Chapter 4

Report
Chapter 4
Internal Situation
Analysis:
Evaluating a Company’s
Resources, Cost
Position, and
Competitive Strength
McGraw-Hill/Irwin
Copyright © 2011 The McGraw-Hill Companies, All Rights Reserved.
Key Questions in Situation Analysis
 Question 1: How well is the company’s
strategy working?
 Question 2: What are the company’s
competitively important resources and
capabilities?
 Question 3: Are the company’s prices and
costs competitive?
 Question 4: Is the company competitively
stronger or weaker than key rivals?
 Question 5: What strategic issues and
problems merit front-burner managerial
attention?
4-2
Situation Analysis Question 1: How
Well is the Company’s Strategy
Working?
1. Is the company achieving its
financial and strategic objectives?
2. Is the company an above-average
industry performer?
4-3
Performance Indicators
 Trends in sales and earnings growth




Trends in the company’s stock price
The company’s overall financial strength
The rate at which new customers are acquired
Image and reputation with customers
 Evidence of improvement in internal processes
such as defect rate, order fulfillment, and days
of inventory
4-4
Situation Analysis Question 2: The
Company’s Competitively Important
Resources and Capabilities
 A company’s strategy and business
model
Must be well-matched to its collection
of resources and capabilities
Is strengthened when exploiting
resources that are competitively
valuable, rare, hard to copy, and not
easily trumped to rivals’ equivalent
substitute resources
4-5
Resource-Based Strategies
 Resource-based
strategies attempt to
exploit a company’s
valuable and rare
resources and
competitive capabilities
to deliver value to
customers in ways
rivals find it difficult to
match
4-6
Identifying Competitively Important
Resources and Capabilities
 Common types of valuable resources
and competitive capabilities include
 Skills or specialized expertise in a
competitively important capability
 Valuable physical assets
 Valuable human assets or intellectual capital
 Valuable organizational assets
 Valuable intangible assets
 Competitively valuable alliances or
cooperative ventures
4-7
Determining the Competitive
Power of a Company Resource
 Is the resource really competitively
valuable?
 Is the resource rare and something
rivals lack?
 Is the resource hard to copy or imitate?
 Can the resource be trumped by the
substitute resource strengths and
competitive capabilities of rivals?
4-8
Strategies for Addressing Resource
Deficiencies
 Companies lacking a competitively
powerful stand-alone resource may
be able to support its strategy with a
bundle of resources.
 Companies may be able to
neutralize the power of rivals’
resources and capabilities by
developing substitute resources
to accomplish the same purpose.
4-9
Resources and Capabilities as the
Foundation of Competitive
Advantage
 A competence represents real
proficiency in performing an internal
activity
 A core competence is a well-performed
internal activity central to a company’s
competitiveness and profitability
 A distinctive competence is a
competitively valuable activity a
company performs better than its
rivals
4-10
Taking Inventory of a Company’s
Strengths, Weaknesses,
Opportunities and Threats
 S W O T represents the first letter in
 S trengths
 W eaknesses
 O pportunities
 T hreats
 For a company’s strategy to be wellconceived, it must be
 Matched to its resource strengths and
weaknesses
 Aimed at capturing its best market opportunities
and defending against external threats to its wellbeing
4-11
Identifying Resource Weaknesses
and Competitive Deficiencies
 A weakness is something a firm lacks,
does poorly, or a condition placing it at a
disadvantage in the marketplace
 Resource weaknesses relate to
 Inferior or unproven skills,
expertise, or intellectual capital
 Deficiencies in competitively important
physical, organizational, or intangible assets
 Missing or competitive inferior capabilities in
key areas
4-12
Identifying a Company’s
Market Opportunities
 Opportunities most relevant to
a company are those offering
 Good match with its
financial and
organizational resource
capabilities
 Best prospects for growth
and profitability
 Most potential for
competitive advantage
4-13
Identifying External Threats to
Profitability and Competitiveness
 Entry of lower-cost foreign competitors




Burdensome regulations
Rise in interest rates
Potential of a hostile takeover
Unfavorable demographic shifts
 Adverse shifts in foreign exchange rates
4-14
Overall Value of a SWOT Analysis
 Ability to draw conclusions about the
company’s overall situation.
 Ability to translate into strategic actions:
 Better match the company’s strategy to its
resource strengths and market opportunities,
 Correcting problematic weaknesses, and
 Defending against worrisome external
threats.
4-15
Situation Analysis Question 3: How
Competitive Are the Company’s
Prices and Costs?
 Assessing whether a firm’s costs are
competitive with those of rivals is a
crucial part of company situation analysis
 Key analytical tools
 Value chain analysis
 Benchmarking
4-16
Company Value Chain
4-17
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
 Getting new products to market
 Performance of quality control
 Filling and shipping of customer orders
4-18
Industry Value Chain
4-19
Strategic Options for Remedying a
Cost Disadvantage
 There are three main areas of a
company’s overall value chain where
cost differences occur
1. Activities performed by
suppliers
2. A company’s own internal
activities
3. Activities performed by
forward channel allies
4-20
Correcting Internal Cost
Disadvantages
 Implement best practices throughout
the company
 Try to eliminate some cost-producing
activities altogether by revamping value
chain
 Relocate high-cost activities to lowercost geographic areas
 See if high-cost activities can be
outsourced
4-21
Correcting Internal Cost
Disadvantages
 Invest in productivity enhancing, costsaving technology
 Find ways to detour around activities or
items where costs are high
 Redesign the product or its
components to reduce manufacturing
costs
 Make up difference by achieving
savings in backward or forward
portions of value chain system
4-22
Correcting Supplier-Related Cost
Disadvantages
 Pressure suppliers for lower prices
 Switch to lower-priced substitutes
 Collaborate closely with suppliers to
identify mutual
cost-saving opportunities
 Integrate backward
into business of
high-cost suppliers
4-23
Correcting Cost Disadvantages
Associated With Forward Channel
Allies
 Pressure dealer-distributors to reduce
their costs
 Work closely with forward channel
allies to identify win-win opportunities to
reduce costs
 Change to a more economical
distribution strategy
 Switch to cheaper distribution channels
 Integrate forward into company-owned retail
outlets
4-24
Situation Analysis Question 4: What
Is the Company’s Competitive
Strength?
 Overall competitive position involve
answering two questions
 How does a company rank relative
to competitors on each industry key
success factor?
 Does a company have a net
competitive advantage or disadvantage
vis-à-vis major competitors?
4-25
Competitive Strength Assessments
4-26
Interpreting the Competitive
Strength Assessments
 Shows how firm stacks up against rivals,
measure-by-measure
 Indicates whether firm is at a
competitive advantage or
disadvantage against each rival
 Identifies possible offensive strategies
that can be waged against rivals’
weaknesses
 Identifies the need for defensive
actions to correct competitive
weaknesses
4-27
Situation Analysis Question 5: What
Strategic Issues Must be Addressed
by Management?
 Final and most
important analytical step
in assessing
“Where are we now?”
 Based on results of both industry and
competitive analysis
 Pinpointing the precise things that should
be on management’s “worry list”?
4-28

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