Mod-4

Analyzing Company’s
Resources &
Competitive Position
Types of Resources
Tangible Relatively easy to identify, and include
Resources physical and financial assets used to
create value for customers
 Financial resources
 Firm’s cash accounts
 Firm’s capacity to raise equity
 Firm’s borrowing capacity
 Physical resources
 Modern plant and facilities
 Favorable manufacturing locations
 State-of-the-art machinery and
equipment
Types of Resources
Tangible Relatively easy to identify, and
Resources include physical and financial assets
used to create value for customers
 Technological resources
 Trade secrets
 Innovative production processes
 Patents, copyrights, trademarks
 Organizational resources
 Effective strategic planning
processes
 Excellent evaluation and control
systems
Types of Resources
Tangible Difficult for competitors (and the firm itself)
Resources to account for or imitate, typically
embedded in unique routines and
practices that have evolved over time
Intangible
Resources
 Human
 Experience and capabilities of
employees
 Trust
 Managerial skills
 Firm-specific practices and
procedures
Types of Resources
Tangible Difficult for competitors (and the firm
Resources itself) to account for or imitate,
typically embedded in unique
Intangible routines and practices that have
Resources evolved over time
 Innovation and creativity
 Technical and scientific skills
 Innovation capacities
 Reputation
 Effective strategic planning processes
 Excellent evaluation and control
systems
Types of Resources
Tangible Competencies or skills that a firm employs
Resources to transform inputs to outputs, and
capacity to combine tangible and
intangible resources to attain desired end
Intangible
 Outstanding customer service
Resources
 Excellent product development

Organizational capabilities
 Innovativeness of products and services
Capabilities
 Ability to hire, motivate, and retain

human capital
How Resources and Capabilities
Lead to Advantages
 Firm Resources and Sustainable
Competitive Advantages
Is the resource or capability…
Valuable
Rare
Difficult to imitate
Difficult to substitute
Implications
• Neutralize threats and exploit
opportunities
• Not many firms possess
• Physically unique
• Path dependency
• Causal ambiguity
• Social complexity
• No equivalent strategic
resources or capabilities
 Objectives of SWOT Analysis
 To provide a framework to reflect o the
organizational capability to avail opportunities
or to overcome threats presented by the
environment.

 It presents the information about external and

internal environment to structured form
whereby key external opportunities
Analysis of the Company’s Present
Strategies
 SWOT Analysis

 Value Chain Analysis

 Benchmarking

 Ethical Conduct
 Critical Factors Considered

 (1) What factors influence the durability of

competitive advantage?

 (2)Why do successful companies often lose

their competitive advantage?

 (3) How can companies avoid competitive

failure and sustain their competitive
advantage over time?
Pattern of SWOT Analysis
 High opportunities and high strengths.
– Supports an aggressive strategy
 High opportunities and low strengths.
– Turnaround oriented strategy
 High threats and high strengths.
– Supports Diversification strategy
 High threats and low strengths.
– Supports a Defensive strategy.
 Objectives of SWOT Analysis
 To provide a framework to reflect the
organizational capability to avail opportunities
or to overcome threats presented by the
environment.

 It presents the information about external and

internal environment to structured form
whereby key external opportunities
SWOT Analysis
SWOT is an ellipsis for the
internal Strengths and
Weaknesses of a business and
environmental Opportunities
and Threats facing that
business.
Meaning:

SWOT analysis is a systematic identification of

factors and the strategy that reflects the best
match between them.
It is based on the logic that an effective
strategy maximizes a business’s strengths and
opportunities and minimizes its weaknesses
and threats.
This simple assumption if accurately applied
has powerful implications for successfully
choosing and designing an effective study.
 Strengths
A strength is a resource, skill or other advantage
relative to the competitors and the needs of the
markets firm serves or anticipates serving.
A strength is a distinctive competence that gives firm
a comparative advantage in the marketplace.

E.g.
 - financial resources

 - image

 - market leadership
 Weaknesses
A weakness is a limitation or deficiency in
resources, skills, and capabilities that seriously
impedes effective performance.

Eg: Facilities, financial resources, management

capabilities, marketing skills, and brand image
could be sources of weaknesses.
o Aids in narrowing the choice of alternatives
and selecting a strategy.

o Distinct competence and critical weakness are

identified in relation to key determinants of
success for market segment.
 Opportunities
An opportunity is a major favorable situation in the
firm’s environment.
E.g.
 - identification of a previously unlooked
market segment
 - changes in competitive or regulatory
circumstances
 - technological changes
 Threats
A threat is a major unfavorable situation in the firm’s
environment. It is a key obstacle to the firm’s current
and/ or desired future position.
E.g.
- entrance of a new competitor
- slow market growth
- increased bargaining power of key buyers and suppliers

Understanding the key opportunities and threats facing

a firm helps manager identify realistic options from
which to choose an appropriate strategy.
 Value Chain Analysis
 The value chain, also known as value chain
analysis, is a concept from business
management that was first described and
popularized by Michael Porter in his 1985
best-seller, Competitive Advantage: Creating
and Sustaining Superior Performance.

