Post on 13-May-2015
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STRATEGIC ANALYSIS
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Analyzing a Company’s Analyzing a Company’s External EnvironmentExternal Environment
Analyzing a Company’s Analyzing a Company’s External EnvironmentExternal Environment
““Things are always different--Things are always different--
the art is figuring out which the art is figuring out which
differences matter.”differences matter.”
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Two Aspects:
Company’s external environment
Macro-environment (distant)
Industry and competitive conditions
Operating environment
Company’s internal or micro-environment
Competencies, Capabilities, Strengths, Weaknesses, & competitiveness
Situation Analysis?Situation Analysis?Situation Analysis?Situation Analysis?
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Components of Macro-Components of Macro-EnvironmentEnvironment
Components of Macro-Components of Macro-EnvironmentEnvironment
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Key Questions Regarding theKey Questions Regarding theIndustry and Competitive Industry and Competitive
EnvironmentEnvironment
Key Questions Regarding theKey Questions Regarding theIndustry and Competitive Industry and Competitive
EnvironmentEnvironment
Industry’s dominant economic traits
Competitive forces and strength of each force
Drivers of change in the industry
Competitor analysis
Key success factors
Conclusions: Industry attractiveness
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Key Aspects of Industry Key Aspects of Industry AttractivenessAttractivenessKey Aspects of Industry Key Aspects of Industry AttractivenessAttractiveness
Dominant Economic Traits
Competitive Forces & Strength of each
Drivers of Change
Competitor Analysis
Key Success Factors
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Some DefinitionsSome DefinitionsSome DefinitionsSome Definitions
IndustryA group of companies offering
products or services that are close substitutes for each other
CompetitorsRival companies that serve the same
basic customer needs
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Some Some Definitions(cont’d)Definitions(cont’d)
Some Some Definitions(cont’d)Definitions(cont’d)
SectorA group of closely related industries
Market segmentsDistinct groups of customers within a market
that can be differentiated from each other based on their distinct attributes and demands
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The Computer Sector: The Computer Sector: Industries and Industries and
SegmentsSegments
The Computer Sector: The Computer Sector: Industries and Industries and
SegmentsSegments
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#1.Industry’s Dominant Economic #1.Industry’s Dominant Economic Traits?Traits?
#1.Industry’s Dominant Economic #1.Industry’s Dominant Economic Traits?Traits?
Market size and growth rate Scope of competitive rivalry Number of rivals Buyer needs and requirements Production capacity Pace of technological change Vertical integration Product innovation Degree of product differentiation Economies of scale Learning and experience curve effects
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Identification of :
Main sources of competitive forces
Strength of these forces
#2: Competitive Forces Faced by #2: Competitive Forces Faced by Firms?Firms?
#2: Competitive Forces Faced by #2: Competitive Forces Faced by Firms?Firms?
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Porter’s Five Forces Porter’s Five Forces ModelModel
Porter’s Five Forces Porter’s Five Forces ModelModel
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5-Forces5-ForcesI. Rivalry Among Competing I. Rivalry Among Competing
SellersSellers
5-Forces5-ForcesI. Rivalry Among Competing I. Rivalry Among Competing
SellersSellersUsually the strongest of the five forces
How aggressively are rivals using various weapons of competition to improve their market positions and performance?, through:
Offensive actions
Defensive countermoves
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TypicalTypical Weapons for Weapons for Competing?Competing?
TypicalTypical Weapons for Weapons for Competing?Competing?
