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Evaluating Company Resources and Competitive Capabilities






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Evaluating Company Resources and Competitive Capabilities. Chapter 4. “Quote”. “Understand what really makes a company ‘tick’.”. Charles R. Scott.
Evaluating Company Resources and Competitive Capabilities

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Slide 1

Evaluating Company Resources and Competitive Capabilities

Chapter 4

Slide 2

“Quote”

“Understand what really makes a company ‘tick’.”

Charles R. Scott

“If a company is not ‘best in world’ at a critical activity, it is sacrificing competitive advantage by performing that activity with its existing technique.”

James Brian Quinn

  • The McGraw-Hill Companies, Inc., 1998

Irwin/McGraw-Hill

Slide 3

Chapter Outline

  • How Well the Company’s Present Strategy Is Working

  • SWOT Analysis

    • Resource Strengths and Weaknesses

    • Opportunities and Threats

  • Strategic Cost Analysis and Value Chains

  • Assess a Firm’s Competitive Position

  • Identify Strategic Issues

Slide 4

Primary Activities and Costs

Purchased

Supplies

and

Inbound

Logistics

Operations

Distribution

And

Outbound

Logistics

Sales and

Marketing

Service

Profit

Margin

Product R&D, Technology, Systems Development

Support

Activities

and Costs

Human Resources Management

General Administration

Figure 4.2: Typical Company Value Chain

Slide 5

Activities,

Costs, &

Margins of

Suppliers

Activities,

Costs, &

Margins of

Forward

Channel

Allies &

Strategic

Partners

Buyer or

End User

Value

Chains

Figure 4.3: The Value Chain System for an Entire Industry

A Company’s Own

Value Chain

Supplier

Value Chains

Forward Channel

Value Chains

Internally

Performed

Activities,

Costs, &

Margins

Slide 6

Company Situation Analysis:The Key Questions

1.How well is firm’s present strategy working?

2.What are the firm’s resource strengths and weaknesses and its external opportunities and threats?

3.Are firm’s prices and costs competitive?

4.How strong is firm’s competitive position relative to rivals?

5.What strategic issues does the firm face?

Slide 7

Question 1: How Well is thePresent Strategy Working?

  • What are some aspects of a firm’s current business level strategy that should be examined when evaluating the effectiveness of a particular strategy?

  • What are some possible measures used to evaluate a strategy?

  • It is important to understand TRUE FALSE

    functional strategies when

    evaluating the effectiveness of

    the business strategy.

Slide 8

Question 2: What Are the Firm’s Strengths and Weaknesses?

  • What is the definition of a firm’s strength?

  • What is the definition of a firm’s weakness?

  • A firm’s brand name can be a True False

    a strength.

Slide 9

Question 2: What Are the Firm’s Strengths and Weaknesses ?

  • Core competencies develop True False instantly.

  • When does a resource/competency provide for a sustainable competitive advantage?

  • What is the difference between a core competency

  • A firm’s particular distinctive True False competencywill alwaysprovide

    a firm with a competitive advantage.

Slide 10

Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage

Costly to Imitate

Nonsub-stitutable

Competitive Consequences

Performance Implications

Valuable

Rare

Below Average

Returns

Competitive

Disadvantage

NO

NO

NO

NO

Competitive

Parity

Average

Returns

YES

NO

NO

YES/NO

Temporary

Competitive

Advantage

Aver./Above Average

Returns

YES

YES

NO

YES/NO

Sustainable

CompetitiveAdvantage

Above

Average

Returns

YES

YES

YES

YES

UNDERSTAND WHY EACH LEADS TO DIFFERENT PERFORMANC LEVELS)

Slide 11

Resources

Distinctive

Competence

Superior

Profits

Capabilities

Competency and Business Strategy

Differentiation

  • Superior

  • Efficiency

  • Quality

  • Innovation

  • Customer

  • responsiveness

Value

Creation

Low Cost

Slide 12

Examples: Distinctive Competencies

  • Sharp Corporation

    • Expertise in flat-panel display technology

  • Toyota, Honda, Nissan

    • Low-cost, high-quality manufacturing capability and short design-to-market cycles

  • Intel

    • Ability to design and manufacture ever more powerful microprocessors for PCs

  • Motorola

    • Defect-free manufacture (six-sigma quality) of cell phones

Slide 13

Question 2a: What are the external opportunities and threats?

  • For a company’s strategy to be well-conceived, it must be matched toboth

    • Resource strengths and weaknesses

    • Best market opportunities and externalthreats to its well-being

  • Is every industry opportunity an opportunity that every firm in the industry is equipped to pursue?

