Mercedes-Benz
Can the resource strength be trumped by the different resource strengths and competitive capabilities of rivals?Example air lines South West Airlines, Wal-Mart, Amazon.com

15. Identifying company resource weaknesses and competitive deficiencies
A weakness or competitive deficiency is something a company lacks or does poorly in comparison to others or a condition that puts it at a disadvantage in the market place
A company’s weakness can relate to:
Inferior or unproven skills, expertise or intellectual capital in competitively important areas of the business
Deficiencies in competitively important physical, organisational or intangible assets
Missing or competitively inferior capabilities in key areas
Internal weaknesses are represent competitive liabilities
Nearly all companies have competitive liabilities of one kind or another

16. Identifying a company’s market opportunities
Market opportunities can be very attractive- a “must” to pursue
Marginally interesting - profit or loss are questionable
Unsuitable – not a good match with company’s strengths and capabilities
Not very industry opportunity is a company opportunity
The market opportunities most relevant for a company are those that match well with the company’s financial and organisational resource capabilities, offer the best growth and profitability and present the most potential for competitive advantage

17. Identifying threats to a company’s future profitability
Certain factors in a company’s external environment pose threats to its profitability and competitive well-being
Examples: emergence of cheaper and better technology, entrance of foreign competitors, new regulations, increase in interest rates, demographic shifts, political unrest
Threats can be moderate or serious
It is management’s job to identify threats to the company’s future profitability and evaluate what strategic actions can b taken to neutralise or lessen their impact

18. SWOT Analysis Potential Resource Strengths
Potential Resource Weaknesses
Potential Company Opportunities
Potential External Threats
Powerful strategy
Strong financial condition
Strong brand name image/reputation
Widely recognized market leader
Proprietary technology
Cost advantages
Strong advertising
Product innovation skills
Good customer service
Better product quality
Alliances or JVs
No clear strategic direction
Obsolete facilities
Weak balance sheet; excess debt
Higher overall costs than rivals
Missing some key skills/competencies
Sub par profits
Internal operating problems . . .
Falling behind in R&D
Too narrow product line
Weak marketing skills
Serving additional customer groups
Expanding to new geographic areas
Expanding product line
Transferring skills to new products
Vertical integration
Take market share from rivals
Acquisition of rivals
Alliances or JVs to expand coverage
Openings to exploit new technologies
Openings to extend brand name/image
Entry of potent new competitors
Loss of sales to substitutes
Slowing market growth
Adverse shifts in exchange rates & trade policies
Costly new regulations
Vulnerability to business cycle
Growing leverage of customers or suppliers
Reduced buyer needs for product
Demographic changes

19. Question 3: Are the company’s prices and costs competitive?
One of the most telling signs of whether its prices and costs are competitive
Price-cost comparisons are critical in
commodity type market where value provided to buyers same from seller to seller
price competition ruling the market
lower cost companies have the upper hand
Even in industries where products are differentiated, rivals have to keep their costs in line and make sure any added costs they incur and price premium they charge create ample buyer value

20. Are the company’s prices and costs competitive?(cont)
Even if products are differentiated, a firm’s becomes increasingly vulnerable the more its costs exceed those of close rivals
Two analytical tools in determining whether prices and costs re competitive:
Value Chain Analysis
Benchmarking

21. The concept of value chain
A company’s value chain consists of the linked set of value creating activities that company performs internally
The value chain consists of two broad categories:
Primary activities that are foremost in creating value for customers
Support activities that facilitate and enhance the performance of the primary activities
All activities in value chain are elements of the cost structure
The value chain includes a profit margin as a markup over the cost of performing firm’s value creating activities
There are often links between activities such that the manner in which one activity is done can affect the costs of performing other activities

22. Typical company value chain
Distribution
And
Outbound
Logistics
Operations
Purchased
Supplies
and
Inbound
Sales and
Marketing
Service
Profit
Margin
Product R&D, Technology, Systems Development
Human Resources Management
General Administration
Primary Activities and Costs
Support
Activities
and Costs

23. Why rival companies have different costs?
A company value chain reflects evolution of the business, internal operations, the strategy, different approaches to executing strategy and the underlying economics of the activities themselves
Companies do not have the same costs because of differences in
Prices paid for raw materials, component parts, energy, and other supplier resources
Basic technology and age of plant & equipment
Economies of scale and experience curve effects
Wage rates and productivity levels
Marketing, promotion, and administration costs
Degrees of vertical integration
Whether pursuing a low cost/ low price strategy v/s high end positioning