Vigorous price competition
More or different performance features
Better product performance
Higher quality
Stronger brand image and appeal
Wider selection of models and styles
Bigger/better dealer network
Low interest rate financing
Higher levels of advertising
Stronger product innovation capabilities
Better customer service
Stronger capabilities to provide buyers with custom-made products
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5- Forces5- ForcesII. Threat of Potential EntryII. Threat of Potential Entry
5- Forces5- ForcesII. Threat of Potential EntryII. Threat of Potential Entry
Threat depends on:
Size & Available Resources of potential entry candidates
Barriers to entry
Reaction of existing firms
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Common Barriers to Common Barriers to EntryEntry
Common Barriers to Common Barriers to EntryEntry
Sizable economies of scale
Product differentiation
Cost and resource disadvantages independent of size
Brand preferences and customer loyalty
Capital requirements and/or other resource requirements
Access to distribution channels
Regulatory policies
Switching costs
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Expected RetaliationExpected RetaliationExpected RetaliationExpected Retaliation
Threat of Entry influenced by Potential entrant’s expectations about retaliation from existing players:History of retaliationEstablished firms with:
substantial resources to fight backGreat commitment to the industry
Slow industry growth
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Learning/Experience Learning/Experience EffectsEffects
Learning/experience effects exist when a company’s unit costs decline as its cumulative production volume increases because of
Accumulating production know-how
Growing mastery of the technology
The bigger the learning or experience curve effect, the bigger the cost advantage of the firm with the largest cumulative production volume
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5 – Forces5 – ForcesIII. Threat of Substitute III. Threat of Substitute
ProductsProducts
5 – Forces5 – ForcesIII. Threat of Substitute III. Threat of Substitute
ProductsProducts
What is a substitute product?What is a substitute product?
Other products (outside the industry) that can perform the same function(s) as the product of the industry
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Eyeglasses and contact lensvs. laser surgery
Sugar vs. artificial sweetenersNewspapers vs. TV vs. Internet
Examples
Substitute ProductsSubstitute ProductsSubstitute ProductsSubstitute Products
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5 – Forces5 – ForcesIV. IV. Supplier is powerful Supplier is powerful
when….when….
5 – Forces5 – ForcesIV. IV. Supplier is powerful Supplier is powerful
when….when….Industry members incur high costs in
switching their purchases to other suppliers;Needed inputs are in short supply;Seller has a differentiated input that
enhances quality or performance of seller’s products, or, is a valuable or critical part of seller’s production process;
There are only a few suppliers of a particular input;
Suppliers’ threats to integrate forward
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5 – Forces5 – ForcesV. Bargaining power of BuyersV. Bargaining power of Buyers
5 – Forces5 – ForcesV. Bargaining power of BuyersV. Bargaining power of Buyers
Whether seller-buyer relationships represent aweak or strong competitive force depends on
Whether buyers have sufficient bargainingleverage to influence terms of sale in their favor
Extent and competitive importance ofseller-buyer strategic partnershipsin the industry
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Strategic Implications of Strategic Implications of thethe
Five Competitive ForcesFive Competitive Forces
Strategic Implications of Strategic Implications of thethe
Five Competitive ForcesFive Competitive Forces Competitive environment is unattractive from
the standpoint of earning good profits when
Rivalry is vigorous
Entry barriers are lowand entry is likely
Competition from substitutes is strong
Suppliers and customers haveconsiderable bargaining power
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Managing Competitive ForcesManaging Competitive ForcesManaging Competitive ForcesManaging Competitive Forces
Objective is to craft a strategy to
Insulate firm from competitive pressures
Initiate actions to produce sustainable competitive advantage
Allow firm to develop “most powerful” strategy that defines the business model for the industry
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#3: Factors Driving Industry Change #3: Factors Driving Industry Change and their Impactsand their Impacts
#3: Factors Driving Industry Change #3: Factors Driving Industry Change and their Impactsand their Impacts
Industries change because forcesare driving industry participantsto alter their actions
Driving forces are themajor underlying causesof changing industry andcompetitive conditions
