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Chapter 4

Chapter 4. Evaluating a Company’s Resources and Competitive Position. Objectives. How evaluate and identify the strengths Why certain activities performed? Cost structure ? Strengths and key rivals Industry, analysis.. What could a manager do?. Questions. 1) Strategy ? 2) SWOT ?

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Chapter 4

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  1. Chapter 4 Evaluating a Company’s Resources and Competitive Position

  2. Objectives • How evaluate and identify the strengths • Why certain activities performed? • Cost structure ? • Strengths and key rivals • Industry, analysis.. What could a manager do?

  3. Questions 1) Strategy ? 2) SWOT ? 3) Prices and costs are competitive ? 4) Competitively stronger/weaker than key rivals ? 5) Strategic issues/problems the most importants

  4. Tools • SWOT • Value chain • Benchmarking • Competitive strength assessment

  5. Q1. How well is the company’s presentstrategy working ?

  6. What the strategy is ? Human ressources Manufacturing Financial Marketing R&D and Supply chain

  7. How well a company’s strategyis working • Sales • Customers • Profit margins • Net profits • Financial strength and credit rating • Internal measures • Shareholders • Image

  8. Profit margins and sales Revenues – Cost of good sold Revenues

  9. Net profits Profits after taxes Revenues

  10. Financial strength Current assets Current liabilities Current assets – Inventory Current liabilities Current assets – Liabilities

  11. Internal performance measures Inventory Cost of goods sold/365 Profits after taxes Total stockholders’ equity

  12. Shareholders Annual dividends per share Current market price per share Or Earnings per share Annual dividends per share Earnings per share After tax profits + Depreciation

  13. Performance increase = Do not Change • Performance decrease = Need to change

  14. Q2. What are the company’s resource strengths and weaknesses and its external opportunities and threats ?

  15. Strength

  16. Identifying company resource strengths,competencies, and competitive capabilities • A skill, an area of specialized expertise, or a competitively important capability • Valuable physical assets • Valuable human assets and intellectual capital • Valuable organizational assets • Valuable intangible assets • An achievement or attribute that puts the company in a position of market advantage • Competitively valuable alliances or cooperative ventures

  17. Assessing a company’s competencies and capabilities-What activities does it perform well? • Competence - something an organization is good at doing • Core competence - internal activity that is central to a company’s strategy and competitiveness • Distinctive competence - valuable activity that a company performs better than its rivals

  18. A distinctive competence is a competitivelypotent resource strength • It gives a company competitively valuable capability that is unmatched by rivals • It has potential for being the cornerstone of the company’s strategy • It can produce a competitive edge

  19. What is the competitive power of aresource strength? • Is the resource really competitively valuable? • Is the resource strength rare—is it something rivals lack? • Is the resource strength hard to copy? • Can the resource strength be trumped by substitute resource strengths and competitive capabilities?

  20. Competitively valuable resource strengthsand competencies call for the use of aresource-based strategy • Resource-based strategies - attempt to exploit company resources in a manner that offers value to customers in ways rivals are unable to match - be directed at eroding or a least neutralizing the competitive potency of a particular rival’s resource strengths

  21. Weakness

  22. Identifying company resource weaknesses, missingcapabilities, and competitive deficiencies • Inferior or unproven skills, expertise, or intellectual capital in competitively important areas of the business • Deficiencies in competitively important physical, organizational, or intangible assets • Missing or competitively inferior capabilities in key areas

  23. Opportunities

  24. Identifying a company’s external market opportunities • A company’s opportunities can be plentiful or scarce, fleeting or lasting, and can range from wildly attractive to marginally interesting to unsuitable • Big opportunities are nonetheless hard to see in advance.

  25. Identifying a company’s external market opportunities • Managers have to guard against viewing every industry opportunity as a company opportunity • The market opportunities most relevant to a company are those that match up well with the company’s financial and organizational resource capabilities

  26. Threats

  27. Identifying the external threats toprofitability • Can stem from the emergence of cheaper or better technologies, rivals’ introduction of new or improved products and so on. • They may be so imposing as to make a company’s situation and outlook quite tenuous

  28. What to look for inidentifying a company’sstrengths, weaknesses,opportunities, and threats

  29. Potential resource strengths and competitivecapabilities • A powerful strategy • Core competencies in • A distinctive competence in • A product that is strongly differentiated from those or rivals • Competencies and capabilities that are well matched to industry key success factors • A strong financial condition; ample financial resources to grow the business • Strong brand-name image/company reputation • An attractive customer base • Economy of scale or learning/experience curve advantages over rivals • Proprietary technology/superior technological skills/important patents • Superior intellectual capital relative to key rivals • Cost advantages over rivals • Strong advertising and promotion • Product innovation capabilities • Proven capabilities in improving production processes • Good supply chain management capabilities • Good customer service capabilities • Better product quality relative to rivals • Wide geographic coverage and/or strong global distribution capability • Alliances/joint ventures with other firms that provide access to valuable technology, competencies, and/or attractive geographic markets

