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What Tools Are Useful in Assessing Strengths and Weaknesses i.e. Resources, Capabilities, and Core Competencies?
Identifying, developing, protecting, and deploying resources, capabilities, and core competencies
Inputs into a firms production process such as capital equipment, skill of individual employees, patents, finance, and talented managers
Tangible Resources Assets that can be seen and quantified Intangible Resources Family commitment, networks, organizational culture, reputation, intellectual property rights, trademarks, copyrights
Capacity to deploy resources that have been purposely integrated to achieve a desired end state. Primary base for the firms capabilities is the skills and knowledge of its employees. Just because the firm has a strong capacity for deploying resources does not mean it has a competitive advantage.
Resources and capabilities serve as a source of competitive advantage for a firm over its rival. Not all resources and capabilities are core competencies. Many suggest that firms should identify and concentrate on only 3 or 4 core competencies.
Identifying core competencies is key to development of sound strategy. We use the value chain to help identify core competencies.
Identify strengths and weaknesses Identify sources of competitive advantage Identify market opportunities
Supporting Activities
Inbound Logistics
Materials handling, warehousing, inventory control used to receive, store and disseminate inputs to a product Fertilizer and chemical storage, delivery of inputs, application of inputs Take inputs from inbound logistics and convert to final products Plowing, planting, spraying, harvesting, feeding, medicating, weighing,etc. Collecting, Storing, and physical distribution of the final product. Crop storage, finished hog handling, Processing and determining delivery dates, delivery to the packer or elevator etc.
Operations
Outbound Logistics
Service
Activities designed to enhance or maintain a products value Timely delivery, identity preservation, ISO9000, certifying as organic, etc.
Procurement Human Resource management Human Resources
Firm Infrastructure
Inbound Logistics
Operations
Outbound Logistics
Service
Procurement
Technological Development
Activities to purchase the inputs needed to produce products Negotiating with suppliers, standard timing of replenishing part and tools, setting up buying groups, etc.
Human Resources
Activities that improve the firms products and/or processes Volunteering for test plots, being a part of feeding trials, attending technology seminars/field days, designing equipment to make specific production tasks more efficient, etc. Recruiting, hiring, training, developing, and compensating all personnel
Firm Infrastructure
General Management, planning, finance, accounting, legal support, governmental relations, etc. Establishment of accounting practices, management information systems, compliance with environmental regulations, tracking and reporting for government programs, etc. Where strategy development takes place identifying opportunities and threats, resources and capabilities, and support of core competencies
Margins
Capture the value from performing valuecreating activities as cheaply as possible The basic idea is that the consumer is willing to pay a certain amount for the value you create. This is depicted as the size of the overall pentagon. The size of the individual activity boxes represents the cost of performing those particular activities. Thus, the smaller the size of the individual activity boxes relative to the value the consumer is willing to pay, the greater the MARGIN will be for the firm.
A firms value chain must be compared to competitors value chains to determine where competitive advantages exist. To be a source of competitive advantage a resource or capability must allow a firm to:
Perform an activity in a manner that is superior to competitors performances Perform a value-creating activity that competitors cannot complete
SWOT analysis is a tool for helping assess the current situation for the firm. However, we need to be able to combine the information in the SWOT analysis in a meaningful way to generate alternative strategies that we might pursue. The TOWS matrix is a tool designed to match external opportunities and threats with our internal strengths and weaknesses
Internal Environment
Strengths 1. 2. 3.
Weaknesses 1. 2. 3.
External Environment
Opportunities 1. 2. 3.
Threats 1. 2. 3.
Internal analysis
Strengths Weaknesses
Opportunities: 1. 2. 3.
Threats: 1. 2. 3. ST Strategies Take advantage of Strengths to avoid threats WT Strategies Defensive strategies to minimize weaknesses and avoid threats
Source: Weihrich
Strengths: 1. 2. 3.
Weaknesses: 1. 2. 3.
