Bài giảng Crafting and Executing Strategy - Chapter 4: Evaluating a Company’s Resources and Competitive Position

Chapter 4: Evaluating a Company’s Resources and Competitive PositionScreen graphics created by:Jana F. Kuzmicki, Ph.D.Troy UniversityChapter Learning ObjectivesUnderstand how to evaluate a company’s internal situation and capabilities and identify the resource strengths capable of becoming the cornerstone of the company’s strategic approach.Grasp how and why activities performed internally by a company and those performed externally by its suppliers and forward channel allies determine a company’s cost structure and ability to compete successfully.Learn how to evaluate a company’s competitive strength relative to key rivals.Understand the role and importance of industry and competitive analysis and internal situation analysis in identifying strategic issues company managers must address.Chapter RoadmapQuestion 1: How Well Is the Company’s Present Strategy Working?Question 2: What Are the Company’s Resource Strengths and Weaknesses and Its External Opportunities and Threats?Question 3: Are the Company’s Prices and Costs Competitive?Question 4: Is the Company Competitively Stronger or Weaker than Key Rivals?Question 5: What Strategic Issues and Problems Merit Front-Burner Managerial Attention?Company Situation Analysis:The Key Questions1. How well is the company’spresent strategy working?2. What are the company’s resourcestrengths and weaknesses and itsexternal opportunities and threats?3. Are the company’s prices andcosts competitive?4. Is the company competitivelystronger or weaker than key rivals?5. What strategic issues meritfront-burner managerial attention?Figure 4.1: Identifying Components of a Single-Business Company’s Strategy4-5Question 1: How Well Is the Company’sPresent Strategy Working?Must begin by understanding what the strategy isIdentify competitive approachLow-cost leadership?Differentiation?Best-cost provider?Focus on a particular market niche?Determine competitive scopeBroad or narrow geographic market coverage?In how many stages of industry’s production/distribution chain does the company operate?Examine recent strategic movesIdentify functional strategiesKey ConsiderationsTrend in sales and market shareAcquiring and/or retaining customersTrend in profit marginsTrend in net profits, EPS, and ROEOverall financial strength and credit ratingEfforts at continuous improvement activitiesTrend in stock priceImage and reputation with customersLeadership role(s) – Technology,product quality, innovation, etc.Key Indicators of How Wellthe Strategy Is WorkingS W O T represents the first letter inS trengthsW eaknessesO pportunitiesT hreatsFor a company’s strategy to be well-conceived, it must beMatched to its resource strengths and weaknessesAimed at capturing its best market opportunities and erecting defenses against external threats to its well-beingSWOTQuestion 2: What Are the Company’s Strengths, Weaknesses, Opportunities and Threats ?A strength is something a firm does well or an attribute that enhances its competitivenessValuable skills, competencies, or capabilitiesValuable physical assetsValuable human assetsValuable organizational assetsValuable intangible assetsImportant competitive capabilitiesAn attribute placing a company in a position of market advantageAlliances or cooperative ventures with partnersIdentifying Resource Strengthsand Competitive CapabilitiesResource strengths and competitivecapabilities are competitive assets! Competencies vs. Core Competencies vs. Distinctive CompetenciesA competence is the product of organizational learning and experience and represents real proficiency in performing an internal activityA core competence is a well-performedinternal activity central (not peripheral or incidental) to a company’s competitivenessand profitabilityA distinctive competence is a competitively valuable activity acompany performs better than its rivalsStem from skills, expertise, and experience usually representing anAccumulation of learning over time andGradual buildup of real proficiency in performing an activityInvolve deliberate efforts to develop the ability to do something, often entailingSelecting people with requisite knowledge and skillsUpgrading or expanding individual abilities Molding work products of individuals into a cooperative effort to create organizational abilityA conscious effort to create intellectual capital Company Competencies and CapabilitiesCore Competencies –A Valuable Company ResourceA competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitabilityOften, a core competence isknowledge-based, residing in people,not in assets on a balance sheetA core competence is typically the result of cross-department collaborationA core competence gives a company apotentially valuable competitive capabilityand represents a definite competitive asset A distinctive competence is a competitively valuable activity that a company performs better than its competitorsA distinctive competence is a competitively potent resourcesource because it Gives a company a competitively valuablecapability unmatched by rivalsCan underpin and add real punchto a company’s strategyIs a basis for sustainable competitive advantage# 1Distinctive Competence –A Competitively Superior ResourceDetermining the CompetitivePower of a Company ResourceTo qualify as competitively valuable