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Some typical Driving Some typical Driving ForcesForcesSome typical Driving Some typical Driving ForcesForces
Internet and e-commerce opportunities
Increasing globalization of industry
Changes in long-term industry growth rate
Changes in product-buyers and usage
Product innovation
Technological change/process innovation
Marketing innovation
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Entry or exit of major firms
Diffusion of technical knowledge
Changes in cost and efficiency
Consumer preferences shift from standardized to differentiated products
Changes in degree of uncertainty and risk
Regulatory policies / government legislation
Changing societal concerns, attitudes, and lifestyles
Some Some (more)(more) typical Driving typical Driving Forces Forces
Some Some (more)(more) typical Driving typical Driving Forces Forces
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Strategic Group mappingStrategic Group mappingStrategic Group mappingStrategic Group mapping
Strategic group is a
cluster of firms in an
industry with similar
competitive approaches
and market positions
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Strategic Group Strategic Group MappingMapping
Strategic Group Strategic Group MappingMapping
Firms in same strategic group have two or more competitive characteristics in common Have comparable product line breadth
Sell in same price/quality range
Emphasize same distribution channels
Use same product attributes to appealto similar types of buyers
Use identical technological approaches
Offer buyers similar services
Cover same geographic areas
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Likely Strategic Moves of Likely Strategic Moves of RivalsRivals
Likely Strategic Moves of Likely Strategic Moves of RivalsRivals
A firm’s best strategic moves are affected by Current strategies of competitors Future actions of competitors
Profiling key rivals involves gatheringcompetitive intelligence about Current strategies Most recent actions and public announcements Resource strengths and weaknesses Efforts being made to improve their situation Thinking and leadership styles of top executives
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4# Competitor Analysis4# Competitor Analysis4# Competitor Analysis4# Competitor Analysis
Sizing up strategies and competitive strengths and weaknesses of rivals involves assessing
Which rival has the best strategy? Which rivalsappear to have weak strategies?
Which firms are poised to gainmarket share, and which onesseen destined to lose ground?
Which rivals are likely to rank among the industry leaders five years from now? Do any up-and-coming rivals have strategies and the resources to overtake the current industry leader?
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Considerations Involved inConsiderations Involved inPredicting Moves of RivalsPredicting Moves of RivalsConsiderations Involved inConsiderations Involved inPredicting Moves of RivalsPredicting Moves of Rivals
Which rivals need to increase their unit sales and market share? What strategies are rivals most likely to pursue?
Which rivals have a strong incentive, along with resources, to make major strategic changes?
Which rivals are good candidates to be acquired? Which rivals have the resources to acquire others?
Which rivals are likely to enter new geographic markets?
Which rivals are likely to expand their product offerings and enter new product segments?
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#5: Key Success Factors ?#5: Key Success Factors ?#5: Key Success Factors ?#5: Key Success Factors ?
KSFs are those competitive factors most affecting everyindustry member’s ability to prosper. They concern Specific strategy elements Product attributes Resources Competencies Competitive capabilities
that a company needs to have to be competitively successful
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KSFs – Technology KSFs – Technology relatedrelated
KSFs – Technology KSFs – Technology relatedrelated
Expertise in a particular technology or Scientific Research;
Proven ability to improve Production Processes
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KSFs – Manufacturing KSFs – Manufacturing relatedrelated
KSFs – Manufacturing KSFs – Manufacturing relatedrelated
Ability to achieve Scale Economies and/or capture Learning-Curve effects;
Quality-control Know-how;High utilization of Fixed Assets;Access to attractive Supplies or Labour;High labour productivity;Low-cost Product design & engineering;Ability to manufacture customized
products
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KSFs – Distribution KSFs – Distribution relatedrelated
KSFs – Distribution KSFs – Distribution relatedrelated
A strong network of wholesale distributors / dealers;
Strong direct-sale capabilities – Internet or Company outlets;
Ability to secure valuable shelf-space at retailers’.
