STRATEGIC MANAGEMENT

Course In charge

Dr. Mustaghis-ur-Rahman

Evaluating Company Resources and Competitive Capabilities

Evaluating Company Resources and Competitive Capabilities

Overview: Evaluating a companys resource and Competitive capabilities is also the companys situation analysis. It prepares the ground work for matching the companys Strategy both to its external market circumstances and to its Internal resources and competitive capabilities Capabilities, Relative cost position, and competitive strength versus rivals

Evaluating Company Resources and Competitive Capabilities

The company situation analysis is trained on five questions:

1) How well is the companys present strategy 2) 3) 4) 5)

working What are the companys resource strengths and weaknesses and its external opportunities and threats Are the companys prices and costs competitive? How strong is the companys competitive position relative to its rivals? What strategic issues does the company face?

Evaluating Company Resources and Competitive Capabilities

To find out the answers of the five questions regarding the companys situation analysis, four analytical techniques are used as follows: SWOT analysis Value chain analysis Strategic cost analysis, and Competitive strength assessment

Evaluating Company Resources and Competitive Capabilities

Explanation of the questions related to companys situation analysis.
Q-1 How well is the present strategy working? To explore this question there is a need to understand what strategy is? As we know, strategy is a set of competitive moves and business approaches to produce successful performance

Evaluating Company Resources and Competitive Capabilities

In the light of basic understanding of strategy of a company, The following aspects of the companys are further explored: a. Whether the firms sales are growing faster, slower or about the same pace as the market as a whole, thus resulting in a rising, eroding, or subtle market share

Evaluating Company Resources and Competitive Capabilities

b. Whether the company is acquiring new customers at an attractive rate as well as retaining existing customers.
c. Whether the firms profit margins are increasing or decreasing and how well its margins are compare to rival firms margins

Evaluating Company Resources and Competitive Capabilities d. Trends in the firms net profits, return on

investment, and economic value added, and how these compare to the same trends for other companies in the industry strength and credit rating are improving or on the decline

e. Whether the companys overall financial

Evaluating Company Resources and Competitive Capabilities f. Whether the company can demonstrated

continuous improvement in such internal performance measures as unit cost, defect rate, scrap rate, employee motivation and morale. g. How shareholders view the company based on trends in the companys stock price and shareholders value

Evaluating Company Resources and Competitive Capabilities

g. The firms image and reputation with its customers
h. Whether the company is regarded as a leader in technology, product innovation, ecommerce, product quality, short times from order to delivery, having the best prices, getting newly developed products to market quickly, or other relevant factors on which buyers base their choice of brands.

Evaluating Company Resources and Competitive Capabilities

SWOT Analysis: Strengths
Skills and expertise Valuable physical assets Valuable human assets Valuable organizational assets Valuable intangible assets Competitive capabilities Achievements Alliances and cooperative venture

Evaluating Company Resources and Competitive Capabilities

Weaknesses are just opposite to the companys strengths

Evaluating Company Resources and Competitive Capabilities Opportunity Market expansion Product launching Diversification Merger and Acquisition

Evaluating Company Resources and Competitive Capabilities Threats From cheaper or advanced technologies Rivals New and innovative products Low cost competitors New regulations External environment

Strategy and Competitive Advantage

Strategy and Competitive Advantage

Winning business strategies are grounded in sustainable competitive advantage. A company has competitive advantage whenever it has an edge over rivals in attracting customers and defending against competitive forces.

Strategy and Competitive Advantage

There are many routes to competitive advantage, but the most basic is to provide buyers with what they perceive as superior value in terms of the following three:
A good product at low price; A superior product that is worth paying more for best value offering that represents an attractive combination of price , features, quality, service and other attributes buyers find attractive Delivering superior value

Strategy and Competitive Advantage

The above competitive objectives can be achieved basically by applying any of the following: 1) The five generic competitive strategies 2) Cooperative Strategies and Competitive Advantage 3) Merger and Acquisition Strategies 4) Vertical integration strategies 5) Unbundlding and outsourcing strategies 6) Using offensive strategies to secure competitive advantage 7) Using Defensive Strategies to protect

Strategy and Competitive Advantage The five generic competitive strategies

The five generic competitive strategies are: a. A low cost provider strategy b. A broad differentiation strategy c. A best cost provider strategy d. A focused strategy based on lower cost (Market Niche) e. A focused strategy based on differentiation (Market Niche)

