1

Chapter

4
Analyzing a
Company’s
Resources
and Competitive
Position
“Before executives
can chart a new
strategy, they must
reach common
understanding of
the company’s
current position.”
W. Chan Kim and Renee Mauborgne
A SWOT Analysis
 A SWOT Analysis is a strategic planning tool
used to evaluate the Strengths,
Weaknesses, Opportunities, and Threats
involved in a project or in a business venture
or in any other situation requiring a decision.
The technique is credited to Albert Humphrey,
 who led a research project at
Stanford University in the 1960s and 70's,
using data from the Fortune 500 companies.
 Strengths are attributes of the
organization that are helpful to the
achievement of the objective.
 Weaknesses are attributes of the

organization that are harmful to the

achievement of the objective.
 Opportunities are external conditions

that are helpful to the achievement of

the objective.
 Threats are external conditions that are
harmful to the achievement of the objective.
 1. How can we Use each
Strength?
 2. How can we Stop each

Weakness?
 3. How can we Exploit each

Opportunity?
 4. How can we Defend against

each Threat?
Possible examples
Strengths and Weaknesses
 Resources: financial, intellectual,
 location
 Customer Service
 Efficiency
 Competitive Advantages
 Infrastructure
 Quality
 Staff
 Management
 Price
Opportunities and Threats

 Competitors' actions
 Economic conditions

 Interest rates

 Increasing market saturation

 Changes in laws and

regulations
 Distribution Channels and
 Hours of operations
After sales service and
 Sales promotion techniques
Transportation and Delivery time
Diversified fields,
 Product line and multiple services/offers
(Technical, Commercial, Designing & Turnkey
Projects etc )
 The required first step in SWOT analysis is
the definition of the desired end state or
objective. The definition of objective must be
explicit and approved by all participants in the
process.
 This first step must be performed carefully
because failure to identify correctly the end
state aimed for leads to wasted resources
and possibly failure of the enterprise.
10

SWOT Analysis
Managers need to analyze
The general environment
The firm’s industry and
competitive environment
SWOT analysis
Strengths
Weaknesses
Opportunities
Threats
Basic technique for analyzing
firm and industry conditions
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?
Q #1: How Well Is the Company’s
Present Strategy Working?
Key Issues
 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
Approaches to Assess How Well
the Present Strategy Is Working
 Qualitative  Quantitative
assessment –
What is the strategy?
 Completeness
 Internal consistency
 Rationale
 Relevance
assessment – What
are the results?
 Is company achieving its
financial and strategic
objectives?
 Is company an above-
average industry
performer?
 Key Indicators of How Well
the Strategy Is Working
 Trend in sales and market share
 Acquiring and/or retaining customers
 Trend in profit margins
 Trend in net profits, ROI, and EVA
 Overall financial strength and credit ranking
 Efforts at continuous improvement activities
 Trend in stock price and stockholder value
 Image and reputation with customers
 Leadership role(s) – Technology, quality,
innovation, e-commerce, etc.
 Q #2: What Are the Company’s
Strengths, Weaknesses, Opportunities
and Threats ?
 S W O T represents the first letter in
 S trengths
 W eaknesses S W
 O pportunities
 T hreats
O T
 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
Identifying Resource Strengths
and 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
Resource strengths and competitive
capabilities are competitive assets!
Competencies vs. Core Competencies
vs. Distinctive Competencies
 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-performed

internal 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
 Company Competencies
and 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
 Core Competencies -- A
Valuable Company Resource
 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 a
potentially valuable competitive capability
and represents a definite competitive asset
Examples: Core Competencies

 Expertise in integrating multiple technologies

to create families of new products
 Know-how in creating operating systems
for 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
 Distinctive Competence -- A
Competitively Superior Resource
 A distinctive competence is a competitively
significant activity that a company performs better
than its competitors
A distinctive competence
#1


 Represents a competitively valuable

capability 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
 Examples: Distinctive
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 manufacture
ever more powerful microprocessors for PCs
 Wal-Mart
 Low-cost distribution and use of
state-of-the-art retail technology
Determining the Competitive
Value of a Company Resource
 To qualify as competitively valuable or to be the basis for
sustainable competitive advantage, a “resource”
must pass 4 tests:

1. Is the resource hard to copy?

2. Does the resource have staying power –

is it durable?