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KSFs – Marketing KSFs – Marketing relatedrelated
KSFs – Marketing KSFs – Marketing relatedrelated
Breadth of Product line & product selection
A well-known & well-respected Brand Fast, accurate technical assistanceCourteous, personalized cust. ServiceAccurate filling of buyer ordersCustomer Guarantees & WarrantiesClever advertising
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Example: KSFs forExample: KSFs forBeer IndustryBeer Industry
Example: KSFs forExample: KSFs forBeer IndustryBeer Industry
Full utilization of brewing capacity –to keep manufacturing costs low
Strong network of wholesale distributors –to gain access to retail outlets
Clever advertising –to induce beer drinkers tobuy a particular brand
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Example: KSFs for Example: KSFs for Apparel Manufacturing Apparel Manufacturing
IndustryIndustry
Example: KSFs for Example: KSFs for Apparel Manufacturing Apparel Manufacturing
IndustryIndustry Appealing designs and
color combinations –to create buyer appeal
Low-cost manufacturingefficiency – to keep sellingprices competitive
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Example: KSFs for Tin Example: KSFs for Tin andand
Aluminum Can IndustryAluminum Can Industry
Example: KSFs for Tin Example: KSFs for Tin andand
Aluminum Can IndustryAluminum Can Industry
Locating plants close to end-use customers –to keep costs of shipping empty cans low
Ability to market plant output withineconomical shipping distances
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#6: Industry #6: Industry Attractiveness ?Attractiveness ?
#6: Industry #6: Industry Attractiveness ?Attractiveness ?
Involves assessing whether the industryand competitive environment is attractiveor unattractive for earning good profits
Under certain circumstances, a firm uniquelywell-situated in an otherwise unattractive industrycan still earn unusually good profits
Attractiveness is relative, not absolute
Conclusions have to be drawn from theperspective of a particular company
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Core Concept: Assessing Core Concept: Assessing Industry AttractivenessIndustry Attractiveness
Core Concept: Assessing Core Concept: Assessing Industry AttractivenessIndustry Attractiveness
The degree to which an industry is attractive or unattractive is often not
the same for all industry participantsor potential entrants.
The opportunities an industrypresents depend partly on a
company’s ability to capture them.
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INTERNAL ANALYSISINTERNAL ANALYSIS
Analyzing Analyzing Company’s Resources Company’s Resources & Competitive Position& Competitive Position
INTERNAL ANALYSISINTERNAL ANALYSIS
Analyzing Analyzing Company’s Resources Company’s Resources & Competitive Position& Competitive Position
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““Before executives can Before executives can
chart a new strategy, they chart a new strategy, they
must reach common must reach common
understanding of the understanding of the
company’s current company’s current
position.”position.”
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Company Situation Company Situation AnalysisAnalysis
Company Situation Company Situation AnalysisAnalysis
1. How well is the company’s present strategy working?
2. S.W.O.T Analysis
3. Are Company’s prices and costs competitive?
4. Is company competitively stronger or weaker than key rivals?
5. What strategic issues merit priority managerial attention?
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#1: How Well Is the #1: How Well Is the Company’s Present Strategy Company’s Present Strategy
Working?Working?
#1: How Well Is the #1: How Well Is the Company’s Present Strategy Company’s Present Strategy
Working?Working?
Identify competitive approach Low-cost leadership Differentiation Focus on a particular market niche
Determine competitive scope Geographic market coverage Operating stages in industry’s production/distribution chain
Examine recent strategic moves Identify functional strategies
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Approaches to Assess How Approaches to Assess How Well the Present Strategy Is Well the Present Strategy Is
WorkingWorking
Approaches to Assess How Approaches to Assess How Well the Present Strategy Is Well the Present Strategy Is
WorkingWorking Qualitative assessment –
What is the strategy?
Completeness
Internal consistency
Rationale
Relevance
Quantitative assessment – What are the results? Is company achieving its
financial and strategic objectives?
Is company an above-average industry performer?
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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 erecting defenses against external threats to its well-being S W
O T
#2: Strengths, Weaknesses, #2: Strengths, Weaknesses, Opportunities and Threats ? Opportunities and Threats ?
