Analyzing a Company

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Analyzing a Companys Resources and
Competitive Position
Chapter
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Company Situation AnalysisThe Key Questions

• 1. How well is the companyspresent strategy
  working?
• 2. What are the companys resourcestrengths and
  weaknesses and itsexternal opportunities and
  threats?
• 3. Are the companys prices andcosts
  competitive?
• 4. Is the company competitively strongeror
  weaker than key rivals?
• 5. What strategic issues meritfront-burner
  managerial attention?

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Q 1 How Well Is the Companys Present
Strategy Working?
Key Issues

• Identify competitive approach
• Low-cost leadership
• Differentiation
• Focus on a particular market niche
• Determine competitive scope
• Geographic market coverage
• Operating stages in industrys production/distribu
  tion chain
• Examine recent strategic moves
• Identify functional strategies

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Approaches to Assess How Well the Present
Strategy Is Working

• Qualitative assessment What is the strategy?
• Completeness
• Internal consistency
• Rationale
• Relevance

• Quantitative assessment What are the results?
• Is company achieving its financial and strategic
  objectives?
• Is company an above-average industry performer?

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Key Indicators of How Wellthe 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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Q 2 What Are the Companys Strengths,
Weaknesses, Opportunities and Threats ?

• S W O T represents the first letter in
• S trengths
• W eaknesses
• O pportunities
• T hreats
• For a companys 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 Strengthsand Competitive
Capabilities

• A strength is something a firm does well or an
  attribute that enhances its competitiveness
• Valuable competencies or know-how
• Valuable physical assets
• Valuable human assets
• Valuable organizational assets
• Valuable intangible assets
• Important competitive capabilities
• An attribute that places a company in a position
  of market advantage
• Alliances or cooperative ventures with partners

Resource strengths and competitivecapabilities
are competitive assets!
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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-performedinternal
  activity central (not peripheral or
  incidental)to a companys competitiveness and
  profitability
• A distinctive competence is a competitively
  valuable activity a company performs better than
  its rivals

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Determining the CompetitiveValue 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. Does the resource have staying power is it
  durable?
• 3. Is the resource really competitively
  superior?
• 4. Can the resource be trumped by the different
  capabilities of rivals?

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Identifying Resource Weaknessesand
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 deficienciesare
competitive liabilities!
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Identifying a CompanysMarket Opportunities

• Opportunities most relevant to acompany are
  those offering
• Good match with its financial andorganizational
  resource capabilities
• Best prospects for profitable long-term growth
• Potential for competitive advantage

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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

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Role of SWOT Analysis inCrafting a Better
Strategy

• The most important part of S W O T analysis is
  not developing the 4 lists of strengths,
  weaknesses, opportunities, and threats, but
  rather
• Using the 4 lists to draw conclusionsabout a
  companys overall situation and
• Acting on the conclusions to
• Better match a companys strategy to itsresource
  strengths and market opportunities,
• Correct the important weaknesses, and
• Defend against external threats

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Q 3 Are the CompanysPrices and Costs
Competitive?

• Assessing whether a firms costs are competitive
  with those of rivals is a crucial part of company
  analysis
• Key analytical tools
• Value chain analysis
• Benchmarking

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The Concept of aCompany Value Chain

• A companys business consists of all activities
  undertaken in designing, producing, marketing,
  delivering, and supporting its product or service
  
• A companys value chain consists of a linked set
  of value-creating activities performed internally
  
• The value chain contains two types of activities
• Primary activities where most ofthe value for
  customers is created
• Support activities facilitateperformance of
  the primary activities

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Fig. 4.3 RepresentativeCompany Value Chain
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Characteristics of Value Chain Analysis

• Combined costs of all activities in a companys
  value chain define the companys internal cost
  structure
• Compares a firms costs activityby activity
  against costs of key rivals
• From raw materials purchase to
• Price paid by ultimate customer
• Pinpoints which internal activities are asource
  of cost advantage or disadvantage

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The Value Chain Systemfor an Entire
Industry

• Assessing a companys cost competitiveness
  involves comparing costs all along the industrys
  value chain
• Suppliers value chains are relevant because
• Costs, performance features, and quality of
  inputsprovided by suppliers influence a firms
  own costsand product performance
• Forward channel allies value chains are relevant
  because
• Costs and margins are part of price paidby
  ultimate end-user
• Activities performed affect end-user satisfaction

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Fig. 4.4 Representative Value Chain for an
Entire Industry
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Activity-Based Costing A KeyTool in
Analyzing Costs

• Determining whether a companys costs are in line
  with those of rivals requires
• Measuring how a companys costs compare with
  those of rivals activity-by-activity
• Requires having accounting data to measure
  costof each value chain activity
• Activity-based costing entails
• Defining expense categories accordingto specific
  activities performed and
• Assigning costs to the activityresponsible for
  creating the cost

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Benchmarking Costs ofKey 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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What Determines if aCompany 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 costs are out-of-line, high-cost activities
  can exist in any of three areas in the industry
  value chain
• 1. Suppliers activities
• 2. Companys own internal activities
• 3. Forward channel activities

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Options to CorrectInternal 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
  performedcheaper 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 aSupplier-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 businessof high-cost
  suppliers

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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 makethe
  final price to buyers more competitivewith
  prices of rivals
• Work closely with forward channel allies
  toidentify 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

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Q. 4 Is the Company Stronger or Weaker
than Key Rivals?

• Overall competitive position involvesanswering
  two questions
• How does a company rank relativeto competitors
  on each importantfactor that determines market
  success?
• Does a company have a netcompetitive advantage
  or disadvantagevis-à-vis major competitors?

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Assessing a Companys 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 CompetitiveStrength Assessment ?

• Reveals strength of firms competitive position
  vis-à-vis key rivals
• Shows how firm stacks up against rivals,
  measure-by-measure pinpoints firms 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)

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What Strategic IssuesMerit Managerial
Attention?

• Based on results of both industry and competitive
  analysis and an evaluation of a companys
  competitiveness, what items should beon a
  companys worry list?
• Requires thinking strategically about
• Pluses and minuses in the industryand
  competitive situation
• Companys resource strengths and weaknesses and
  attractiveness of its competitive position

A good strategy must address what to doabout
each and every strategic issue!