Strategy and Competitive Advantage The five generic competitive strategies

a) A low cost provider strategy is appealing to a broad spectrum of customers based on being the overall low cost provider of a product or service. Two available options for achieving this goal are: i) To use the lower-cost edge to under price competitors and attract price sensitive buyers in great number enough to increase profit ii) To refrain from price cutting altogether , be content with the present market share and use the lower-cost edge to earn higher profit margin on each unit sold

Strategy and Competitive Advantage The five generic competitive strategies

b. A broad differentiation strategy Seeking to differentiate the companys product offering from rivals in ways that will appeal to a broad spectrum of buyers. Successful differentiation allows a firm to: i) Command a premium price for its product ii) Increase unit sales (Because additional buyers are won over by the differentiating features) iii) Gain buyer loyalty to its brand (Because some buyers are strongly attracted to the differentiating features and bond with the company and its products)

Strategy and Competitive Advantage The five generic competitive strategies c. A best cost provider strategy
Giving customers more value for the money by incorporating to good to excellent product attributes at a lower cost than rivals

Strategy and Competitive Advantage: The five generic competitive strategies

d. A focused strategy based on lower cost (Market Niche) Concentrating on a narrow buyer segment and out competing rivals by serving niche members at a lower cost than rivals. A focusers basis for competitive advantage is by either i) Lower costs than competitors in serving market niche ii) An ability to offer niche members something they perceive is better suited their own unique tastes and preferences.

Strategy and Competitive Advantage The five generic competitive strategies

e. A focused strategy based on differentiation (Niche) Concentrating on a narrow buyer segment and out competing rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals products.

Strategy and Competitive Advantage: Cooperative Strategies and Competitive Advantage

2) Cooperative Strategies and Competitive Advantage
In last couple of years, companies in all types of industries and in all parts of the world have formed strategic alliances and partnerships to complement their own strategic initiatives and strengthen their competitiveness in domestic and international markets.

Strategy and Competitive Advantage: Cooperative Strategies and Competitive Advantage

What are Strategic Alliances and Partnerships? Strategic Alliances are cooperative agreement between firms that go beyond normal company to-company dealings but fall short of merger or full joint venture partnership with formal ownership ties.

Strategy and Competitive Advantage: Cooperative Strategies and Competitive Advantage

The needs of this strategy arises because of two main reasons:

a) The global race to build a market presence in

many different national markets and to establish an attractive position among the global market leaders

a) The technology race to capitalize on todays

technological and information age revolution and build the resource strengths and business capabilities to compete in the industries

Strategy and Competitive Advantage: Cooperative Strategies and Competitive Advantage

Examples of Strategic alliances

Organizations
General Electric IBM Microsoft

Cooperation/Alliances

1,00 4,00 Many independent software developers Oracle 15,000 alliances Toyota A network of suppliers of automotive part manufacturers On average the large corporations have 30 alliances worldwide

Strategy and Competitive Advantage: Cooperative Strategies and Competitive Advantage

How Strategic Alliances can be advantageous? Since strategic alliances are cooperative Arrangements between firms that go beyond normal company to company dealings but Fall short of merger or full joint venture with Formal ownership ties. In following ways a Company can be advantageous:

a) Get into critical country markets quickly

and accelerate the process of building a potent global market

Strategy and Competitive Advantage: Cooperative Strategies and Competitive Advantage

b) Gain inside knowledge about unfamiliar markets and cultures through alliances with local partners c) Access valuable skills and competencies that are concentrated in particular geographic locations (Such as software design competencies in USA, fashion design in Italy and efficient management skills in Japan)

Strategy and Competitive Advantage: Merger and Acquisition Strategies

3) Merger and Acquisition Strategies Merger and acquisitions are a much-used Strategic option. They are especially suited for situations where alliances and partnerships do not go far enough in providing a company with access to the needed resources and capabilities. and also merging with competitors can dramatically strengthen a companys market position and open new opportunities for competitive advantage

Strategy and Competitive Advantage: Merger and Acquisition Strategies Some examples of merger in Pakistan in the last five years?