  • Must every industry threat be addressed by a firm?

  • What is the purpose of doing a SWOT analysis?

Slide 14

Potential Resource Strengths

Potential Resource Weaknesses

Potential External Opportunities

Potential External Threats

  • Powerful strategy

  • Strong financial condition

  • Strong brand name image/reputation

  • Widely recognized market leader

  • Proprietary technology

  • Cost advantages

  • Strong advertising

  • Product innovation skills

  • Good customer service

  • Better product quality

  • Alliances or JVs

  • No clear strategic direction

  • Obsolete facilities

  • Weak balance sheet; excess debt

  • Higher overall costs than rivals

  • Missing some key skills/competencies

  • Subpar profits

  • Internal operating problems . . .

  • Falling behind in R&D

  • Too narrow product line

  • Weak marketing skills

  • Serving additional customer groups

  • Expanding to new geographic areas

  • Expanding product line

  • Vertical integration

  • Acquisition of rivals

  • Alliances or JVs to expand coverage

  • Openings to exploit new technologies

  • Entry of potent new competitors

  • Loss of sales to substitutes

  • Slowing market growth

  • Adverse shifts in exchange rates & trade policies

  • Costly new regulations

  • Vulnerability to business cycle

  • Growing leverage of customers or suppliers

  • Reduced buyer needs for product

  • Demographic changes

Adapted from Table 4.1: SWOT Analysis -What to Look For

Slide 15

Strategic Management Principle

A company is well-advised to pass on a particular market opportunity unless it has or can build the resource capabilities to capture it!

Slide 16

Question 3: Are the Company’sPrices and Costs Competitive?

  • Assessing whether a firm’s costs are competitive with those of rivals is a crucial part of company analysis

  • Key analytical tools

    • Strategic cost analysis

    • Value chain analysis

    • Benchmarking

Slide 17

Question 3: Are the Company’sPrices and Costs Competitive?

  • What factors are part of a firm’s cost structure?

  • When is it justifiable to have costs that are higher than competitors?

  • Would you expect a firm with a higher product price to follow a differentiation or low cost strategy?

  • Do firms in the same industry perform the value chain activities in the same manner?

Slide 18

What is Strategic Cost Analysis?

  • Focuses on a firm’s costsrelative to its rivals

  • Compares a firm’s costs activity by activity against costs of key rivals

    • From raw materials purchase to

    • Price paid by ultimate customer

  • Pinpoints which internal activities are a source of cost advantage or disadvantage

Slide 19

What Determines Whether aCompany is Cost Competitive?

  • A company’scost competitiveness depends on how well it manages its value chain relative to how well competitors manage their value chains

  • Where in the value chain should a company look to reduce its costs?

Slide 20

Strategic Cost Analysis

  • What are some things that firms in a industry can do to reduce their suppliers’ costs?

  • What are some things a firm can do to improve costs in the forward activities of the value chain?

  • What are some things a firm can do to improve its internal costs?

  • What is benchmarking?

Slide 21

Question 4: How Strong is the Company’s Competitive Position?

  • The strength of a company’s competitive position in the marketplace hinges on

    • Whether firm’s position can be expected to improve or deteriorate if present strategy is continued

    • How firm ranks relative to key rivals on each industry KSF and relevant measure of competitive strength

    • Whether firm has a sustainable competitive advantage or finds itself at disadvantage relative to certain rivals

    • Ability of firm to defend its position in light of

      • Industry driving forces

      • Competitive pressures

      • Anticipated moves of rivals

Slide 22

Assessing a Company’s Competitive Strength versus 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 unweightedrating system (a weighted system is usually superior because the 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.Determine whether firm enjoys a competitive advantage or suffers from a competitive disadvantage based on the overall strength ratings

Slide 23

Why Do a CompetitiveStrength Assessment ?

  • Reveals strength of firm’s competitive position vis-à-vis key rivals

  • Shows how firm stacks up against rivals, measure-by-measure—pinpoints firm’s competitive strengths and competitive weaknesses

  • Indicates whether firm is at a competitive advantage / disadvantage against each rival

  • Identifies possible offensive attacks (pit company strengths against rivals’ weaknesses)

  • Identifies possible defensive actions (a need to correct competitive weaknesses)

Slide 24

Identifying the Strategic Issues

  • Is the present strategy adequate in light of competitive pressures and driving forces?

  • Is the strategy well-matched to the industry’s future key success factors?

  • Does the company need new or different resource strengths and competitive capabilities?

  • Does present strategy adequately protect against external threats and resource deficiencies?

  • Is firm vulnerable to competitive attack by rivals?

  • Where are strong/weak spots in present strategy?


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