 A value chain is a chain of activities.

 The value chain categorizes the generic value-adding
activities of an organization.

 The "primary activities" include: inbound logistics,

operations (production), outbound logistics, marketing
and sales, and services (maintenance).

 The "support activities" include: administrative

infrastructure management, human resource
management, R&D, and procurement.
 The concept has been extended beyond individual
organizations. It can apply to whole supply chains and
distribution networks.

 Porter terms this larger interconnected system of value

chains the "value system.“

 Michel Porter’s - A useful tool for analyzing a firm’s

strengths and weaknesses and understanding how they
might translate into competitive advantage or
disadvantage.
 The Value Chain
 The value chain is a business system concept,
which was originally developed by McKinsey and
Company and further developed and clarified by
Porter.

 This concept captures the idea that a firm is a

series of functions (e.g. R&D, manufacturing,
marketing, distribution etc.) and that each of
these can be analyzed to determine ones own
and the competitors’ strengths and weaknesses
 Main aspects of Value Chain Analysis

 Value chain analysis is a powerful tool for

managers to identify the key activities within
the firm which form the value chain for that
organization, and have the potential of a
sustainable competitive advantage for a
company.
 Therein, competitive advantage of an
organization lies in its ability to perform
crucial activities along the value chain better
than its competitors.
 General administration

Human resource management

Technology development

Procurement

Inbound Outbound Marketing

Operations logistics Service
logistics and sales
In order to conduct the value chain analysis, the company is split into
primary and support activities
Primary value chain activities
Primary ActivityDescription
 Inbound logistics: All those activities
concerned with receiving and storing externally
sourced materials
 Operations: The manufacture of products and

services - the way in which resource inputs

(e.g. materials) are converted to outputs (e.g.
products)
 Outbound logistics: All those activities
associated with getting finished goods and
services to buyers
 Marketing and sales Essentially: an
information activity - informing buyers and
consumers about products and services
(benefits, use, price etc.)
 Service: All those activities associated with
maintaining product performance after the
product has been sold
 Support activities include
Secondary ActivityDescription
 Procurement This concerns how resources

are acquired for a business (e.g. sourcing and

negotiating with materials suppliers)
 Human Resource Management: Those

activities concerned with recruiting,

developing, motivating and rewarding the
workforce of a business
 Technology Development: Activities
concerned with managing information
processing and the development and
protection of "knowledge" in a business
 Infrastructure Concerned with a wide range of
support systems and functions such as
finance, planning, quality control and general
senior management
Linkages within the Value
Chain
 Although value activities are the building
blocks of competitive advantage, the value
chain is not a collection of independent
activities but a system of interdependent
activities.
 Value activities are related by linkages within
the value chain.
Linkages within the Value
Chain
 Linkages are relationships between the way
one value activity is performed and the cost
or performance of another.
 Linkages often reflect tradeoffs among
activities to achieve the same overall result.
 For example a more costly product design,
more stringent materials specifications, or
greater in-process inspection may reduce
service costs.
Linkages within the Value
Chain
 Linkages may also reflect the need to
coordinate activities. On-time delivery, for
example, may require coordination of
activities in operations and service.
 The ability to coordinate linkages often
reduces costs or enhances differentiation.
 Better coordination, for example can reduce
the need for inventory throughout the firm.
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three
sequential steps:

 Break down a market/organization into its key activities

under each of the major headings in the model.

 Assess the potential for adding value via cost

advantage or differentiation, or identify current activities
where a business appears to be at a competitive
disadvantage.
 Determine strategies built around focusing on
activities where competitive advantage can be
sustained.
Five step approach to competitor
analysis

 Identify the competitors

 Identify what they want

 Identify their strategy

 Identify their strengths & weaknesses/relative capabilities

 Predict what they will do.

MERITS
 Value Chain Analysis provides a generic framework
to analyze both the behavior of costs as well as the
existing and potential sources of differentiation.

 Porter emphasized the importance of regrouping

functions into activities to produce, market, deliver
and support products, to think about relationships
between activities and to link the value chain to the
understanding of an organization's competitive
position.
• The value chain made clear that an organization
is multifaceted and that its underlying activities
need to be analyzed to understand its overall
competitive position.