3. Is the resource really competitively superior?

4. Can the resource be trumped by

the different capabilities of rivals?
Identifying Resource Weaknesses
and Competitive Deficiencies
 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
 Resourcecapabilities
Missing weaknessesinand
keydeficiencies
areas
are competitive liabilities!
 Identifying a Company’s
Market Opportunities
 Opportunities most relevant to a
company are those offering

 Good match with its financial and

organizational resource capabilities

 Best prospects for profitable

long-term growth

 Potential for competitive advantage

Identifying External Threats
 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
Role of SWOT Analysis in
Crafting a Better Strategy
 The most important part of S W O T analysis is not
developing the 4 lists of strengths, weaknesses,
opportunities, and threats, but rather
 Using the 4 lists to draw conclusions
about a company’s overall situation and
 Acting on the conclusions to
 Better match a company’s strategy to its
resource strengths and market opportunities,
 Correct the important weaknesses, and
 Defend against external threats
Fig. 4.2: The Three Steps
of SWOT Analysis
Q #4: Are the Company’s
Prices and Costs 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
The Concept of a
Company 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 of
the value for customers is created
 Support activities – facilitate
performance of the primary activities
Fig. 4.3: Representative
Company Value Chain
Characteristics of
Value 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 activity

by activity against costs of key rivals
 From raw materials purchase to

 Price paid by ultimate customer

 Pinpoints which internal activities are a

Why Do Value
Chains of Rivals Differ?
 Several factors can cause differences
in value chains of rival companies
 Internal operations
 Strategy
 Approaches used in execution of the strategy
 Underlying economics of the activities

 Differences complicate task of assessing

rivals’ relative cost positions
The Value Chain System
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 costs
and product performance
 Forward channel allies’ value chains are
relevant because
 Costs and margins are part of price paid
Fig. 4.4: Representative Value
Chain for an Entire Industry
Example: Value Chain Activities
Pulp & Paper Industry
Timber
farming

Logging

Pulp mills

Papermaking

Distribution
Example: Value Chain Activities
Home Appliance Industry

Parts and components manufacture

Assembly

Wholesale distribution

Retail sales
Example: Value Chain Activities
Soft Drink Industry

Processing of basic ingredients

Syrup manufacture
Bottling and can filling
Wholesale distribution
Albertson’s
Advertising
Retailing
Example: Value Chain Activities
Software Computer Industry

Programming

Disk loading

Marketing

Distribution
Developing Data to Measure a
Company’s Cost Competitiveness
 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 defined
versus broadly defined activities
 Guideline – Develop separate cost estimates
Activity-Based Costing: A Key
Tool 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 according
to specific activities performed and
 Assigning costs to the activity
responsible for creating the cost
Benchmarking Costs of
Key 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
Objectives of Benchmarking
 Identify best practices in performing an activity

 Understand the best practices in performing

an activity – learn what is the “best” way
to do a particular activity from those
demonstrating they are “best-in-world”

 Learn how other firms achieve lower costs

 Take action to improve company’s cost

competitiveness
 Ethical Standards in
Benchmarking: Do’s and Don’ts
 Avoid talk about pricing or
competitively sensitive costs

 Don’t ask rivals for sensitive data

 Don’t share proprietary data without clearance

 Have impartial third party assemble and present

competitively sensitive cost data with no names
attached

 Don’t disparage a rival’s business to outsiders

based on data obtained
 What Determines if a
Company Is Cost 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
Internally Activities,
3. Forward channel activities
Activities,
Costs, &
Margins of
Performed
Activities,
Costs, &
Margins of
Buyer/User
Value
Costs, & Forward Chains
Suppliers
Margins Channel Allies
 Translating Performance of Value
Chain Activities to Competitive
 A company can create competitive
Advantage
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 ways
that build valuable capabilities
 Build dominating expertise
in a value chain activity critical
to customer satisfaction or market success
Fig. 4.5: Translating Performance of Value
Chain Activities into Competitive
Advantage
Q. #4: Is the Company Stronger
or Weaker than Key Rivals?
 Overall competitive position involves
answering two questions

 How does a company rank relative

to competitors on each important
factor that determines market success?

