Evaluating company Resources and Competitive Capability

SWOT Analysis

S W O T represents the first letter in

Strengths Weaknesses Opportunities Threats

SWOT analysis involves sizing-up firm’s

INTERNAL strengths & weaknesses and EXTERNAL opportunities & threats

Identifying Company Resource Strengths & Competitive Capabilities

Strength is something a company is good at doing or an attribute that enhances its competitiveness.

Strength can be various forms :

- Skill or an expertise

• low cost manufacturing capabilities• technological know how• skills in improving production processes• providing consistent good customer service• unique advertising & promotional talents

- Valuable Physical Assets

• state of the art plants & equipment• attractive real estate location• world wide distribution facilities• ownership of valuable natural resource deposits

- Valuable Human Assets

• experienced & capable work force• talented employees in key areas

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- Valuable Intangible Assets

• powerful or well-known brand• strong buyer loyalty & goodwill

- Competitive Capabilities

• product innovation capabilities• strong dealer network• supply chain management capabilities• business via internet

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A Company’s strengths determine competitively valuable resources with which it competes – a company’s resource strengths represents competitive assets.

Competencies A competence is something an organization is good

at doing.

Competencies are special qualities possessed by an organization that make them withstand pressures of competition in the marketplace

A Core Competence is a competitively important activity that a firm performs better than other internal activities

When an organization develops its competencies over a period of time and hones them into a fine art of competing with its rivals it tend to use these competencies exceedingly well

A competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitability

BUILDING A CORE COMPETENCE

• Superior skills in producing high quality product

• Superior system for delivering customer orders accurately & swiftly

• Better after-sale service capability

• More skill in achieving low operating costs

TYPES OF CORE COMPETENCIES

• Innovativeness in developing new products

• Better merchandising & product display skills

• Superior mastery of an important technology

• Unusually effective sales force

TYPES OF CORE COMPETENCIES

EXAMPLE: HONDA’S CORE COMPETENCE

Expertise in gasoline enginetechnology and small engine

design

Any advantage a company has over its competitors because it can do something they cannot or it can do something better than they can

A Distinctive Competence is a competitively valuable activity that a company does ESPECIALLY WELL in comparison to its Competitors!

BUILDING A DISTINCTIVE COMPETENCE

A core competence is a basis for competitive advantage only when it rises to the level of a distinctive competence.

E.g. : Intel's distinctive competence in rapidly developing new generations of even more powerful semiconductor chips for PC’s.

E.g. :Starbucks distinctive competence in store ambience & innovative coffee drinks.

BUILDING A DISTINCTIVE COMPETENCE

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It is not enough to compile a list of the company’s resource strength and competitive capabilities. We also need to know how powerful are these Strengths in the Marketplace.

What is the Competitive Power of a Resource Strength ?

The competitive power of the company strength is measured by how many of the below tests can it pass:

1) Is the resource strength hard to copy ?

The more difficult and more expensive it is to imitate a company’s resource strength, the greater is its potential competitive value.

Resources tend to be difficult to copy when :- They are unique - They must be built over time in ways that are difficult to imitate- When they carry big capital requirement

What is the Competitive Power of a Resource Strength ?

2) Is the resources strength durable – does it have staying power ?

The longer the competitive value of a resource lasts, the greater its value.

Some resources lose their presence in the market place because of the rapid speeds at which technology & industry conditions are changing.

e.g. : Eastman Kodak’s resources in film & film processing is undercutting with rapid increase in digital cameras.

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Identifying Company Resource Weaknesses & Competitive Deficiencies

A weakness or company deficiency, is something a company lacks or does poorly in comparison to others.

A condition that puts the company at a disadvantage in the marketplace.

Identifying Company Resource Weaknesses & Competitive Deficiencies

A company’s weakness can relate to :

1) Inferior or unproven skills, expertise or intellectual capital in competitively important areas of the business.

2) Deficiencies in competitively important physical, organizational or intangible assets.

3) Competitively inferior capabilities in key areas.

Identifying Company Market Opportunities

Opportunities most relevant to a firm are factors in External environment offering

• Some kind of competitive advantage

• Important avenues for growth

Identifying Company Market Opportunities

Market opportunity is a big factor in shaping a company's strategy.

Managers cant properly tailor strategy to the company’s situation without first identifying its opportunities and appraising the growth and profit potential each one holds.

Depending on the prevailing circumstances, a company’s opportunities can be plentiful or scarce and can range from wildly attractive to marginally interesting to unsuitable

Identifying Threats to a Company’s Future Profitability

Certain factors in a company’s external environment pose threats to its profitability & competitive well-being.

Managers job is to identify the threats to the company's future profitability & to evaluate what strategic action can be taken to neutralize or lessen their impact.

Identifying Threats to a Company’s Future Profitability

External Factors:

• Emergence of cheaper technologies

• Introduction of new/better products by rivals

• Entry of low-cost foreign competitors

• New regulations

• Vulnerability to rise in interest rates

Identifying Threats to a Company’s Future Profitability

• Potential of hostile takeover

• Unfavorable demographic shifts

• Adverse shifts in foreign exchange rates • Political upheaval in a country

WHAT DO THE SWOT LISTING REVEAL? Swot analysis involves more than making four lists (Strength,

Weakness, Opportunity and Threats) Swot Analysis objective

Drawing conclusions from SWOT listings Acting on those conclusions to better match company’s

strategy to its resource strength and market opportunities, to correct the important weaknesses, and to defend against external threats.

SWOT MATRIX A firm should not necessarily pursue the more lucrative

opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the firm's strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity.

To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed.

SWOT MATRIXStrength Weakness

Opportunities S-O strategies W-O strategiesThreats S-T strategies W-T strategies

S-O strategies pursue opportunities that are a good fit to the company's strengths.W-O strategies overcome weaknesses to pursue opportunities.S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats. 

HOW TO GENERATE STRATEGIC ADVANTAGE Strategic

Advantage

Competencies

Synergic Effect

Strength and Weaknesses

Organizational Behavior

Organization Resources

Organizational Capability