Strategy: Chapter 4

Front 1

INTRODUCTION: evaluating a companies internal circumstances. This concerns five questions

Back 1

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?
5. What strategic issues and problems merit front-burner managerial attention?

Front 2

In probing for answers, four analytical tools will be used:

Back 2

1. SWOT
2. value chain analysis
3. benchmarking
4. competitive strength assessment

Front 3

I. How well is the company’s present strategy working? Things to Consider

Back 3

a. Must start with what the strategy is
b. Pin down the company’s competitive approach
c. Next consider the scope within industry
d. Another is whether the company has made moves recently to improve its competitive position

Front 4

The best qualitative evidence of how well a company’s strategy is working comes from its results. Two best indicators:

Back 4

a. whether the company is achieving its stated financial and strategic objectives
b. whether the company is an above-average industry performer

Front 5

Other indicators of how well a company’s strategy is working include:

Back 5

a. firm’s sale growth compared to the market as a whole
b. company acquiring new customers/retaining existing customers
c. profit margins increasing/how well compared to rivals
d. ROI/net profit trends/compared to industry
e. Financial strength and credit ratings are improving
f. Improvements in internal performance measures
g. How shareholders view the company
h. Firm’s image and reputation with customers
i. How the firm looks against rivals via tech, innovation, etc.

The stronger a company’s financial performance and market position, the more likely it ahs a well-conceived, well executed strategy.

Front 6

II. What are the company’s resource strengths and weaknesses, and its external opportunities and threats?
i. SWOT analysis:

Back 6

simple but powerful tool for sizing up a company’s resource capabilities and deficiencies, its market opportunities, and the external threats to its future well-being.

Front 7

b. Identifying Company Resources Strengths and Competitive Capabilities
i. Strength:

Back 7

something a company is good at doing or an attribute that enhances its competitiveness

Front 8

Strengths. Different forms include:

Back 8

1. skill or important expertise
2. valuable physical assets
3. valuable human assets
4. valuable organizational assets
5. valuable intangible assets
6. competitive capabilities
7. an achievement or attribute that puts the company in a position of market advantage
8. competitively valuable alliances or cooperative ventures

A company is better positioned to succeed if it has a competitively valuable complement of resources at its command

Front 9

1. competence:

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something an organization is good at doing; it takes nearly always the product of learning and experience

Front 10

2. core competence:

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a completely important activity that a company performs better than other internal activities
more often a core competence is knowledge-based, residing in people, and in an company’s intellectual capital and not in its assets on the balance sheet

Front 11

3. distinctive competence:

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a competitively valuable activity that a company performs better than its rivals.
The importance of a distinctive competence to strategy-making rests with
1. the competitively valuable capability it gives a company
2. its potential for being the cornerstone of strategy
3. the competitive edge it can produce in the marketplace

Front 12

What is the competitive power of a resource strength? The competitive power is measure by how many of the following four tests in can pass.

Back 12

1. Is the resource strength hard to copy?
2. Is the resource strength durable – does it have staying power?
3. Is the resource really competitive superior?
4. Can the resource strength be trumped by the different resource strengths and competitive capabilities of rival?

A company’s success in the marketplace becomes more likely when it has appropriate and ample resources teeth which to compete, and especially when it has strengths and capabilities with competitive advantage potential.

Front 13

c. Identifying Company Resource Weaknesses and Competitive Deficiencies

WEAKNESS

Back 13

something a company lacks or does poorly or a condition that puts it at a disadvantage in the marketplace.

Front 14

Company’s Weakness can relate to

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1. Inferior skills, expertise, etc.
2. deficiencies in competitively important physical, organizational, or intangible assets
3. missing or competitively inferior capabilities in key areas.

A company’s resource strengths represent competitive assets; its resource weaknesses represent competitive liabilities

Front 15

d. Identifying a Company’s Market Opportunities

Back 15

i. A company is well advised to pass on a particular market opportunity unless it has or can acquire the resources to capture it.
ii. The market opportunities most relevant to a company are those that match up well with the company’s financial and organizational resource capabilities, off the best growth and profitability, and present the most potential for competitive advantage.

Front 16

e. Identifying Threats to a Company’s Future Profitability

Back 16

i. Examples include the emergence of cheaper or better technology, rival’s introduction of new or improved products, lower-cost foreign competitors’ entry into a market, etc.

Front 17

f. What do the SWOT Listings Reveal?

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i. The payoff from the SWOT comes from the conclusions about a company’s situation and the implications for strategy improvement that flow from the four lists.

Front 18

ii. Two most important parts of SWOT are

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1. drawing conclusions
2. acting on those conclusions

Front 19

iii. What the SWOT tells us about the company’s situation is revealed by the following questions:

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1. does the company have an attractive set of resource strengths?
2. how serious are the companies weaknesses?
3. do the strengths outweigh the weaknesses?
4. do they have attractive opportunities?
5. are the threats alarming?
6. how strong is the company’s situation?

Front 20

iv. Final step of SWOT: translate into a strategic action
1. The following point to implications the SWT listings have for strategic action

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a. What capabilities should be strengthened immediately
b. What action should be taken to reduce the liabilities
c. What opportunities should be top priority
d. How can they guard against threats

A company’s resource strengths should generally form the cornerstones of strategy because they represent the company’s best change for market success.