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Identifying Resource Identifying Resource StrengthsStrengths
and Competitive Capabilitiesand Competitive Capabilities
Identifying Resource Identifying Resource StrengthsStrengths
and Competitive Capabilitiesand Competitive Capabilities A strength is something a firm does well or an attribute that
enhances its competitiveness Valuable competencies or know-how Valuable physical assets Valuable human assets Valuable organizational assets Valuable intangible assets Important competitive capabilities An attribute that places a company in a position of
market advantage Alliances or cooperative ventures with partners
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Competencies vs. Core Competencies vs. Core Competencies vs. Distinctive Competencies vs. Distinctive
CompetenciesCompetencies
Competencies vs. Core Competencies vs. Core Competencies vs. Distinctive Competencies vs. Distinctive
CompetenciesCompetencies A competence is the product of organizational learning and
experience and represents real proficiency in performing an internal activity
A core competence is a well-performedinternal activity central (not peripheral or incidental)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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Company CompetenciesCompany Competenciesand Capabilitiesand Capabilities
Company CompetenciesCompany Competenciesand Capabilitiesand Capabilities
Stem from skills, expertise, and experience usually representing an Accumulation of learning over time and Gradual buildup of real proficiency in
performing an activity Involve deliberate efforts to develop the ability to do
something, often entailing Selecting people with requisite knowledge and skills Upgrading or expanding individual abilities Molding work products of individuals into a cooperative effort to
create organizational ability A conscious effort to create intellectual capital
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A competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitability
Often, a core competence results from collaboration among different parts of a company
Typically, core competencies reside in a company’s people, not in assets on a balance sheet
A core competence gives a company apotentially valuable competitive capabilityand represents a definite competitive asset
Core Competencies -- ACore Competencies -- AValuable Company Valuable Company
ResourceResource
Core Competencies -- ACore Competencies -- AValuable Company Valuable Company
ResourceResource
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Examples: Core Examples: Core CompetenciesCompetencies
Examples: Core Examples: Core CompetenciesCompetencies
Expertise in integrating multiple technologiesto create families of new products
Know-how in creating operating systemsfor cost efficient supply chain management
Speeding new/next-generation products to market
Better after-sale service capability
Skills in manufacturing a high quality product
System to fill customer orders accurately and swiftly
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Distinctive Competence -- ADistinctive Competence -- ACompetitively Superior Competitively Superior
ResourceResource
Distinctive Competence -- ADistinctive Competence -- ACompetitively Superior Competitively Superior
ResourceResource A distinctive competence is a competitively significant
activity that a company performs better than its competitors A distinctive competence
Represents a competitively valuablecapability rivals do not have
Presents attractive potential for being a cornerstone of strategy
Can provide a competitive edge in the marketplace —because it represents a competitively superior resource strength
# 1
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Examples: Distinctive Examples: Distinctive Competencies Competencies
Examples: Distinctive Examples: Distinctive Competencies Competencies
Sharp Corporation Expertise in flat-panel display technology
Toyota and Honda Low-cost, high-quality manufacturing
capability and short design-to-market cycles Intel
Ability to design and manufactureever more powerful microprocessors for PCs
Wal-Mart Low-cost distribution and use of
state-of-the-art retail technology
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A weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage
Resource weaknesses relate to Inferior or unproven skills,
expertise, or intellectual capital
Lack of important physical,organizational, or intangible assets
Missing capabilities in key areas
Identifying Resource Identifying Resource WeaknessesWeaknesses
and Competitive Deficienciesand Competitive Deficiencies
Identifying Resource Identifying Resource WeaknessesWeaknesses
and Competitive Deficienciesand Competitive Deficiencies
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Opportunities most relevant to acompany are those offering
Good match with its financial andorganizational resource capabilities
Best prospects for profitable long-term growth
Potential for competitive advantage
Identifying a Company’sIdentifying a Company’sMarket OpportunitiesMarket Opportunities
Identifying a Company’sIdentifying a Company’sMarket OpportunitiesMarket Opportunities
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Identifying External Identifying External ThreatsThreats
Identifying External Identifying External ThreatsThreats
Emergence of cheaper/better technologies Introduction of better products by rivals Entry of lower-cost foreign competitors Onerous regulations Rise in interest rates Potential of a hostile takeover Unfavorable demographic shifts Adverse shifts in foreign exchange rates Political upheaval in a country
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Role of SWOT Analysis inRole of SWOT Analysis inCrafting a Better StrategyCrafting a Better StrategyRole of SWOT Analysis inRole of SWOT Analysis inCrafting a Better StrategyCrafting a Better Strategy
The most important part of S W O TS W O T analysis is not developing the 4 lists of strengths, weaknesses, opportunities, and threats, but rather
Using the 4 lists to draw conclusionsabout a company’s overall situation and
Acting on the conclusions to
Better match a company’s strategy to itsresource strengths and market opportunities,
Correct the important weaknesses, and
Defend against external threats
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#4: Are Company’s Prices & Costs #4: Are Company’s Prices & Costs Competitive? Competitive?#4: Are Company’s Prices & Costs #4: Are Company’s Prices & Costs Competitive? Competitive?