Scanning: Identifying early signals of environmental changes and trends Monitoring: Detecting meaning through ongoing observations of environmental changes and trends Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends Assessing: Determining the timing and importance of environmental changes and trends for firms strategies and their management
A set of factors that directly influences a company and its competitive actions and responses Interaction among these factors determine an industrys profit potential
Threat Of New Entrants Power Of Suppliers Power Of Buyers Product Substitutes Intensity Of Rivalry
Identify current and potential competitors and determine which firms serve them Conduct competitive analysis Recognize that suppliers and buyers can become competitors Recognize that producers of potential substitutes may become competitors
Barriers to entry
Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages independent of scale Government policy Expected retaliation
it is dominated by a few large companies satisfactory substitute products are not available to industry firms industry firms are not a significant customer for the supplier group suppliers goods are critical to buyers marketplace success effectiveness of suppliers products has created high switching costs suppliers are a credible threat to integrate forward into the buyers industry
they purchase a large portion of an industrys total output the sales of the product being purchased account for a significant portion of the sellers annual revenues they could easily switch to another product the industrys products are undifferentiated or standardized, and buyers pose a credible threat if they were to integrate backward into the sellers industry
customers face few switching costs substitute products price is lower substitute products quality and performance capabilities are equal to or greater than those of the competing product
are numerous or equally balanced experience slow industry growth have high fixed costs or high storage costs lack differentiation or low switching costs experience high strategic stakes have high exit barriers
specialized assets (assets with values linked to a particular business or location) fixed costs of exit such as labor agreements strategic interrelationships (relationships of mutual dependence between one business and other parts of a companys operation, such as shared facilities and access to financial markets) emotional barriers (career concerns, loyalty to employees, etc.) government and social restrictions
Competitor intelligence is the ethical gathering of needed information and data about competitors objectives, strategies, assumptions, and capabilities
what drives the competitor as shown by its future objectives what the competitor is doing and can do as revealed by its current strategy What the competitor believes about itself and the industry, as shown by its assumptions What the the competitor may be able to do, as shown by its capabilities
Future Objectives:
Future objectives
How do our goals compare with our competitors goals? Where will the emphasis be placed in the future? What is the attitude toward risk?
Current Strategy:
Future objectives
Current strategy
How are we currently competing? Does this strategy support changes in the competitive structure?
Future objectives
Assumptions:
Current strategy
Assumptions
Do we assume the future will be volatile? Are we operating under a status quo? What assumptions do our competitors hold about the industry and themselves?
Capabilities:
Future objectives
Current strategy
What are our strengths and weaknesses? How do we rate compared to our competitors?
Assumptions
Capabilities
Future objectives
Response
Response:
Current strategy
Assumptions
Capabilities
What will our competitors do in the future? Where do we hold an advantage over our competitors? How will this change our relationship with our competitors?
Sociocultural
(a) Competitors, industry size and competitiveness, related issues (b) Suppliers, manufacturers, real estate, services (c) Labor market, employment agencies, universities, training schools, employees in other companies, unions (d) Stock markets, banks, savings and loans, private investors (e) Customers, clients, potential users of products and services (f) Techniques of production, science, research centers, automation new materials
(j) International Sector (i) Socio-cultural Sector (h) Government Sector (g) Economic Conditions Sector
DOMAIN
ORGANIZATION
(g) Recession, unemployment rate, inflation rate, rate of investment, economics, growth (h) City, state, federal laws and regulations, taxes, services, court system, (b) Raw Materials political processes Sector (i) Age, values, beliefs, education, religion, (c) work ethic, consumer Human Resources and green Sector movements (j) Competition from (d) Financial and acquisition by Resources foreign firms, Sector entry into overseas markets, foreign customs, regulations, exchange rates
Political/Legal Segment
Antitrust laws Taxation laws Deregulation philosophies Women in the workforce Workforce diversity Attitudes about work life quality
Sociocultural Segment
Technological Segment
Global Segment
Assessing
Determining the timing and importance of environmental changes and trends for firms' strategies and their management
Market size and growth rate Scope of competitive rivalry Number of competitors and their relative sizes Prevalence of backward/forward integration Entry/exit barriers Nature and pace of technological change Product and customer characteristics Scale economies and experience curve effects Capacity utilization and resource requirements Industry profitability
Economic Feature
Market Size Market growth rate Capacity surpluses/shortages Industry profitability Entry/exit barriers Product is big-ticket item for buyers Standard products Rapid technological change Capital requirements Vertical integration Economies of scale Rapid product innovation
Strategic Importance
