Professional Documents
Culture Documents
Evaluating a
Company’s
Chapter Title
Resources and
Competitive
Position
4-5
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
4-6
Approaches to Assess How Well
the Present Strategy Is Working
Qualitative assessment – Quantitative assessment –
Is the strategy well- What are the results?
conceived?
Is company achieving its
Covers all the bases? financial and strategic
Internally consistent? objectives?
Makes sense? Is company an above-
Timely and in step with average industry
marketplace? performer?
4-7
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 financial strength and credit ranking
Efforts at continuous improvement activities
Trend in stock price and stockholder value
Image and reputation with customers
Leadership role(s) – Technology, quality,
innovation, e-commerce, etc.
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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 S W
W eaknesses
O pportunities
T hreats 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 well-
being
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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
Toyota Starbucks
Low-cost, high-quality Innovative coffee drinks
manufacturing of motor and store ambience
vehicles
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Determining the Competitive
Power of a Company Resource
Toqualify as competitively valuable or to be the
basis for sustainable competitive advantage, a
“resource” must pass 4 tests:
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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 regulations
Rise 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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Role of SWOT Analysis in
Crafting a Better Strategy
S W O T analysis involves more than just developing the
4 lists of strengths, weaknesses, opportunities, and threats
The most important part of S W O T analysis is
Using the 4 lists to draw conclusions
about a company’s overall situation
Acting on the conclusions to
Better match a company’s strategy to its
resource strengths and market opportunities
Correct the important weaknesses
Defend against external threats
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Fig. 4.2: The Three Steps of SWOT Analysis
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For Discussion: Your Opinion
4-28
Question 3: Are the Company’s
Prices and Costs Competitive?
Benchmarking
4-29
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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Example: Value Chain Activities
for a Bakery Goods Maker
Primary Activities Support Activities
Supply chain management Quality control
Recipe development and Human resource
testing
management
Mixing and baking
Administration
Packaging
Sales and marketing
Distribution
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Example: Value Chain Activities
for a Department Store Retailer
Primary Activities Support Activities
Merchandise selection and Site selection
purchasing Hiring and training
Store layout and product Store maintenance
display
Administrative activities
Advertising
Customer service
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Example: Value Chain
Activities for a Hotel Chain
Primary Activities Support Activities
Site selection and Accounting
construction
Hiring and training
Reservations
Operation of hotel
Advertising
properties Building a brand and
Managing lineup reputation
of hotel locations General
administration
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Characteristics of Value Chain Analysis
Combined costs of all activities in a company’s
value chain define the company’s internal cost
structure
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Example: Value Chain Activities
Timber farming
Logging
Pulp mills
Papermaking
Distribution
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Example: Value Chain Activities
Assembly
Wholesale distribution
Retail sales
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Example: Value Chain Activities
Retailing
4-41
Example: Value Chain Activities
Programming
Disk loading
Marketing
Distribution
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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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Objectives of Benchmarking
Identifybest and most efficient means of
performing various value chain activities
Learn 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 activity
Learn what other firms do to perform
an activity at lower cost
Figureout what actions to take to improve a
company’s own cost competitiveness
4-47
Ethical Principles in Benchmarking
Avoid actions implying an interest Treat benchmarking interchange
in as confidential
Restraint of trade Use information obtained only for
Market and/or customer stated purposes
allocation schemes Respect corporate culture of
Price fixing
partner companies
Bribery
Use benchmarking contacts
Refrain from acquiring trade
secrets by any means viewed as designated by partner company
improper Be fully prepared for each
Be willing to provide same type of exchange
information to a benchmarking Provide partners with agenda and
partner questionnaire prior to exchange
Communicate early to clarify Follow through with commitments
expectations and avoid to partner in a timely manner
misunderstandings Understand how partner wants
Be honest and complete information provided used
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What Determines If a
Company Is Cost Competitive?
Cost competitiveness depends on how well a
company manages its value chain relative to how
well competitors manage their value chains
When 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 allies
Internally Activities,
Activities,
Performed Costs, & Buyer/User
Costs, &
Activities, Margins of Value
Margins of
Costs, & Forward Chains
Suppliers
Margins Channel Allies
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Options to Correct
Internal Cost Disadvantages
Implement use of best practices throughout company
Eliminate some cost-producing activities altogether by
revamping value chain system
Relocate high-cost activities to lower-cost geographic areas
See if high-cost activities can be performed
cheaper by outside vendors/suppliers
Invest in cost-saving technology
Innovate around troublesome cost components
Simplify product design
Make up difference by achieving savings in backward or
forward portions of value chain system
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Options to Correct a
Supplier-Related Cost Disadvantage
Pressure suppliers for lower prices
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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?
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