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Chapter 4

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Jacob Amick

on 16 October 2013

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Transcript of Chapter 4

2 best Indicators of How Well the strategy is working:
Is the company achieving its stated financial and strategic objectives?
Is the company an above-average industry performer?
Is your strategy Working?
Are sales growing faster than, slower than, or about the same pace as the market?
Is the company acquiring new customers at an attractive rate as well as retaining existing customers?
Are the firms profit margins increasing or decreasing and how do they compare to the competition?
Is the overall financial strength and credit rating improving or declining?
Is the reputation of the firm with it's customers growing stronger or declining?
1st: Examine the Competitive Approach

Faster, cheaper or better?
Virtually all knowledge-based, residing in people and in a company's intellectual capital or in organizational processes and systems, which embody tacit knowledge.
Resource & Capability Analysis
Step 1: Identify the company's resources and capabilities

Step 2: Examine them closely to see which ones are most competitively valuable.

(Swot Analysis)
Identify companies strengths and competitive assets.

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

Some ways to assess the companies strengths are through the competence levels through key pieces of the organization. Such as supply chain management, R&D, production, distribution, etc.
Identify company weaknesses and competitive deficiencies
Identify external threats to the company's future well being
Identify the company's market opportunities
Chapter 4
More indicators for a working strategy...
How shareholders view the company on the basis of trends in the company stock price and shareholder value.
How well the company stacks up against rivals on technology, product innovation, customer service, product quality, delivery time, price, getting new developed products to the market quickly, and other relevant factors.
Trends in the firms profit margins are increasing or decreasing and how well its margins compare to rival firms' margins.
Whether key measures of operating performance ( such as days of inventory, employee productivity, unit cost, defect rate, scrap rate, order-filling accuracy, delivery times, and warranty costs) are improving, remaining steady, or deteriorating.
Question 1:
How well is the company's present strategy working?

Question 2:
What are the company's competitively important resources and capabilities?

Question 3:
Is the company able to seize market opportunities and nullify external threats

Potential Strengths and Competitive Assets
Competencies that are well matched to industry key success factors.
Attractive customer base
Superior intellectual capital
Wide geographic coverage and/or strong global distribution capability
Skills in advertising and promotion
A product that is strongly differentiated from those of rivals
Cost advantages over rivals
Resources that are hard to copy and for which there are no good substitutes
Proprietary technology/superior technological skills/ important patents
A weakness or competitive deficiency can relate to:
inferior or unproven skills
intellectual capital in competitively important areas
Also deficiencies in competitively important physical, organizational, or intangible assets.

A company's strategic balance sheet should have competitive assets(strengths) outweighing competitive liabilities( weakness)
Potential weaknesses and competitive deficiencies
Competencies that are not well-matched to industry key success factors.
Lack of attention to customer needs
Higher overall unit costs relative to those of key competitors
Too much underutilized plant capacity
No clear strategic direction
Resources that are readily copied or for which there are good substitutes
Lack of management depth
Too narrow a product line relative to rivals
Weak brand image or reputation
Behind on product quality, R&D, and/or technological know-how
The market opportunities most relevant to a company are those that match up well with the company's competitive assets, offer the best growth and profitability, and present the most potential for competitive advantage.
Be careful of pursuing each industry opportunity because it may not be a company opportunity. Opportunities can be plentiful or scarce, quick or lasting, and can range on attractiveness.
Potential Market Opportunities
Openings to win market shares from rivals
Sharply rising buyer demand for the industry's product
Utilizing existing company skills or technological know-how to enter new product lines or new businesses
Online sales via the Internet
Falling trade barriers in attractive foreign markets
Entering into alliances or joint ventures to expand the firm's market coverage or boost its competitive capability
Acquiring rival firms or companies with attractive technological expertise or capabilities
Factors in the company's external environment can often pose threats to its profitability and competitive well-being
Many threats pose no more then moderate degree of adversity.
Rare occasions such as 9/11 cause sudden-death threats to companies.
Potential External Threats to a Company's Future Profitability
Shift in buyer needs and tastes away from the industry's product
Slowdowns in market growth
Likely entry of potent new competitors
Adverse demographic changes that threaten to curtail demand for the industry's product
Restrictive foreign trade policies
Adverse economic conditions that threaten critical suppliers for the industry's product
Vulnerability to industry driving forces
Costly new regulatory requirements
Determine what moves the company has recently made to
attract customers
improve its market position.
Cut prices?
Improved design?
New market?
How the SWOT analysis helps is by answering some of these questions.
What aspects of the companies situation are particularly attractive?
What aspects are of the most concern?
Are the company's internal strengths and competitive assets powerful enough to enable it to compete successfully?
Do the company's strengths and competitive assets outweigh its weaknesses and competitive liabilities by an attractive margin?
Are the threats alarming, or are they something the company appears able to deal with and defend against?
Are the companies weaknesses and competitive deficiencies mostly inconsequential and readily correctable, or could one or more prove fatal if not remedied soon?
Key Functional Strategies (KSFs)
Supply Chain Management
Sales, Marketing & Distribution
Information technology
R&D, Technology, Product Design
Human Resource
Components of a Business Strategy
moves to
attract customers
out compete rivals
with improved product design, better features, higher quality, wider selection, lower prices, etc.
Initiatives to build competitive advantage based on:
LOWER COSTS relative to rival?
DIFFERENT/BETTER Pproduct offering
SUPERIOR ABILITY to serve a market niche?
Efforts to expand/narrow geo. coverage
Moves to resond to changing conditions in the macro-environment or in industry and competitive conditions
Efforts to build competitively valuable partnerships and strategic alliances with other enterprises
*The stronger a company's financial performance and market position, the more likely it has a well-conceived, well-executed strategy*
Evaluating a Company's Resources, Capabilites, & Competitiveness
Professors: Courtney Jacobs, Jacob Amick, Patrick O'Toole, & Justin Lau
*With a little help from Prof. Lynch ;)
Competitive Assets
(Four tests of a resource's competitive power)
The Four Tests of a Resource's Competitive Power
1. Is the resource (or capability) competitively valuable?

