5-1 Key Questions in Situation Key Questions in Situation Analysis Analysis Question 1: How well is the company’s strategy working? Question 2: What are the company’s resource strengths and weaknesses and its external opportunities and threats? 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?
Key Questions in Situation Analysis. Question 1: How well is the company’s strategy working? Question 2: What are the company’s resource strengths and weaknesses and its external opportunities and threats? Question 3: Are the company’s prices and costs competitive? - PowerPoint PPT Presentation
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5-1
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 resource strengths and weaknesses and its external opportunities and threats?
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 Strengths, Weaknesses, Company’s Strengths, Weaknesses, Opportunities and ThreatsOpportunities and Threats
S W O T represents the first letter inStrengths
Weaknesses
Opportunities
Threats
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
Common types of resource strengths includeSkills or specialized expertise in a
competitively important capabilityValuable physical assetsValuable human assets or intellectual capitalValuable organizational assetsValuable intangible assetsCompetitively valuable alliances or
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
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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
• Serving additional Serving additional customer groupscustomer groups
• Expanding to new Expanding to new geographic areasgeographic areas
• Expanding product Expanding product lineline
• Transferring skills to Transferring skills to new productsnew products
• Vertical integrationVertical integration
• Take market share Take market share from rivalsfrom rivals
• Acquisition of rivalsAcquisition of rivals
• Alliances or JVs to Alliances or JVs to expand coverageexpand coverage
• Openings to exploit Openings to exploit new technologiesnew technologies
• Openings to extend Openings to extend brand name/imagebrand name/image
• Entry of potent new Entry of potent new competitorscompetitors
• Loss of sales to Loss of sales to substitutessubstitutes
• Slowing market Slowing market growthgrowth
• Adverse shifts in Adverse shifts in exchange rates & exchange rates & trade policiestrade policies
• Costly new Costly new regulationsregulations
• Vulnerability to Vulnerability to business cyclebusiness cycle
• Growing leverage of Growing leverage of customers or customers or supplierssuppliers
• Reduced buyer Reduced buyer needs for productneeds for product
• Demographic Demographic changeschanges
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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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Developing Data to Measure a Developing Data to Measure a Company’s Cost CompetitivenessCompany’s Cost Competitiveness
After identifying key value chain activities, the next step involves determining costs of value chain activities using activity-based costing
Appropriate degree of disaggregationDepends on the number of broad categories
of primary and support activities
Requires finer classifications if problematic cost disadvantages exist
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Activity-Based CostingActivity-Based Costing
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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 activities
Purchase 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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Vertical Integration: Operating Vertical Integration: Operating Across More Industry Value Chain Across More Industry Value Chain SegmentsSegments
Extend a firm’s competitive scope within the same industry
Backward into sources of supply
Forward toward end-users of final product
Can aim at either full or partial integration
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Advantages of a Vertical Integration Advantages of a Vertical Integration StrategyStrategy
Strengthen the firm’s competitive position
Boost profitability
Must achieve same scale economies as outside suppliers
Match or beat suppliers’ production efficiency with no drop-off in quality
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Integrating Forward to Enhance Integrating Forward to Enhance CompetitivenessCompetitiveness
Gain better access to end users
Improve market visibility
Include the purchasing experience as a differentiating feature
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Disadvantages of a Vertical Disadvantages of a Vertical Integration StrategyIntegration Strategy
Boosts capital investment in the industry
Increases business risk if industry growth and profits sour
May slow technological advances if the vertically integrated company is saddled with older technology
Poses all types of capacity-matching problems
May require radically different skills and business capabilities
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The Case for OutsourcingThe Case for Outsourcing
Activity can be performed better ormore cheaply by outside specialists
Activity is not crucial to achieve asustainable competitive advantage
It improves firm’s ability to innovate
Firm can concentrate on core value chain activities and leverage its resource strengths
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Building a Competitively Superior Building a Competitively Superior Value ChainValue Chain
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: What Situation Analysis Question 5: What Strategic Issues Must be 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”?