Small markets dont tend to attract new firms; large markets attract firms looking to acquire rivals with established positions in attractive industries Fast growth breeds new entry; slow growth spawns increased rivalry & shakeout of weak rivals Surpluses push prices & profit margins down; shortages pull them up High-profit industries attract new entrants; depressed conditions lead to exit High barriers protect positions and profits of existing firms; low barriers make existing firms vulnerable to entry More buyers will shop for lowest price Buyers have more power because its easier to switch from seller to seller Raises risk; investments in technology facilities/equipment may become obsolete before they wear out Big requirements make investment decisions critical; timing becomes important; creates a barrier to entry and exit Raises capital requirements; often creates competitive & cost differences among fully vs. partially vs. non-integrated firms Increases volume & market share needed to be cost competitive Shortens product life cycle; increases risk because of opportunities for leapfrogging
Barriers to Entry
Switching Costs
Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy
Expected Retaliation
An experience curve exists when unit costs decline as cumulative production volume increases because of
The bigger the experience curve effect, the bigger the cost advantage of the firm with the largest cumulative production volume
FIGURE 5.2
$1 $1
.90 .80 .70 .81 .64 .512 .729 10% Cost
.49
.343
4 Million Units
8 Million Units
Supplier industry is dominated by a few firms Suppliers products have few substitutes Buyer is not an important customer to supplier Suppliers product is an important input to buyers product
Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases
Staging advertising battles Increasing consumer warranties or service Making new product introductions
Insulate firm from competitive forces Influence competitive pressures in ways that favor company Build a sustainable competitive advantage
High
High
Low
High
High
Low
High
High
High
Competitor Analysis
The follow-up to Industry Analysis is effective analysis of a firms Competitors
Understanding their strategies Watching their actions Evaluating their vulnerability to driving forces and competitive pressures Sizing up their resource strengths and weaknesses and their capabilities Trying to anticipate rivals next moves
Strategic Intent Be dominant leader Overtake industry leader Be among industry leaders Move into top 10 Move up a notch in rankings Maintain current position Just survive
Market Share Objective Aggressive expansion via acquisition & internal growth Expansion via internal growth Expansion via acquisition Hold on to present share Give up present share to achieve short-term profits
Competitive Position Getting stronger; on the move Wellentrenched Stuck in the middle of the pack Going after a different position Struggling; losing ground Retrenching to a position that can be defended
Strategic Posture Mostly offensive Mostly defensive Combination of offensive & defensive Aggressive risk-taker Conservative follower
Competitive Strategy Striving for low-cost leadership Mostly focusing on a market niche Pursuing differentiation based on Quality Service Technology superiority Breadth of product line Image & reputation More value for the money Other attributes
Regional
National
Multicountry
Global
Transnational
Analyzing their current competitive positions Examining public pronouncements about what it will take to be successful in industry Gathering information from grapevine about current activities and potential changes Studying past actions and leadership Determining who has flexibility to make major strategic changes and who is locked into pursuing same basic strategy
Competitor Analysis
Assumptions What assumptions do our competitors hold about the future of industry and themselves? Current Strategy Does our current strategy support changes in the competitive environment? Future Objectives How do our goals compare to our competitors goals? Capabilities How do our capabilities compare to our competitors?
Response
What will our competitors do in the future? Where do we have a competitive advantage?
Competitor Analysis
Future Objectives
How do our goals compare to our competitors goals? Where will emphasis be placed in the future? What is the attitude toward risk?
Competitor Analysis
Future Objectives
How do our goals compare to our competitors goals? Where Current Strategy will emphasis be placed in the future? currently How are we What is the attitude competing? toward risk? Does this strategy support changes in the competitive structure?
Competitor Analysis
Future Objectives
How do our goals compare to our competitors goals? Where Current Strategy will emphasis be placed in the future? How are we currently What is the attitude competing? Assumptions toward risk? Does this strategy Do we assume the future support changes in the will be volatile? competition structure? What assumptions do our competitors hold about the industry and themselves? Are we assuming stable competitive conditions?
What does the competitor believe about itself and the industry?
Competitor Analysis
Future Objectives
How do our goals compare to our competitors goals? Where Current Strategy will emphasis be placed in the future? How are we currently What is the attitude competing? Assumptions toward risk? Does this strategy Do we assume the future supportwill be volatile? changes in the competition structure? What assumptions do our competitors hold about the Capabilities industry and themselves? What are my competitors Are we operating under strengths and weaknesses? a status quo? How do our capabilities compare to our competitors?
Competitor Analysis
Future Objectives
How do our goals compare to our competitors goals? Where Current Strategy will emphasis be placed in the future? How are we currently What is the attitude competing? Assumptions toward risk? Does this strategy Do we assume the future supportwill be volatile? changes in the competition structure? What assumptions do our Capabilities competitors hold about the industry and themselves? What are my competitors Are we operating under strengths and weaknesses? a status quo? How do our capabilities compare to our competitors?
Response
What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition?
Industrys market size and growth potential Whether competitive conditions are conducive to rising/falling industry profitability Will competitive forces become stronger or weaker Whether industry will be favorably or unfavorably impacted by driving forces Potential for entry/exit of major firms Stability/dependability of demand Severity of problems facing industry Degree of risk and uncertainty in industrys future