or to be the basis for sustainable competitive advantage, a “resource” must pass 4 tests:1. Is the resource really competitively superior?2. Is the resource rare – is it something rivals lack? 3. Is the resource hard to copy?4. Can the resource be trumped bythe different capabilities of rivals?What Is a Resource-Based Strategy?Companies with competitively valuable resource strengths and competenciesoften deploy these capabilities toBoost the competitive powerof their overall strategyBolster their position in the marketplaceResource-based strategiesAttempt to exploit company resources to offer value to customers in ways rival cannot matchCan focus on eroding the competitive potency of a rival by developing different resources that effectively substitute for the strengths of the rival Identifying Resource Weaknessesand Competitive DeficienciesA weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantageResource weaknesses relate toInferior or unproven skills,expertise, or intellectual capitalLack of important physical,organizational, or intangible assetsMissing capabilities in key areasResource weaknesses and deficienciesare competitive liabilities!Identifying a Company’sMarket OpportunitiesOpportunities most relevant to acompany are those offeringGood match with its financial andorganizational resource capabilitiesBest prospects for profitable long-term growthPotential for competitive advantageIdentifying External ThreatsSome possibilities: Emergence of cheaper/better technologiesIntroduction of better products by rivalsEntry of lower-cost foreign competitorsOnerous regulationsRise in interest ratesPotential of a hostile takeoverUnfavorable demographic shiftsAdverse shifts in foreign exchange ratesPolitical upheaval and/or burdensome government policiesS W O T analysis involves more thanjust developing the 4 lists of strengths, weaknesses, opportunities, and threatsThe most important part of S W O T analysis isUsing the 4 lists to draw conclusionsabout a company’s overall situationActing on the conclusions toBetter match a company’s strategy to itsresource strengths and market opportunitiesCorrect the important weaknessesDefend against external threatsRole of SWOT Analysis inCrafting a Better StrategyFigure 4.2: The Three Steps of SWOT Analysis4-20Assessing whether a firm’s costs are competitive with those of rivals is a crucial part of company situation analysisKey analytical toolsValue chain analysisBenchmarkingQuestion 3: Are the Company’sPrices and Costs Competitive?A company’s business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service All these activities 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 activitiesPrimary activities – Where most ofthe value for customers is createdSupport activities – Facilitateperformance of primary activitiesConcept: Company Value ChainFigure 4.3: A Representative Company Value Chain4-23Combined costs of all activities in a company’s value chain define a company’s internal cost structureCompares a firm’s costs activityby activity against costs of key rivalsFrom raw materials purchase toPrice paid by ultimate customerPinpoints which internal activities are asource of cost advantage or disadvantageCharacteristics of Value Chain AnalysisSeveral factors give rise to differencesin value chains of rival companiesDifferent strategies Different operating practicesDifferent technologiesDifferent degrees of vertical integration Some companies may perform particular activities internally while others outsource themDifferences among the value chains of competing companies complicate task of assessing rivals’ relative cost positions Why Do Value Chains of Rivals Differ?Assessing a company’s cost competitiveness involves comparing costs all along an industry’s value chain Suppliers’ value chains are relevant becauseCosts, performance features, and quality of inputs provided by suppliers influence a firm’s own costs and product performanceValue chains of distributors and retailers are relevant because Their costs and profit marginsrepresent “value added” and are partof the price paid by ultimate end-userActivities they perform affectend-user satisfaction The Value Chain Systemfor an Entire IndustryFigure 4.4: Representative Value Chain for an Entire Industry4-27Determining whether a company’s costs are in line with those of rivals requiresMeasuring how a company’s costs compare with those of rivals activity-by-activityRequires having accountingdata to measure cost of eachvalue chain activityActivity-based costing entailsDefining expense categories accordingto specific activities performed andAssigning costs to the activityresponsible for creating the costActivity-Based Costing: A KeyTool in Analyzing CostsDeveloping Data to Measure a Company’s Cost CompetitivenessAfter identifying key value chain activities, the next step involves determining costs of performing specific value chain activities using activity-based costingAppropriate degree of disaggregation depends onEconomics of activitiesValue of comparing narrowly definedversus broadly defined activitiesGuideline – Develop separate costestimates for activitiesHaving different economicsRepresenting a significant or growing proportion of costs Focuses on cross-company comparisons of how certain activities are performed and costs associated with these activitiesPurchase of materialsPayment of suppliersManagement of