 Does a company have a net

competitive advantage or disadvantage
vis-à-vis major competitors?
 Assessing a Company’s
Competitive Strength vs. Key
Rivals
1. List industry key success factors and other
relevant measures of competitive strength
2. Rate firm and key rivals on each factor using
rating scale of 1 to 10 (1 = very weak; 5 =
average; 10 = very strong)
3. Decide whether to use a weighted or
unweighted rating system (a weighted system
is superior because chosen strength measures
are unlikely to be equally important)
4. Sum individual ratings to get an overall
measure of competitive strength for each
Why Do a Competitive
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
 What Strategic Issues
Merit Managerial Attention?
 Based on results of both industry and
competitive analysis and an evaluation of a
company’s competitiveness, what items
should be
on a company’s “worry list”?
 Requires thinking strategically about
 Pluses and minuses in the industry
and competitive situation
 Company’s resource strengths and weaknesses
A “good” strategy must address “what to do”
and attractiveness of its competitive position
about each and every strategic issue!
 Identifying the Strategic
Issues
 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?
Stating the Issues
Clearly and Precisely
 A well-stated issue involves such phrases as
 “How to . . . ?”
 “Whether to . . . ?”
 “What should be done about . . . ?”
 Issues need to be precise, specific,
and “cut straight to the chase”
 Issues on the “the worry list”
raise questions about
 What actions need to be considered
 What to think about doing
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities
Logistics
Inbound

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities

Operations
Logistics
Inbound

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities

Operations

Outbound
Logistics

Logistics
Inbound

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities

Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities

Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Activities
Technological Development
Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Support
Human Resource Management
Activities
Technological Development
Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Firm Infrastructure

Support
Human Resource Management
Activities
Technological Development
Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value

Firm Infrastructure
Human Resource Management M
Support A
R
Activities G
Technological Development IN
Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

IN
RG
A
M
Primary Activities
 Outsourcing
Strategic Choice to Purchase Some Activities From Outside Suppliers

Firm Infrastructure
Human Resource Management M
Support A
R
Activities G
Technological Development IN
Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

IN
RG
A
M
Primary Activities
 Outsourcing
Strategic Choice to Purchase Some Activities From Outside Suppliers

Firm Infrastructure
Human Resource Management

Human Resource Management M

Support A
Firms often purchase a portion
Technological Development R activities
Activities G
of their value-creating
Technological Development IN suppliers
from specialty external
Procurement
who can perform these functions
Procurement more efficiently

Service
Operations

Outbound

Marketing
Service
Logistics
Inbound

& Sales
Logistics

IN
RG
Outbound
Inbound Operations Logistics Marketing

A
& Sales

M
Logistics

Primary Activities
 Strategic Rationales for Outsourcing
Improve Business Focus
Lets company focus on broader business issues by having outside
experts handle various operational details
Provide Access to World-Class Capabilities
The specialized resources of outsourcing providers makes world-
class capabilities available to firms in a wide range of applications
Accelerate Business Re-Engineering Benefits
Achieves re-engineering benefits more quickly by having outsiders--
who have already achieved world-class standards--take over process
Share Risks
Reduces investment requirements and makes firm more flexible,
dynamic and better able to adapt to changing opportunities

Free Resources for Other Purposes

Permits firm to redirect efforts from non-core activities toward those
that serve customers more effectively
Core Competencies--Cautions and Reminders
Never take for granted that core competencies will
continue to provide a source of competitive advantage

All core competencies have the potential to become

Core Rigidities
Core Rigidities are former core competencies that sow
the seeds of organizational inertia and prevent the firm
from responding appropriately to changes in the
external environment
Strategic myopia and inflexibility can strangle the firm’s
ability to grow and adapt to environmental change or
competitive threats
 Competitive
Discovering Core Advantage
Gained through
Competencies Core Competencies
Strategic
Competitiveness
Discovering Above-Average
Core Returns

Core
Competencies
Competencies
Sources of
Competitive
Advantage

Capabilities Criteria of Value

Teams of Sustainable Chain
Resources Advantages Analysis
Resources
* Valuable
* Tangible
* Intangible * Rare
* Costly to Imitate * Outsource
* Nonsubstitutable