  30. Potential resource weaknesses and competitive deficiencies • Weak dealer networks; lack of adequate • global distribution capability • Behind on product quality, R&D, and/or • technological know-how • In the wrong strategic group • Losing market share • Lack of management depth • Inferior intellectual capital relative to leading rivals • Subpar profitability • Plagued with internal operating problems or obsolete facilities • Behind rivals in e-commerce capabilities • Short on financial resources to grow the • business and pursue promising initiatives • Too much underutilized plant capacity No clear strategic direction Resources that are not well matched to industry key success factors No well-developed or proven core competencies A weak balance sheet, burdened with too much debt Higher overall unit costs relative to key competitors Weak or unproven product innovation capabilities A product/service with ho-hum attributes or features inferior to those of rivals Too narrow a product line relative to rivals Weak brand image or reputation

  31. Potential market opportunities • Online sales • Integrating forward or backward • Falling trade barriers in attractive foreign • markets • Acquiring rival firms or companies with • attractive technological expertise or • capabilities • Entering into alliances or joint ventures to • expand the firm’s market coverage or boost • its competitive capability • Openings to exploit emerging new • technologies Openings to win market share from rivals Sharply rising buyer demand for the industry’s product Serving additional customer groups or market segments Expanding into new geographic markets Expanding the company’s product line to meet a broader range of customer needs Utilizing existing company skills or technological know-how to enter new product lines or new businesses

  32. Potential external threats to acompany’s prospects • A shift in buyer needs and tastes away from • the industry’s product • Adverse demographic changes that threaten • to curtail demand for the industry’s product • Vulnerability to unfavorable industry driving forces • Restrictive trade policies on the part of • foreign governments • Costly new regulatory requirements Increasing intensity of competition among industry rivals—may squeeze profit margins Slowdowns in market growth Likely entry of potent new competitors Loss of sales to substitute products Growing bargaining power of customers or suppliers

  33. What can be learned from a SWOT analysis?

  34. What can be gleaned from the SWOT listings? Identify company resource strengths and competitive capabilities • Conclusions concerning the company’s overall business situation: • Where on the scale from “alarmingly weak” to “exceptionally strong” does the attractiveness of the company’s situation rank? • What are the attractive and unattractive aspects of the company’s situation? Identify company resource weaknesses and competitive deficiencies • Implications for improving company strategy: • Use company strengths and capabilities as cornerstones for strategy • Pursue those market opportunities best suited to company strengths and capabilities • Correct weaknesses and deficiencies • Use company strengths to lessen the impact of important external threats Identify the company’s market opportunities Identify external threats to the company’s future well-being

  35. ARE THE COMPANY’SPRICES AND COSTS COMPETITIVE ?? ECONOMICS AND TRADE 2005033122 LEE SEONG JIN

  36. THE SIGN OF COMPANY’S POSITION • THE COMPETITIVENESS IN PRICES AND COSTS. It should be in line with rivals • TWO TOOLS ARE USED to determine the competitiveness of costs and prices • VALUE CHAIN ANALYSIS • BENCHMARKING APPROACH

  37. THE CONCEPT OF COMPANY’S VALUE CHAIN • First step in understanding cost structure. • It shows specific activities through which firms can create customer value and competitive advantage. • Two broad catagories. • The primary activities • The requisite support activities

  38. This is the value chain !!

  39. THE VALUE CHAIN SYSTEM FOR AN ENTIRE INDUSTRY • A company's cost competitiveness depends not only on the costs of internally performed activities but also on costs in the value chains of its suppliers and forward channel allies • Look at page 120, Figure 4.4

  40. ACTIVITY-BASED COST ACCOUNTING • A tool for determining the costs of value chain activities. • Second step for evaluating a company’s competitiveness • KEY POINT is !! • costs estimates are need at least for each broad category of primary and secondary activity.

  41. BENCHMARKING • A tool for assessing whether a company’s value chain activities are competitive • potent tool for learning which companies are best at performing , using their techniques(OR BEST PRACTICE) to improve company's own activities.

  42. BENCHMARKING • FOUR STAGES

  43. BENCHMARKING • PROBLEM is • how to gain access to information about other companies practices and costs • “”The leader companies are often unlikely to share their competitiveness.

  44. Strategic options for Remedyinga cost disadvantage • Internal cost disadvantage • Implement the use of best practices. • Try to eliminate some cost-producing activities altogether by revamping the value chain. • Relocate high-cost activities to geographically cheap areas. • See if certain internally performed activities can be outsourced. • Others are in page 125.

  45. Strategic options for Remedyinga cost disadvantage • A supplier-related cost disadvantage. • pressure suppliers for lower prices • collaborate closely with suppliers • The forward channel allies. • Pressure dealer-distributors and other forward channel allies. • Change to a more economical distribution strategy. • Work closely with forward channel allies

  46. Translating Activities into competitive advantage • Two Options • perform value chain activities more proficiently. • perform value chain activities more cheaply. Ggeut!! Thank you :D

  47. Q4. Is the company competitively stronger or weaker than key rivals?

  48. Overall competitive strength • How does the company rank relative to competitors on each of the important factors that determine market success? • Does the company have a net competitive advantage of disadvantage VS major competitors?

  49. Quantitative competitive strength assessments • Indicate where a company has a competitively strong and weak • Provide insight into the company’s ability to defend or enhance its market position

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