Assessing whether a firm’s costs are competitive with those of rivals is a crucial part of company analysis
Key analytical tools
Value chain analysis
Benchmarking
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The Concept of aThe Concept of aCompany Value ChainCompany Value Chain
The Concept of aThe Concept of aCompany Value ChainCompany Value Chain
A company’s business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service
A company’s value chain consists of a linked set of value-creating activities performed internally
The value chain contains two types of activities
Primary activities – where most ofthe value for customers is created
Support activities – facilitateperformance of the primary activities
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Company Value ChainCompany Value ChainCompany Value ChainCompany Value Chain
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Characteristics of Characteristics of Value Chain AnalysisValue Chain Analysis
Characteristics of Characteristics of Value Chain AnalysisValue Chain Analysis
Combined costs of all activities in a company’s value chain define the company’s internal cost structure
Compares a firm’s costs activityby activity against costs of key rivals
From raw materials purchase to
Price paid by ultimate customer
Pinpoints which internal activities are asource of cost advantage or disadvantage
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Why Do ValueWhy Do ValueChains of Rivals Differ?Chains of Rivals Differ?
Why Do ValueWhy Do ValueChains of Rivals Differ?Chains of Rivals Differ?
Several factors can cause differencesin value chains of rival companies
Internal operations
Strategy
Approaches used in execution of the strategy
Underlying economics of the activities
Differences complicate task of assessingrivals’ relative cost positions
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The Value Chain SystemThe Value Chain Systemfor an Entire Industry for an Entire Industry
The Value Chain SystemThe Value Chain Systemfor an Entire Industry for an Entire Industry
Assessing a company’s cost competitiveness involves comparing costs all along the industry’s value chain
Suppliers’ value chains are relevant because Costs, performance features, and quality of inputs
provided by suppliers influence a firm’s own costsand product performance
Forward channel allies’ value chains are relevant because Costs and margins are part of price paid
by ultimate end-user Activities performed affect end-user satisfaction
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Example: Value Chain Example: Value Chain ActivitiesActivities
Example: Value Chain Example: Value Chain ActivitiesActivities
Timber farming
Logging
Pulp mills
Papermaking
Distribution
Pulp & Paper Industry
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Home Appliance Industry
Parts and components manufacture
Assembly
Wholesale distribution
Retail sales
Example: Value Chain Example: Value Chain ActivitiesActivities
Example: Value Chain Example: Value Chain ActivitiesActivities
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Processing of basic ingredients
Syrup manufacture
Bottling and can filling
Wholesale distribution
Advertising
Retailing
Albertson’s
Example: Value Chain Example: Value Chain ActivitiesActivities
Example: Value Chain Example: Value Chain ActivitiesActivities
Soft Drink Industry
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Programming
Disk loading
Marketing
Distribution
Example: Value Chain Example: Value Chain ActivitiesActivities
Example: Value Chain Example: Value Chain ActivitiesActivities
Software Computer Industry
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Developing Data to Measure a Developing Data to Measure a Company’s Cost Company’s Cost CompetitivenessCompetitiveness
Developing Data to Measure a Developing Data to Measure a Company’s Cost Company’s Cost CompetitivenessCompetitiveness
After identifying key value chain activities, the next step involves breaking down departmental cost accounting data into costs of performing specific activities
Appropriate degree of disaggregation depends on Economics of activities
Value of comparing narrowly definedversus broadly defined activities
Guideline – Develop separate cost estimates for activities Having different economics
Representing a significant or growing proportion of costs
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Activity-Based Costing: A Activity-Based Costing: A KeyKey
Tool in Analyzing CostsTool in Analyzing Costs
Activity-Based Costing: A Activity-Based Costing: A KeyKey
