ch 04-the company’s internal environment
DESCRIPTION
the company's internal environmentTRANSCRIPT
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Evaluating a Company’s Resources
and Competitive Position
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The Key Questions: Evaluating a Company’s Resources and
Competitive Position
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?
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(1) How well is the company’s present strategy working?
A well-conceived and well-executed strategy is analyzed on the base of– Whether a company achieving the
established financial and strategic objectives
– Whether the company is an above-average industry performer
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(Examples) 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.
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(2) What are the company’s resource strengths and weaknesses and its external opportunities and
threats? A resource strength is something a company is
good at doing or an attribute that enhances its competitiveness in the marketplace– Valuable physical assets– Valuable human assets and intellectual capital– Valuable organizational assets– Valuable intangible assets– Competitively valuable alliances or cooperative
ventures
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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 isknowledge-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 apotentially valuable competitive capabilityand represents a definite competitive asset
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Examples: Core Competencies
Expertise in integrating multiple technologiesto create families of new products
Know-how in creating operating systemsfor 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
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The Competitive Power of a Resource Strength
Is the resource strength hard to copy?– Unique: difficulty, huge investment, over long period
Is the resource strength durable?– Although the company faces the rapid speed at which
technologies or industry conditions are moving Is the resource really competitively superior?
– Is the resource better than rivals? Can the resource strength be trumped by the
different resource strengths and competitive capabilities of rivals?
– Other competencies bring other competition stream and as consequence, the competencies create other business approach in winning the competition
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Examples: Distinctive Competencies
ToyotaLow-cost, high-
quality manufacturing of motor vehicles
StarbucksInnovative coffee drinks and store
ambience
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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
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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 in competitively important areas of the business
– Lack of important physical, organizational, or intangible assets
– Missing or competitively inferior capabilities in key areas
How much they matter in the marketplace & they are offset by the company’s resource strengths determine to some extent the weaknesses are competitively vulnerable
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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
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Identifying External Threats
Emergence of cheaper/better technologies Introduction of better products by rivals Entry of lower-cost foreign competitors Regulations that are more burdensome 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 in Crafting a Better Strategy
Instead of developing the 4 lists of strengths, weaknesses, opportunities, and threats, the most important part of S W O T analysis is– to draw conclusions about a company’s
overall situation (external and internal environment)
– to translate its conclusions into strategic actions to: Better match a company’s strategy to its
resource strengths and market opportunities Correct the important weaknesses Defend against external threats
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Question 3: Are the Company’s Prices and Costs Competitive?
Price-cost comparison is critical in a commodity-product industry as basis for the ruling market force;
Although competition centers on the different attributes of competing brands as much as on price, any costs they incur and any price premium they charge, the company has to be able to deliver ample value that buyers are willing to pay extra
Hence, to produce a company’s competitive price and cost are very important in responding the ruling market force, especially for winning its competition
Two analytical tools for that purpose are value chain and benchmarking
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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 that are foremost in creating
value for customers – Support activities that facilitate and enhance the
performance of the primary activities
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Fig. 4.3: A Representative Company Value Chain
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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 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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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
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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
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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
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Why Do Value Chains of Rivals Differ?
Different strategies Different operating practices Different degrees of vertical
integration
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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
inputsprovided by suppliers influence a firm’s 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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Fig. 4.4: Representative Value Chain for an Entire Industry
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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
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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
alliesActivities, Costs, &
Margins ofForward
Channel Allies
InternallyPerformedActivities, Costs, &Margins
Activities, Costs, &
Margins ofSuppliers
Buyer/UserValue
Chains
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BenchmarkingA potent tool for learning which companies are best at performing
particular activities and then using their activities and then using their
techniques (or “best practices”) to improve the cost and effectiveness of a
company’s own internal activities
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Objectives of Benchmarking To identify best and most efficient means
of performing various value chain activities
To 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
To learn what other firms do to perform an activity at lower cost
To figure out what actions to take to improve a company’s own cost competitiveness
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Question 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 Company’sCompetitive 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 un-weighted 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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Components of a Company’s Competitive Key Success Factors/ Strength Measure The factors can be pick up from
– Benchmarking– SWOT
Important weight of attributes of key success factors/strength measure
Numbers of Rivals a company wants to measure
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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 company’s competitiveness, what items should beon 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