inventoriesGetting new products to marketPerformance of quality controlFilling and shipping of customer orders Training of employeesProcessing of payrollsBenchmarking Costs ofKey Value Chain ActivitiesIdentify best and most efficient means of performing various value chain activitiesLearn 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 activityLearn what other firms do toperform an activity at lower costFigure out what actions to take to improve a company’s own cost competitivenessObjectives of BenchmarkingCost competitiveness depends on how well a company manages its value chain relative to how well competitors manage their value chainsWhen 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 ofForwardChannel AlliesInternallyPerformedActivities, Costs, &MarginsActivities, Costs, &Margins ofSuppliersBuyer/UserValueChainsWhat Determines If aCompany Is Cost Competitive?Implement use of best practices throughout companyEliminate some cost-producing activitiesaltogether by revamping value chain systemRelocate high-cost activities tolower-cost geographic areasSee if high-cost activities can be performedcheaper by outside vendors/suppliersInvest in cost-saving technologyInnovate around troublesome cost componentsSimplify product designMake up difference by achieving savings in backward or forward portions of value chain systemOptions to CorrectInternal Cost DisadvantagesPressure suppliers for lower pricesSwitch to lower-priced substitutesCollaborate closely with suppliers to identify mutual cost-saving opportunitiesArrange for just-in-time deliveries from suppliers to lower inventory and internal logistics costsIntegrate backward into businessof high-cost suppliersOptions to Correct aSupplier-Related Cost DisadvantagePressure dealer-distributors and other forward channel allies to reduce their costs to make the final price to buyers more competitive with prices of rivalsWork closely with forwardchannel allies to identify win-win opportunities to reduce costsChange to a more economical distribution strategySwitch to cheaper distribution channelsIntegrate forward into company-owned retail outletsOptions to Correct a Cost Disadvantage Associated With Activities of Forward Channel AlliesA company can create competitive advantage by out-managing rivals in performing value chain activitiesin either/both of two waysOption 1: Develop competencies and capabilitiesthat rivals don’t have or can’t match and thereby create a resource or capability-based competitive advantageOption 2: Perform value chain activities at a lower overall cost than rivals and thereby create a cost-based competitive advantageTranslating Performance of Value Chain Activities into Competitive AdvantageFigure 4.5: Translating Company Performance of Value Chain Activities into Competitive Advantage 4-37Whether a company is competitively stronger or weaker than key rivals hinges on the answers to two questionsHow does the company rank relative to competitors on each important factor that determines market success?Does the company have a net competitive advantage or disadvantage vis-à-vis major competitors? Question 4: Is the Company Strongeror Weaker than Key Rivals?1. List industry key success factors and other relevant measures of competitive strength2. 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 rival5. Based on overall strength ratings, determine overall competitive strength of firmAssessing a Company’sCompetitive Strength vs. Key RivalsTable 4.4: Illustrations of Unweightedand Weighted Strength Assessments 4-40Reveals strength of firm’s competitive position vis-à-vis key rivalsShows how firm stacks up against rivals, measure-by-measure – pinpoints firm’s competitive strengths and competitive weaknessesIndicates whether firm is at a competitive advantage / disadvantage against each rivalIdentifies possible offensive attacks (pit company strengths against rivals’ weaknesses) Identifies possible defensive actions (a need to correct competitive weaknesses)Why Do a CompetitiveStrength Assessment ?Based on results of both industry and competitive analysis and an evaluationof a company’s competitiveness,what items should be ona company’s “worry list”?Requires thinking strategically aboutPluses and minuses in the industryand competitive situationCompany’s resource strengths and weaknesses and attractiveness of its competitive positionQuestion 5: What Strategic IssuesMerit Managerial Attention?A “good” strategy must address “what to do” about each and every strategic issue!A Clear Grasp of the Issues Is a Prerequisite to Effective ActionIssues are best couched in such phrases as“How to . . . ?”“Whether to . . . ?”“What should be done about . . . ?”Issues need to be precisely stated and “cut straight to the chase”The issues on management’s“worry list” represent an agenda for actionSharp, clear understanding of the issues is a big assist in figuring out what to do to address and resolve them !How to stave off market challenges from new foreign competitors?How to combat price discounting of rivals?How to reduce a company’s high costs?How to sustain a company’s present growthin light of slowing buyer demand?Whether to expand a company’s product line?Whether to acquire a rival firm?Whether to expand into foreignmarkets rapidly or cautiously?What to do about aging demographicsof a company’s customer base?Identifying the Strategic Issues: Some Possibilities