CHAPTER 4

EVALUATING A COMPANYS
RESOURCES, CAPABILITIES,
AND COMPETITIVENESS
QUESTION 1: HOW WELL IS THE FIRMS
PRESENT STRATEGY WORKING?

Best indicators of a well-conceived,

well-executed strategy:
The firm is achieving its stated financial and
strategic objectives.
The firm is an above-average industry performer.

42
 SPECIFIC INDICATORS OF
STRATEGIC SUCCESS

Growth in firms sales and market share

Acquisition and retention of customers
Strengthening image and reputation with customers
Increasing profit margins, net profits and ROI
Growing financial strength and credit rating
Leadership in factors relevant to market\industry
success
Continuing improvement in key measures of operating
performance

43
 QUESTION 2: WHAT ARE THE FIRMS
COMPETITIVELY IMPORTANT
RESOURCES AND CAPABILITIES?
Competitive Assets
Are the firms resources and capabilities.
Are the determinants of its competitiveness and
ability to succeed in the marketplace.
Are what a firms strategy depends on to develop
sustainable competitive advantage over its rivals.

44
VRISA analysis
 Exercise 1

Think about a successful business that you

know, use VRISA model to pin point the critical
factors that determine their competitive strength
and/or future challenges

2013 by McGraw-Hill Education. All rights reserved. 46

 QUESTION 3: IS THE COMPANY ABLE
TO SEIZE MARKET OPPORTUNITIES
AND NULLIFY EXTERNAL THREATS?
SWOT Analysis
Is a powerful tool for sizing up a firms:
Internal strengths (the basis for strategy)
Internal weaknesses (deficient capabilities)
Market opportunities (strategic objectives)
External threats (strategic defenses)

47
 IDENTIFYING A COMPANYS
INTERNAL STRENGTHS

A Competence
Is an activity that a firm has learned to perform with
proficiencya capability.
A Core Competence
Is a proficiently performed internal activity that is
central to a firms strategy and competitiveness.
A Distinctive Competence
Is a competitively valuable activity that a firm
performs better than its rivals.

48
IDENTIFYING A FIRMS WEAKNESSES
AND COMPETITIVE DEFICIENCIES

A Weakness (Competitive Deficiency)

Is something a firm lacks or does poorly (in
comparison to others) or a condition that puts it
at a competitive disadvantage in the marketplace.
Types of Weaknesses:
Inferior skills, expertise, or intellectual capital
Deficiencies in physical, organizational, or
intangible assets
Missing or competitively inferior capabilities
in key areas

49
 IDENTIFYING A COMPANYS
MARKET OPPORTUNITIES

Characteristics of Market Opportunities:

An absolute must pursue market
Represents much potential but is hidden
in fog of the future.
A marginally interesting market
Presents high risk and questionable profit
potential.
An unsuitable\mismatched market
Is best avoided as the firms strengths are
not matched to market factors.
410
QUESTION 4: ARE THE COMPANYS COST
STRUCTURE AND CUSTOMER VALUE
PROPOSITION COMPETITIVE?
Signs of A Firms Competitive Strength:
Its prices and costs are in line with rivals.
Its customer-value proposition is competitive
and cost effective.
Its bundled capabilities are yielding
a sustainable competitive advantage.

411
 THE CONCEPT OF A COMPANY
VALUE CHAIN

The Value Chain

Identifies the primary internal activities that create
and deliver customer value and the requisite related
support activities.
Permits a deep look at the firms cost structure and
ability to offer low prices.
Reveals the emphasis that a firm places on activities
that enhance differentiation and support higher prices.

412
Value chain
 Exercise 2

Remember a place where you get your

breakfast, lunch or dinner, or places where you
get your stationeries; think about its value chain
and identify the elements of the chain that
create value to you.
 VALUE CHAIN SYSTEM FOR
AN ENTIRE INDUSTRY

Industry Value Chain:

The firms internal value chain
The value chains of industry suppliers
The value chains of channel intermediaries
Effects of the Industry Value Chain:
Costs and margins of suppliers and channel partners
can affect prices to end consumers.
Activities of channel partners can affect industry sales
volumes and customer satisfaction.

415
 BENCHMARKING AND
VALUE CHAIN ACTIVITIES

Benchmarking:
Involves improving a firms internal activities based
on learning other companies best practices.
Assesses whether the cost competitiveness and
effectiveness of a firms value chain activities are
in line with its competitors activities.
Sources of Benchmarking Information
Reports, trade groups, analysts and customers
Visits to benchmark companies
Data from consulting firms
416
IMPROVING VALUE CHAIN ACTIVITIES
OF FORWARD CHANNEL ALLIES

Achieving Cost-Based Competitiveness:

Pressure forward channel allies to reduce their costs
and markups so as to make the final price to buyers
more competitive.
Collaborate with forward channel allies to identify
win-win opportunities to reduce costs.
Change to a more economical distribution strategy,
including switching to cheaper distribution channels.

417
ENHANCING DIFFERENTIATION THROUGH
ACTIVITIES AT THE FORWARD END OF THE
VALUE CHAIN SYSTEM

Enhancing Differentiation:
Engage in cooperative advertising and
promotions with forward channel allies.
Use exclusive arrangements with downstream
sellers or other mechanisms that increase their
incentives to enhance delivered customer value.
Create and enforce standards for downstream
activities and assist in training channel partners
in business practices.

418
 QUESTION 5: IS THE FIRM
COMPETITIVELY STRONGER OR
WEAKER THAN KEY RIVALS?
Assessing the firms overall competitive
strength:
How does the firm rank relative to competitors
on each of the important factors that determine
market success?
Does the firm have a net competitive advantage
or disadvantage versus major competitors?

419
 THE COMPETITIVE STRENGTH
ASSESSMENT PROCESS

Make a list of the industrys key success factors

Step 1 and measures of competitive strength or
weakness (6 to 10 measures usually suffice).

Assign a weight to each competitive strength

Step 2
measure based on its perceived importance.

Rate the firm and its rivals on each competitive

Step 3 strength measure and multiply by each measure
by its corresponding weight.

420
QUESTION 6: WHAT STRATEGIC ISSUES
AND PROBLEMS MERIT FRONT-
BURNER MANAGERIAL ATTENTION?
Strategic How To Issues:
How to meet challenges of new foreign competitors.
How to combat the price discounting of rivals.
How to both reduce high costs and prepare for price
reductions.
How to sustain growth as buyer demand slows.
How to adapt to the changing demographics of the
firms customer base.

421
QUESTION 6: WHAT STRATEGIC ISSUES
AND PROBLEMS MERIT FRONT-
BURNER MANAGERIAL ATTENTION?
Strategic Should We Issues:
Expand rapidly or cautiously into foreign markets.
Reposition the firm to move to a different strategic
group.
Counter increasing buyer interest in substitute
products.
Expand of the firms product line.
Correct the firms competitive deficiencies by
acquiring a rival firm with the missing strengths.

422
 Exercise 3

Use internet to search for resourceful

companies but turned out to be a failure due to
their inappropriate leveraging of the resources

2013 by McGraw-Hill Education. All rights reserved. 423