CHAPTER 4 EVALUATING A COMPANYS RESOURCES, CAPABILITIES, AND COMPETITIVENESS 42 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. 43 SPECIFIC INDICATORS OFSTRATEGIC 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 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 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) 45 46 IDENTIFYING A COMPANYSINTERNAL 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. 47 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 itat 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 capabilitiesin key areas 48 IDENTIFYING A COMPANYSMARKET OPPORTUNITIES Characteristics of Market Opportunities: An absolute must pursue market Represents much potential but is hiddenin 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. 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 competitiveand cost effective. Its bundled capabilities are yieldinga sustainable competitive advantage. 49 410 THE CONCEPT OF A COMPANYVALUE CHAIN The Value Chain Identifies the primary internal activities that createand 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. 411 VALUE CHAIN SYSTEM FORAN 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. 412 BENCHMARKING ANDVALUE 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 arein line with its competitors activities. Sources of Benchmarking Information Reports, trade groups, analysts and customers Visits to benchmark companies Data from consulting firms 413 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. 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. 414 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? 415 THE COMPETITIVE STRENGTH ASSESSMENT PROCESS Step 1 Make a list of the industrys key success factors and measures of competitive strength or weakness (6 to 10 measures usually suffice). Step 2 Assign a weight to each competitive strength measure based on its perceived importance. Step 3 Rate the firm and its rivals on each competitive strength measure and multiply by each measure by its corresponding weight. 416 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. 417 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. 418