Chapter 3 Analyzing a Company’s Resources and
Competitive Position

“The real question isn’t how well you’re doing today against your own history, but how you’re doing against your competitors.”

Donald Kress

Chapter Outline

nEvaluating How Well a Company’s Present Strategy
Is Working

nSizing Up a Company’s Resource Strengths and Weaknesses and Its External Opportunities and Threats

nAnalyzing Whether a Company’s Prices and Costs Are Competitive

nAssessing a Company’s Competitive Strength

nIdentifying the Strategic Issues that Merit Managerial Attention

Company Situation Analysis:
The Key Questions

1. How well is the company’s
present strategy working?

2. What are the company’s resource
strengths and weaknesses and its
external opportunities and threats?

3. Are the company’s prices and
costs competitive?

4. Is the company competitively stronger
or weaker than key rivals?

5. What strategic issues merit
front-burner managerial attention?

Evaluating How Well the Company’s
Present Strategy Is Working

n Start by identifying the company’s present strategy

Ú What is the company’s basic competitive approach -

u Low-cost leadership?

u Differentiation?

u Focus on a particular market niche?

Ú Over what geographic area does the company compete?

Ú What recent strategic moves has the company made

Key Indicators of How Well
the Strategy Is Working

n Rising/falling sales and market share

n Gains/losses in customers

n Rising/falling profit margins

n Rising/falling net profits and ROI

n Improving/eroding financial strength

n Rising/falling stock price

n Improving/eroding image and reputation

n Evidence of operating improvements

n A leader in technology, quality,
innovation, e-commerce, etc.?

What Are the Company’s Strengths, Weaknesses, Opportunities and Threats ?

n S W O T represents the first letter in

Ú S trengths

Ú W eaknesses

Ú O pportunities

Ú T hreats

n For a company’s strategy to be well-conceived, it must be

Ú Matched to its resource strengths and weaknesses

Ú Aimed at (a) capturing its best market opportunities and (b) erecting defenses against external threats to its future growth and profitability

Identifying Resource Strengths
and Competitive Capabilities

n A strength is something a firm does well or an attribute that enhances its competitiveness

Ú Valuable competencies or know-how

Ú Valuable physical assets

Ú Valuable human assets/intellectual capital

Ú Valuable organizational assets

Ú Valuable intangible assets

Ú Important competitive capabilities

Ú Effective strategic alliances or cooperative partnerships

Competencies vs. Core Competencies
vs. Distinctive Competencies

n A competence is an activity that a company
performs with real proficiency—it is usually the product of organizational learning
and experience

n A core competence is a well-performed
internal activity central to a company’s
strategy, competitiveness, and profitability

n A distinctive competence is a competitively valuable activity a company performs better than its rivals

Company Competencies and Capabilities

n Stem from skills, expertise, and cross-functional collaboration

n Are usually the product of deliberate
efforts to develop expertise and
competitive prowess

n Represent the accumulation of learning over time and gradual buildup of proficiency—cannot be developed “overnight”

Determining the Competitive
Value of a Company Resource

n To be the basis for sustainable competitive advantage, a “resource” must pass 4 tests:

1. Is the resource hard for rivals to copy?

2. Does the resource have staying power –
is it durable?

3. Is the resource really competitively superior?
Does it actually outclass what rivals have and
provide a meaningful edge in attracting
and/or pleasing customers?

4. Can the resource be trumped by
the different capabilities of rivals?

Identifying Resource Weaknesses
and Competitive Deficiencies

n A weakness is something a firm lacks, does poorly,
or a condition placing it at a disadvantage

n Resource weaknesses relate to

Ú Inferior or unproven skills,
expertise, or intellectual capital

Ú Lack of important physical,
organizational, or intangible assets

Ú Missing capabilities in key areas

Identifying a Company’s
Market Opportunities

nOpportunities most relevant to a
company are those offering

ÚGood match with its financial and
organizational resource capabilities

ÚBest prospects for profitable
long-term growth

ÚPotential for competitive advantage

nOpportunities are those situations the environment offers

nA company should not attempt to take advantage of every opportunity

Identifying Opportunities

n New Technologies are available

n New markets are opening

n Changes in regulations

n Market growth; increased buyer demand

n New customer groups

n Decreasing trade barriers

n Changing demographics

n Changing social values

Identifying External Threats

n Slowdowns in market growth

n Emergence of cheaper/better technologies

n Introduction of better products by rivals

n Entry of lower-cost foreign competitors

n Onerous regulations

n Intensifying competition

n Potential of a hostile takeover

n Unfavorable demographic shifts

n Adverse shifts in foreign exchange rates

n Loss of sales to attractive substitute products

Role of SWOT Analysis in
Crafting a Better Strategy

n Use a S W O T analysis

Ú To draw conclusions about a company’s
overall situation and

Ú Acting on the conclusions to

u Better match a company’s strategy to its
resource strengths and market opportunities

u Correct the important weaknesses

u Defend against external threats

Analyzing Whether a Company’s
Prices and Costs Are Competitive

n Assessing whether a firm’s costs are competitive with those of rivals is a crucial part of sizing up a company’s situation

n Key analytical tools

ÚBenchmarking

ÚValue chain analysis

Objectives of Benchmarking

n Identify “best practices” in performing each activity in the value chain

Ú Learn the methods, techniques, and
approaches used by other firms to

u Lower costs

u Achieve better results

Ú Discover which company employs the “best practice”

n Take action to improve company’s cost competitiveness and methods of operation by implementing best practices

Fig. 3.4: A Representative Value
Chain for an Entire Industry

Options to Correct
Internal Cost Disadvantages

n Implement use of best practices throughout company

n Eliminate some cost-producing activities altogether by revamping value chain system

n Relocate high-cost activities to lower-cost geographic areas

n See if high-cost activities can be performed
cheaper by outside vendors/suppliers

n Invest in cost-saving technology

n Innovate around troublesome cost components

n Simplify product design

n Make up difference by achieving savings in backward or forward portions of value chain system

Table 3.3

Determining Whether a Company Is Competitively Stronger or Weaker than Key Rivals

n Evaluating the strength of a company’s overall competitive position involves
answering two questions

Ú How does a company rank relative
to its key rivals on each important
factor that determines market success?

Ú Does the company have a net
competitive advantage or disadvantage
vis-à-vis its major competitors?

Chapter 3

Analyzing a Company’s Resources and Competitive Position “The real question isn’t how well you’re doing today against your own history, but how you’re doing against your competitors.”