The Companys Internal Environment

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The Companys Internal Environment
Part 2. Evaluating a Companys Resources and
Competitive Position Chapter 4 TSG Primus
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Company Situation AnalysisThe Key Questions

• Question 1 How Well Is the Companys Present
  Strategy Working?
• Question 2 What Are the Companys Resource
  Strengths and Weaknesses and Its External
  Opportunities and Threats?
• Question 3 Are the Companys Prices and Costs
  Competitive?
• Question 4 Is the Company Competitively
  Stronger or Weaker than Key Rivals?
• Question 5 What Strategic Issues and Problems
  Merit Urgent Managerial Attention?

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Question 3 Are the CompanysPrices and
Costs Competitive?

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

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Concept Company Value Chain

• A companys 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
  chainso-called because the underlying intent of
  a companys activities is to do things that
  ultimately create value for buyers
• The value chain contains two types of activities
• Primary activities (where most ofthe value for
  customers is created)
• Support activities that facilitateperformance of
  the primary activities

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Fig. 4.3 A Representative Company Value Chain
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Example Value Chain Activitiesfor a Baked
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

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Example Value Chain Activitiesfor 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

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Example Value ChainActivities for a Hotel
Chain

• Primary Activities
• Site selection and construction
• Reservations
• Operation of hotel properties
• Managing lineupof hotel locations

• Support Activities
• Accounting
• Hiring and training
• Advertising
• Building a brand and reputation
• Generaladministration

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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
• Clarifies 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
• Value chains of distributors and retailers
  arerelevant 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

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Example Value Chain Activities
Pulp Paper Industry
Timber farming Logging Pulp mills Papermaking Dist
ribution
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Example Value Chain Activities
Computer Software Industry
Programming Disk loading Marketing Distribution
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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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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
  companys own cost competitiveness

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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 a companys costs are too high 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 companys own internal activities
• 3. Activities performed by forward channel
  allies the buyers

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Value Chain Activities and 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
  capabilitiesthat rivals dont have or cant
  match do it better
• Option 2 Do an overall better job than rivals
  oflowering combined costs of performingthe
  value chain activities do it cheaper

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Question 4 Is the Company Strongeror
Weaker than Key Rivals?

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

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Assessing a CompanysCompetitive 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 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 overall strength of firms competitive
  position vis-à-vis key rivals
• Shows how firm stacks up against rivals, for each
  KSF identifies firms competitive strengths and
  competitive weaknesses
• Indicates whether firm is at a competitive
  advantage or disadvantage against each rival
• Identifies possible room for improvement

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Question 5 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!
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Identifying the Strategic Issues Some
Examples

• How to combat price discounting of rivals?
• How to reduce a companys high costs?
• How to sustain a companys present growthin
  light of slowing buyer demand?
• Whether to expand a companys 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
  companys customer base?
• How to stave off market challenges from new
  foreign competitors?