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4
Evaluating a
Chapter Title
Company’s
Resources and
Competitive Position
15/e PPT
McGraw-Hill/Irwin
Screen graphics created by:
Jana F. Kuzmicki, Ph.D.
Troy University-Florida Region
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Company Situation Analysis:
The Key Questions
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 merit
front-burner managerial attention?
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Fig. 4.1: Identifying the Components of
a Single-Business Company’s Strategy
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Question 1: How Well Is the Company’s
Present Strategy Working?
Key Considerations
 Must begin by understanding what the strategy is


Identify competitive approach

Low-cost leadership

Differentiation

Focus on a particular market niche
Determine competitive scope

Broad or narrow geographic market coverage?

In how many stages of industry’s production/distribution
chain does the company operate?

Examine recent strategic moves

Identify functional strategies
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Approaches to Assess How Well
the Present Strategy Is Working

Qualitative assessment –
Is the strategy wellconceived?

Covers all the bases?

Internally consistent?

Makes sense?

Timely and in step with
marketplace?

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Quantitative assessment –
What are the results?

Is company achieving its
financial and strategic
objectives?

Is company an aboveaverage industry
performer?
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
 Efforts
financial strength and credit ranking
at continuous improvement activities
 Trend
in stock price and stockholder value
 Image
and reputation with customers
role(s) – Technology, quality,
innovation, e-commerce, etc.
 Leadership
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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
S
W
O
T
 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 wellbeing
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Identifying Resource Strengths
and Competitive Capabilities

A strength is something a firm does well or an attribute
that enhances its competitiveness








Valuable skills, competencies, or capabilities
Valuable physical assets
Valuable human assets
Valuable organizational assets
Valuable intangible assets
Important competitive capabilities
An attribute placing a company in a position of market
advantage
Alliances or cooperative ventures with partners
Resource strengths and competitive
capabilities 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-performed
internal activity central (not peripheral or
incidental) to a company’s competitiveness
and profitability
 A distinctive
competence is a competitively
valuable activity a company performs better
than its rivals
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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

Lack of important physical,
organizational, or intangible assets

Missing capabilities in key areas
Resource weaknesses and deficiencies
are competitive liabilities!
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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
 Onerous
 Rise
regulations
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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Fig. 4.2: The Three Steps of SWOT Analysis
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Question 3: Are the Company’s
Prices and Costs Competitive?
whether a firm’s costs are competitive
with those of rivals is a crucial part of company
situation analysis
 Assessing
 Key
analytical tools

Value chain analysis

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 (where most of
the value for customers is created)

Support activities that facilitate
performance of the primary activities
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Fig. 4.3: A Representative Company Value Chain
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Fig. 4.4: Representative Value Chain for an Entire Industry
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Developing Data to Measure a
Company’s Cost Competitiveness

After identifying key value chain activities, the next
step involves determining costs of performing specific
value chain activities using activity-based costing

Appropriate degree of disaggregation depends on


Economics of activities

Value of comparing narrowly defined
versus broadly defined activities
Guideline – Develop separate cost
estimates for activities

Having different economics

Representing a significant or growing proportion of costs
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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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Benchmarking Costs of
Key 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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Fig. 4.5: Translating Company Performance of
Value Chain Activities into Competitive Advantage
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Question 4: Is the Company Stronger
or Weaker than Key Rivals?
 Overall
competitive position involves
answering two questions

How does a company rank relative
to competitors on each important
factor that determines market success?

Does a company have a net
competitive advantage or disadvantage
vis-à-vis major competitors?
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Assessing a Company’s
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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Question 5: What Strategic Issues
Merit Managerial Attention?
 Based
on results of both industry and competitive
analysis and an evaluation of a company’s
competitiveness, what items should be
on 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
A “good” strategy must address “what to do”
about each and every strategic issue!
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