24. What is strategic cost analysis?
Focuses on a firm’s costs relative to its rivals
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

25. The value chain system for an entire industry
Supplier
Value Chains
A Company’s Own
Value Chain
Forward Channel
Activities,
Costs, &
Margins of
Forward
Channel
Allies &
Strategic
Partners
Internally
Performed
Margins
Suppliers
Buyer or
End User
Value
Chains

26. Suppliers’ value chain are relevant as suppliers perform activities and incur costs in creating products are used in company’s own value chain
Forward channel and customer value chains are relevant because
the costs and margins of a company’s distribution allies are part of the price the end user pays
the activities that distribution allies perform affect the end user’s satisfaction
example: aluminum can producers constructing plants next to breweries and delivering cans on overhead conveyors directly to can filling lines

27. Value chains vary by industry and company Soft drink industry
Processing of ingredients
Bottling and can filling
Wholesale distribution
Retailing
Computer software industry
Programming
Disk loading
Marketing
Distribution

28. Activity-Based costing: A key tool in strategic cost analysis
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--from one end of the value chain to the other
Requires having accounting data that measures the cost of each value chain activity
Activity-based accounting systems provide the data for determining the costs for each relevant value chain activity

29. Benchmarking costs of key value chain activities
Focuses on cross-company comparisons of how certain activities are performed and the costs associated with these activities
Purchase of materials
Payment of suppliers
Management of inventories
Training of employees
Processing of payrolls
Getting new products to market
Performance of quality control
Filling and shipping of customer orders

30. Objectives of Benchmarking
Determine whether a company is performing particular value chain activities efficiently by studying the practices and procedures used by other companies
Understand the best practices in performing an activity—learn what is the “best” way to do a particular activity from those who have demonstrated they are “best-in-industry” or “best-in-world”
Assess if company’s costs of performing particular value chain activities are in line with competitors
Learn how other firms achieve lower costs
Take action to improve company’s cost competitiveness

31. What determines whether a company is cost competitive?
A company’s cost competitiveness depends on how well it manages its value chain relative to how well competitors manage their value chains
When a company’s costs are “out-of-line”, the “high- cost” activities can exist in any of three areas in the industry value chain
1. Suppliers’ activities
2. The company’s own internal activities
3. Forward channel activities

32. Question 4: Is the company competitively stronger or weaker than key rivals?
2 questions for a comprehensive assessment:
How does the company rank relative to competitors on each of the important factors that determine market success?
Does the company have a net competitive advantage or disadvantage vis-à-vis major competitors all things considered?
Develop quantitative strength rating for the company and key competitors on each industry key success factor and competitively decisive resource capability
Much of the required information comes from the previous analyses ( industry and competitive analysis, benchmarking,SWOT)

33. Is the company competitively stronger or weaker than key rivals? (cont)
STEP 1: Make a list of the industry’s key success factors and measures of competitive strength or weakness (6 to measures)
STEP 2: Rate the firm and its rivals on each factor
STEP 3: Sum the strength ratings on each factor to get overall measure of competitive strength for each company being rated
STEP 4: Use overall strength ratings to draw conclusions about the size and extent of the company’s net competitive advantage or disadvantage and take note of areas of strength and weakness

34. 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)

35. Question 5: What strategic issues and problems merit front burner managerial attention?
What strategic issues company managers need to address and resolve for the company to be financially and competitively successful in years ahead?
Draw on results of industry and competitive analysis and company’s competitiveness - what items should be on the company’s “worry list” ?
Pinpointing precise problems sets the agenda for deciding what actions to take next

36. Identifying the Strategic Issues
Is the present strategy adequate in light of competitive pressures and driving forces?
Is the strategy well-matched to the industry’s future key success factors?
Does the company need new or different resource strengths and competitive capabilities?
Does present strategy adequately protect against external threats and resource deficiencies?
Is firm vulnerable to competitive attack by rivals?
Where are strong/weak spots in present strategy?

37. Identifying the Strategic Issues (cont)
How to stave off market challenges from new foreign competitors?
How to combat rivals’ price discounting?
How to reduce company’s high costs?
How to sustain company’s present growth rate in light of slowing buyer demand?
Whether to expand company’s product line?
Whether to acquire a rival company?
Whether to expand in foreign market rapidly or cautiously?
Whether to reposition company and move to new strategic group

38. If worry list relatively minor company’s strategy is on right
track and may need only fine
tuning of present strategy
If issues and problems confronting crafting new strategy
company are serious moves on top of
management agenda