2. Is the resource rare--is it something rivals lack?

3. Is the resource hard to copy?

4. Can the resource be trumped by different types of resources and capabilities--are there good substitutes available for the resources?

- capacity of a firm to perform some activity proficiently
-productive input or competitive assest that is owned or controlled by the firm
EX. Apple's product innovation
EX. Company Brand (Coca-Cola, Kleenex)
Types of Resources
Human assets & intellectual capital
Brands, co. image, reputational assets
Co. culture & incentive system
Cross Functional AKA: (Resource Bundles)
Cooperative activity
Creative talents
Technological expertise
Are the resources and capabilities strong enough to produce a SUSTAINABLE competitive advantage?
Probe the caliber of the competitive assets (relative to competitors)
Use the 4 Tests for Resource competitive power!
Look for resources & capabilities held by the competition that can SERVE THE SAME FUNCTION
Can you think of a company that passes all 4 tests???
Dynamic Capability
Continually update & recalibrate most valuable resources & capabilities.
-ability to modify existing resources & capabilities
3M constantly upgrades the R&D for innovation
Question 4:
Are the company's prices and costs competitive with those of key rivals, and does it have an appealing customer value proposition?

Value Chain
Support for product/service
"Creating value for buyers"
Create value for customers
Facilitate & enhance the performance of the primary activities.
Supply Chain Management-
Sales and Marketing
Question 5:
Is the company competitively stronger or weaker than key rivals?
Differentiation-Based Competitive Advantage
Beat Rivals by performing value chain activities more EFFECTIVELY
Company Managers decide to perform value chain activities
that enhance product-service differentiation
Competencies gradually emerge in

value chain activities that drive improvements in quality, features and performance

in performing some of these differentiation enhancing activities
rises to the level of a core competence
Company proficiency in performing the core competence continues to build and evolve into a distinctive competence
Company gains a competitive advantage based on
superior differentiation capabilities
Cost-Based Competitive Advantage
Beat Rivals by performing value chain activities more EFFICIENTLY
Company managers decide to perform value chain activities in the
most cost-efficient manner
Competencies gradually emerge in
driving down the cost
of value chain activities
capabilities in

performing certain value chain activities more efficiently
rise to the level of core competence
Company proficiency in performing the core competence continues to build and evolve into a distinctive competence
Company gains a competitive advantage based on superior
Question 6: What strategic issues and problems merit front-burner managerial attention?
The "Worry List"
How to stave off market challenges from new foreign competitors
How to combat the price discounting of rivals
How to reduce the company's high costs and pave the way for price reductions
How to sustain the company's present rate of growth in light of slowing buyer demand
Whether to expand the company's product line
Whether to correct the company's competitive deficiencies by acquiring a rival company with the missing strengths
Whether to expand into foreign markets rapidly or cautiously
Whether to reposition the company and move to a different strategic group
What to do about growing buyer interest in substitute products
What to do to combat the aging demographics of the company's customer base
-a potent tool for improving a company's own internal activities that is based on learning how other companies perform them and borrowing their "best practices."
Product R&D, Technology, & Systems Development
Human Resources Management
General Administration
Product R&D, Technology, & Systems Development
Human Resource Management
General Administration
Supply Chain Management
-activities, costs, and assets associated with purchasing fuel, energy, raw materials, parts and components, merchandise, and consumable items from vendors
-activities, cost, and assets associated with converting inputs into final product form
- activities, costs, and assets associated with physically distributing the product to buyers
Sales and Marketing
-activities, costs, and assets related to sales force efforts
- activities, costs, and assets associated with providing assistance to buyers
-receiving, storing, and disseminating inputs from suppliers; inspection; and inventory management
-Production, assembly, packaging, equipment maintenance, facilities, operations, quality assurance, environmental protection.
-Finished goods warehousing, order processing, order picking and packing, shipping, delivery vehicle operations, establishing & maintaining a network of dealers and distributors.
-Advertising & promotion, market research and planning, and dealer/distributor support
-installation, spare parts delivery, maintenance and repair, technical assistance, buyer inquires, and complaints.
Representative Company Value Chain
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