• The Value Chain model was intended as a

quantitative analysis. It can also be used as a
quick scan to describe the strengths and
weaknesses of an organization in qualitative
terms.
 With the Value Chain Analysis, Porter tried to overcome the
limitations of portfolio planning in multidivisional organizations.

 The concept of Strategic Business Units stated that businesses

within a conglomerate should act independently while headquarters
should be responsible only for budgetary decisions to be based on a
business unit's position in the overall portfolio

 Porter used his Value Chain Analysis to identify synergies or shared

activities between Strategic Business Units and to provide a tool to
focus on the whole rather than on the parts.
 DEMERITS
 The quantitative analysis is time consuming since it
often requires recalibrating the accounting system to
allocate costs to individual activities.

 . Porter provided qualitative guidance for a

quantitative exercise. His analysis began with
identifying the relevant activities that lead to
competitive differences and are significant enough
to influence the organization’s overall cost base.
 The Value Chain Analysis should be
accompanied with a customer segmentation
analysis to mix the internal and external view.
A feature or product provides the firm with a
differentiating competitive advantage only if
customers are willing to pay for it. Customer
value chains need to be analyzed to
determine where value is created.
 The Value Chain is used to analyze a firm's position in
relation to its direct competitors with the assumption that
rivalry drives profitability. This excludes other
assumptions such as customer bonding in Alexander
Hax's delta model.

 The Value Chain Analysis was developed to analyze

physical assets in product environments. Other authors
amended the model to accommodate intangible assets
and service organizations
Limitations of Value Chain
Analysis

 One of the limitations of the value chain

model is that it describes an industrial
organization which essentially buys raw
materials and transforms these into physical
products.

 The limitations of the model include the fact

that ‘value’ for the final customer is the value
only in its theoretical context and not practical
terms.
 The real value of the product is assessed
when the product reaches the final customer,
and any assessment of that value before that
moment is only something that is true in
theory.
 Despite this limitation, analysts can
effectively use the value chain model to
determine the value to the final customers in
a theoretical way.
According to Porter, competitive advantage,
and thus higher profits will result either from:

 Differentiation of products and selling them

at a premium price, OR

 Producing products at a lower price than

competitors
 The two basic types of competitive advantage combined with the scope
of activities for which the firm seeks to achieve these advantages results
in three different types of strategy - cost leadership, differentiation and
focus.
 BENCH MARKING
 Benchmarking is the tool that allows a
company to determine whether the manner in
which it performs particular functions and
activities represent industry best practices
when both cost and effectiveness are taken
into account.

 It is a point of reference against which

performance is measured and compared.
In short, bench marking is:

 Knowing your position or operation

 Knowing the industry leaders or competitors

 Incorporating the best practices

 Gaining superiority.
 Bench marking helps a
company to know:
 How materials are purchased?

 How products are assembled?

 How fast the company can get new product to market?

 How the quality control function is performed?

 How the customer orders are filled and shipped?

 How employees are trained?

 How payrolls are processed?

And then making cross company comparisons of the costs of these activities.
Benefits of Benchmarking

 It ensures best practices will be identified, which in

turn assures appropriate improvement.

 It provides a deeper understanding of the

organisation’s process.

 It stimulates the company to try some thing different.

 Identify new technology

Types of Benchmarking

 Internal benchmarking

 External benchmarking

 Functional benchmarking
Internal benchmarking

 sharing of opinions between

departments within the same
organisation
External Benchmarking

● Comparison with external

organisations to discover new ideas,
methods, products and services.
 The gap between internal and
external practices displays the way
where to change and if there is any
need to change.
Functional benchmarking

 Comparative research to seek world-

class excellence by comparing business
performance not only against
competitors but also against the best
businesses operating in different
industry
 Ethical Conduct

 Social Ethical Conduct

 Economic Ethical Conduct

 Managerial Ethical Conduct

 Economic Ethical Conduct

 Business has always been expected to vide

employment for individuals and to meet
consumer needs.

 Society also expects firms to help reserve the

environment, to sell safe products to treat
their employees equitably and to be truthful
with their customers in contributing to
education, public health, public hygiene etc.
 Social Ethical Conduct

 Social responsibility refers to the expectations that

business firms should serve both society and
financial interests of the shareholders.

 A firm’s stance on social responsibility can be a

critical factor in making strategic decisions.

 They are to be based on Ethical /Moral factors with

a welfare view of all sections of the society.
 Managerial Ethical Conduct

 An individual’s responsibility to make business

decisions that are legal, honest, moral and fair.

 Managers involving in bribe keeping aside the Co’s

interest and employee’s interest, suppression of
facts, not transparent in their dealings etc, joining
with competitor and acts of a traitor all causes
serious damage to the Organization.

 All acts towards Self interest is unethical.