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Analysis:Analysis:Evaluating a Company’s Evaluating a Company’s
Resources, Cost Resources, Cost Position, and Position, and
Competitive StrengthCompetitive Strength
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Key Questions in Situation AnalysisKey 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?
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Situation Analysis Question 1: How Situation Analysis Question 1: How Well is the Company’s Strategy Well is the Company’s Strategy Working?Working?
1. Is the company achieving its financial and strategic objectives?
2. Is the company an above-average industry performer?
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Performance IndicatorsPerformance 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
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Situation Analysis Question 2: The Situation Analysis Question 2: The Company’s Competitively Important Company’s Competitively Important Resources and CapabilitiesResources and Capabilities
A company’s strategy and business model Must be well-matched to its collection
of resources and capabilitiesIs strengthened when exploiting
resources that are competitively valuable, rare, hard to copy, and not easily trumped to rivals’ equivalent substitute resources
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
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Identifying Competitively Important Identifying Competitively Important Resources and CapabilitiesResources and Capabilities
Common types of valuable resources and competitive capabilities includeSkills or specialized expertise in a
competitively important capabilityValuable physical assetsValuable human assets or intellectual capitalValuable organizational assetsValuable intangible assetsCompetitively valuable alliances or
cooperative ventures
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Determining the Competitive Determining the Competitive Power of a Company ResourcePower 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?
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Strategies for Addressing Resource Strategies for Addressing Resource Deficiencies 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.
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Resources and Capabilities as the Resources and Capabilities as the Foundation of Competitive Foundation of Competitive AdvantageAdvantage
A competence represents real proficiency in performing an internal activity
A core competence is a well-performedinternal activity central to a company’s competitiveness and profitability
A distinctive competence is a competitively valuable activity a company performs better than its rivals
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Taking Inventory of a Company’s Taking Inventory of a Company’s Strengths, Weaknesses, Strengths, Weaknesses, Opportunities and ThreatsOpportunities and Threats S W O T represents the first letter in
S trengthsW eaknessesO pportunitiesT hreats
For a company’s strategy to be well-conceived, it must be Matched to its resource strengths and
weaknesses Aimed at capturing its best market opportunities
and defending against external threats to its well-being
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 capitalDeficiencies in competitively important
physical, organizational, or intangible assetsMissing or competitive inferior capabilities in
key areas
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Identifying a Company’sIdentifying a Company’sMarket OpportunitiesMarket Opportunities
Opportunities most relevant to a company are those offering
Good match with its financial andorganizational resource capabilities
Best prospects for growth and profitability
Most potential for competitive advantage
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Identifying External Threats to Identifying External Threats to Profitability and CompetitivenessProfitability 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
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Overall Value of a SWOT AnalysisOverall 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.
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Situation Analysis Question 3: How Situation Analysis Question 3: How Competitive Are the Company’s Competitive Are the Company’s Prices and Costs?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
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Company Value ChainCompany Value Chain
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Benchmarking Costs ofBenchmarking Costs ofKey Value Chain ActivitiesKey Value Chain Activities
Focuses on cross-company comparisons of how certain activities are performed and costs associated with these activitiesPurchase of materialsPayment of suppliersGetting new products to marketPerformance of quality controlFilling and shipping of customer orders
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Industry Value ChainIndustry Value Chain
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Strategic Options for Remedying a Strategic Options for Remedying a Cost DisadvantageCost Disadvantage
There are three main areas of a company’s overall value chain where cost differences occur
Interpreting the Competitive Interpreting the Competitive Strength AssessmentsStrength 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
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Situation Analysis Question 5: Situation Analysis Question 5: What Strategic Issues Must be What Strategic Issues Must be Addressed by Management?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”?