Front 21

III. Are the company’s prices and costs competitive?

Back 21

i. rival companies have to keep their costs in line and make sure thaqt any added costs they incur, and any price premiums they charge, create ample buyer value
ii. the higher a company’s costs are above those of a close rivals, the more competitively vulnerable it becomes

Front 22

iii. Two analytical tools are used to determine whether a company’s price and costs are competitive and are conductive to winning in the marketplace

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1. value chain analysis
2. benchmarking

Front 23

i. Value chain:

Back 23

identifies the primary activities that create customer value and the related support activities

Front 24

ii. Consists of two activities

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1. primary activities: foremost in creating value
2. support activities: facilitate and enhance the performance of the primary activities

Front 25

primary activities:

Back 25

foremost in creating value

Front 26

support activities

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facilitate and enhance the performance of the primary activities

Front 27

b. The Concept of a Company Value Chain

Back 27

iii. a fundamental objective of every enterprise: create and deliver a value to buyers whose margin over cost yields an attractive profit.
iv. Each activity in the value chain gives rise to costs and ties up assets
v. The cost of each activity contributes to whether the company’s overall cost position relative to rivals is favorable/learn which activities are cost advantages or disadvantages.
vi. A company’s relative cost position is a function of how the overall costs of the activities it performs in conducting business compare to the overall costs of the activities performed by rivals.

Front 28

c. Why the Value Chains of Rival Companies Often Differ

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i. Determining whether a company’s prices and costs are competitive from an end user’s standpoint requires looking at the activities and costs of competitively relevant suppliers and forward allies, as well as the costs of internally performed activities

Front 29

d. The Value Chain System for an Entire Industry

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i. Accurately assessing a company’s competitiveness in end-use markets requires that the managers understand the entire value chain system for delivering a product or service to end users, not just the company’s own value chain.

iii. A company’s cost-competitiveness depends not only on the costs of internally performed activities (its own chain) but also on costs in the value chains of its suppliers and forward channel allies.

Front 30

e. Developing the Data to Measure a Company’s Cost Competitiveness

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i. next step in evaluating costs is to disaggregate departmental cost accounting data into the costs of performing specific activities.

Front 31

ii. Traditional accounting:

Back 31

identities costs according to broad categories of expenses

Front 32

iii. Activity based costing:

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defines expense categories according to specific activities being performed and then assigning costs to the activities responsible for creating the cost.

Front 33

i. Benchmarking:

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potential tool for learning which companies are best at performing particular activities and then using their techniques or best practices to improve the cost and effectiveness of a company’s own internal activities.

Front 34

f. Benchmarking the Costs of Key Value Chain Activities

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ii. Benchmarking the costs of company activities against rivals provides hard evidence of a company’s cost competitiveness
iii. The toughest part is how to gain access to information about other companies practices and costs.

Front 35

g. Strategic Options for Remedying a Cost Disadvantage
i. Three main areas in a company’s overall value chain where important difference in the costs of competing firms can occur

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1. a company’s own activity segments
2. suppliers’ part of the industry value chain
3. forward channel portion of the industry chain

Front 36

ii. Eight Strategies to restore cost parity

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1. implement use of best practices throughout the company
2. try to eliminate some cost-producing activities altogether by revamping the value chain
3. relocate high-cost activities to geographic areas where they can be performed more cheaply
4. search out activities that can be outsourced from vendors or performed by contractors more cheaply than done internally
5. invest in productivity-enhancing, cost-saving technological improvements
6. innovate around the troublesome cost components
7. simplify the product design so that it can be manufactured or assembled quickly and more economically
8. try to make up the internal cost disadvantage by achieving savings in other two parts of the value chain system (last resort)

Front 37

h. Translating Proficient Performance of Value Chain Activities into Competitive Advantage

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i. Performing value chain activities in ways that give a company the capabilities to outmatch rivals is a source of competitive advantage.

Front 38

ii. Value chain ----> Competitive Advantage

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1. perform activities in value chain
2. certain competitively important value chain activities
3. core competence
4. distinctive competence
5. competitive advantage

Front 39

IV. Is the company competitively stronger or weaker than key rivals?
a. Two questions are important

Back 39

i. How does the company rank relative to competitors on each of the important factors the determine market success?
ii. Does the company have a net competitive advantage compared to rivals?

Front 40

b. Scoring competitive advantage:

Back 40

i. Step 1: competitive strength assessment – make a list of industry KSF
ii. Step 2: rate the firm and its rivals on each factor.
iii. Step 3: sum the strength ratings on each factor to get an overall measure of competitive strength for company
iv. Step 4:Use the overall strength ratings to draw conclusions about the size and extent of the company’s net competitive advantage and to take not of strengths/weaknesses.

Front 41

IV. Is the company competitively stronger or weaker than key rivals?

Back 41

c. A weighted competitive strength analysis is conceptually stronger than an unweighted analysis because of the inherent weakness in assuming that all the strength measure are equally important
d. High competitive strength ratings signal a strong competitive position and possession of competitive advantage low ratings signal a weak position and competitive disadvantage.

Front 42

V. Strategic issues and problems merit front-burner managerial attention?

Back 42

a. Zeroing in on the strategic issues a company faces and compiling a “worry list” of problems and roadblocks creates a strategic agenda of problems that merit prompt managerial attention.
b. Pinpointing the precise problems that management needs to worry about sets the agenda for deciding what actions to take next to improve the company’s performance and business outlook.
c. A good strategy must contain ways to deal with all the strategic issues and obstacles that stand in the way of the company’s financial and competitive success in the years ahead.