Strategy and Competitive Advantage: Merger and Acquisition Strategies

Pitfalls of merger and acquisition:
Combining the operations of two companies often entails formidable resistance from rank and file organization members. Hard to resolve conflicts in management styles and corporate cultures and tough problems of integration

Strategy and Competitive Advantage: Vertical Integration Strategies

4) Vertical Integration Strategies Vertical integration extends a firms competitive Scope within the same industry. It involves expanding the firms range of activities backward into sources of supply and or forward toward end users of the final Product. Vertical integration strategies can aim at full Integration (participating in all stages of the industrys value chain) or partial integration (Building positions in selected stages of the industrys total value chain

Strategy and Competitive Advantage: Vertical Integration Strategies

The strategic advantages of vertical integration: The good reason for investing companys resources in vertical integration is to strengthen the firms competitive position. Although there are some disadvantages of this strategy.

Strategy and Competitive Advantage: Unbuilding and Outsourcing Strategy

5) Unbundling and Outsourcing Strategy In this strategy, company focuses more narrowly on certain value chain activities and rely on outsiders to perform the remaining value chain activities. More specifically it refers to withdrawing from certain activities in the value chain system and relying on outside vendors to supply the needed products, support services, or functional activities

Strategy and Competitive Advantage: Unbuilding and Outsourcing Strategy

Outsourcing pieces of the value chain make sense when: a) An activity can be performed better or more cheaply by outside specialists. Many PC makers have shifted from inhouse assembly to utilizing contract assemblers to make their PCs because of sizeable scale of economies b) The activity is not crucial to the firms ability to achieve sustainable competitive advantage

Strategy and Competitive Advantage: Unbundling and Outsourcing Strategy

c) It reduces the companys risk exposure to changing technology or changing buyers preferences

Strategy and Competitive Advantage: Offensive Strategies to secure competitive advantage

6) Offensive Strategies to secure competitive advantage:
Offensive advantage is an initiatives calculated to yield a cost advantage, a differentiation advantage , or a resource advantage. Competitive advantage is acquired by employing a creative offensive strategy that is not easily thwarted by rivals

Strategy and Competitive Advantage: Offensive Strategies to secure competitive advantage

There are six basic types of strategic offensives:

Initiatives to match or exceed competitors strengths Initiatives to capitalize on competitors weaknesses Simultaneous initiatives on many fronts End run offensive to move to less contested ground Guerrilla offensive Preemptive strikes

Strategy and Competitive Advantage: Offensive Strategies to secure competitive advantage

Initiatives to capitalize on competitors weaknesses: Focusing on competitors products which lag on quality, features, or product performance and come up with better product with competitive price

Strategy and Competitive Advantage: Defensive Strategies to protect competitive advantage

7) Defensive strategy: In a competitive market, all firms are subject to challenges from rivals. The purpose of defensive strategy is to lower the risk of being attacked , weaken the impact of any attack that occurs, and influence challengers to aim their efforts At other rivals

Strategy and Competitive Advantage: Offensive Strategies to secure competitive advantage

Approaches to defensive strategy:

a) Moving to block challengers b) Signaling the likely hood of strong

retaliation

Strategy and Competitive Advantage: Offensive Strategies to secure competitive advantage a) Moving to block challengers

There are any number of obstacles that can be put in the path of would be challengers. A defenders can introduce new features, add new models or broaden its product line to close off gaps and vacant niches to would be challenges
b) Signaling Challenges the retaliation is likely: Would be challengers can be signaled by; i) Publicly announcing managements commitment to maintain the firms present market share

Strategy and Competitive Advantage: Offensive Strategies to secure competitive advantage

i)
Publicly announcing plans to put adequate capacity in place to meet and possibly surpass the forecasted growth in industry volume ii) Giving out the advance information about a new product, technology breakthrough or the planned introduction of important new brands or models in hopes that challengers will delay their moves until they see the announced actions are forthcoming

First Mover Advantages and Disadvantages

First Mover Advantages and Disadvantages

Being first to initiate a strategic move have a high payoff when

1) Pioneer ring helps build a firms image and

reputation with buyers 2) early commitments to new technologies, new style components, distribution channels and so on can produce an absolute cost advantage over rivals 3) first time customers remain strongly loyal to pioneering firms in making repeat purchases 4) moving first constitutes a preemptive strike making imitation extra hard or unlikely