Tool in Analyzing CostsTool in Analyzing Costs Determining whether a company’s costs are in line with those
of rivals requires Measuring how a company’s costs compare with those of rivals
activity-by-activity Requires having accounting data to measure cost
of each value chain activity Activity-based costing entails
Defining expense categories accordingto specific activities performed and
Assigning costs to the activityresponsible for creating the cost
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Benchmarking Costs ofBenchmarking Costs ofKey Value Chain ActivitiesKey Value Chain Activities
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 materials Payment of suppliers Management of inventories Getting new products to market Performance of quality control Filling and shipping of customer orders Training of employees Processing of payrolls
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Objectives of Objectives of BenchmarkingBenchmarkingObjectives of Objectives of BenchmarkingBenchmarking
Identify best practices in performing an activity
Understand the best practices in performingan activity – learn what is the “best” wayto do a particular activity from thosedemonstrating they are “best-in-world”
Learn how other firms achieve lower costs
Take action to improve company’s cost competitiveness
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What Determines if aWhat Determines if aCompany Is Cost Company Is Cost
Competitive?Competitive?
What Determines if aWhat Determines if aCompany Is Cost Company Is Cost
Competitive?Competitive? Cost competitiveness depends on how well a company
manages its value chain relative to how well competitors manage their value chains
When costs are out-of-line, high-cost activities can exist in any of three areas in the industry value chain 1. Suppliers’ activities
2. Company’s own internal activities
3. Forward channel activities
Activities, Costs, &
Margins ofForward
Channel Allies
InternallyPerformedActivities, Costs, &Margins
Activities, Costs, &
Margins ofSuppliers
Buyer/UserValue
Chains
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Translating Performance of Value Translating Performance of Value Chain Activities to Competitive Chain Activities to Competitive
AdvantageAdvantage
Translating Performance of Value Translating Performance of Value Chain Activities to Competitive Chain Activities to Competitive
AdvantageAdvantage A company can create competitive advantage by managing its
value chain to
Integrate knowledge and skills of employees in competitively valuable ways
Leverage economies of learning / experience
Coordinate related activities in waysthat build valuable capabilities
Build dominating expertisein a value chain activity criticalto customer satisfaction or market success
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#4: Company Stronger or #4: Company Stronger or Weaker than Key Rivals?Weaker than Key Rivals?#4: Company Stronger or #4: Company Stronger or Weaker than Key Rivals?Weaker than Key Rivals?
Overall competitive position involvesanswering two questions
How does a company rank relativeto competitors on each importantfactor that determines market success?
Does a company have a netcompetitive advantage or disadvantagevis-à-vis major competitors?
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Why Do a CompetitiveWhy Do a CompetitiveStrength Assessment ?Strength Assessment ?Why Do a CompetitiveWhy Do a CompetitiveStrength Assessment ?Strength Assessment ?
Reveals strength of firm’s competitive position vis-à-vis key rivals
Shows how firm stacks up against rivals, measure-by-measure – pinpoints firm’s competitive strengths and competitive weaknesses
Indicates whether firm is at a competitive advantage / disadvantage against each rival
Identifies possible offensive attacks (pit company strengths against rivals’ weaknesses)
Identifies possible defensive actions (a need to correct competitive weaknesses)
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Identifying the Strategic Identifying the Strategic IssuesIssues
Identifying the Strategic Identifying the Strategic IssuesIssues
How to stave off market challenges from new foreign competitors? How to combat price discounting of rivals? How to reduce a company’s high costs? How to sustain a company’s present growth
in light of slowing buyer demand? Whether to expand a company’s product line? Whether to acquire a rival firm? Whether to expand into foreign markets rapidly or cautiously? What to do about aging demographics of a company’s customer
base?