Analyzing a company's resources and competitive

position
How well is the company's present strategy working?
• It is very important to study the company's competitive
approach to understand the working of the company's present
strategy.
• We need to study
– if the company is striving to be low-cost leader or stressing to
differentiate its products.
– is it concentrating on serving a broad spectrum of customers or a
narrow niche market.
– what is its geographical coverage.
– is it operational in just a single stage of industry's
production/distribution system or is vertically integrated across
several stages.
– the latest moves to improve competitive position and performance.
– what are the functional strategies in R&D, production and other
departments.
The two best quantitative indicators of the
performance of present strategy are:
1. whether the company's is achieving its stated
financial and strategic objectives
2. whether the company is an above-average
industry performer.
• Failure on these two fronts indicate either poor
strategy making or less than competent strategy
execution or both.

Other indicators of how well a company's strategy is

working include:
1. Whether the firm's sales are growing faster, slower or
about the same pace as the market as a whole, thus
resulting in a rising, eroding or stable market share.
2. Whether the company is acquiring new customers at an attractive rate
as well as retaining existing customers.
3. Whether the firm's profit margins are increasing or decreasing and
how well its margins compare to rival firms' margins.
4. Trends in the firm's net profits and returns on investment and how
these compare to the same trends for other companies in the industry.
5. Whether the company's overall financial strength and credit rating are
improving or on the decline.
6. Whether the company can demonstrate continuous improvement in
such internal performance measures as days of inventory, employee
productivity, unit cost, defect rate, scrap rate, delivery time, warranty
costs.
7. How shareholders view the company based on trends in the
company's stock price and shareholder value, relative to stock prices
of other companies in the industry.
8. The firm's image and reputation with its customers.
9. How well the company stacks up against rivals on technology, product
innovation, customer service, product quality, delivery time, price,
getting newly developed products to market quickly and other factors
on which the buyers base their choice of brands.
• A company's strong performance on these
parameters indicates a sound strategy.

What are the company's resource strengths and

weaknesses and its external opportunities and
threats?
• A good SWOT analysis provides the basis for
crafting a strategy that capitalizes on the
company's resources and aims at capturing the
company's best opportunities and defends
against the threats.
Identifying company resources strengths and
competitive capabilities
• A strength is something a company is good at doing
or an attribute that enhances its competitiveness.
• It can take the following forms:
1. A skill or important expertise - low cost manufacturing
capability, technological know-how, defect free
manufacturing. e.g. Japanese precision manufacturing,
Chinese mass manufacturing, Indian software
2. Valuable physical assets - state-of-the-art plants and
equipments, real estate location, worldwide distribution
facilities or ownership of valuable natural resources. e.g.
Toyota, Jharkhand
3. Valuable human assets - an experienced and capable
workforce, talented employees in key areas, cutting-edge
knowledge and intellectual capital, collective learning
embedded in the organization or proven managerial know-
how. e.g. McKinsey, KPMG
4. Valuable organizational assets - proven quality control systems,
proprietary technology, key patents, mineral rights, highly trained
customer service representatives, sizable amounts of cash and
marketable securities, a strong balance sheet and credit rating or a
comprehensive list of customers' e-mail addresses.
5. Valuable intangible assets - well-known brand name, reputation for
technological leadership or a strong buyer loyalty and goodwill.
6. Competitive capabilities - product innovation capabilities, short
development times in bringing new products to markets, a strong dealer
network, cutting-edge supply chain management capabilities, quickness
in responding to changing market conditions and emerging
opportunities, or state-of-the-art systems for doing business via the
internet.
7. An achievement or attribute that puts the company in a position of
market advantage - low overall costs relative to competitors, market
share leadership, a superior product, wider product line than rivals, wide
geographical coverage, well-known brand name, superior e-commerce
capabilities or exceptional customer service.
8. Competitively valuable alliances or cooperative ventures
- fruitful partnerships with suppliers that reduce costs
and/or enhance product quality and performance;
alliances and joint ventures that provide access to
valuable technologies, competencies or geographical
markets.
Company competencies and competitive
capabilities
• A company's resource strength relates to specific
skills and expertise and sometimes it is the
pooled knowledge and expertise of different
groups. e.g. new product innovation requires
expertise of various departments like R&D,
engineering and design, cost-effective
manufacturing and market testing.
• Company competencies can range from merely a
competence in performing an activity to a core
competence to a distinctive competence.
Competence
• A competence is something an organization is good at
doing.
• It is nearly always the product of experience.
• It originates with deliberate efforts to develop the
organizational ability to do something.
• It is about selecting people with the requisite knowledge
and skills, upgrading individual abilities as needed and
molding the efforts and work products of individuals into
a cooperative group effort to create organizational
ability.
• As expertise builds and company gains proficiency in
performing the activity consistently well at an
acceptable cost the ability evolves into a true
competence and company capability. e.g. proficiency in
specific knowledge, selecting good locations for retail
outlets, merchandising and product display
Core competence
• A core competence is a proficiently performed internal
activity that is central to a company's strategy and
competitiveness.
• It is more valuable than a competence because of its role
in the company's strategy and its contribution to making
the company success.
• It can relate to any of the several aspects of a company's
business.
• A company may have more than one core competence,
but it is difficult to have more than two or three. E.g. ITC
has core competence in distribution and customization of
taste
• It is usually knowledge based, residing in people and is a
company intellectual capital.
• Generally it is also an cross-departmental combinations of
knowledge and expertise.
Distinctive competence
• A distinctive competence is a competitively valuable
activity that a company performs better than its rivals.
E.g. search engine of Google, product design of Apple
• It is a competitively superior strength.
• A competency translates into a distinctive competence
when the company enjoys competitive superiority when
performing that activity.
• A core competence becomes real competitive advantage
only when it rises to the level of a distinctive competence.
e.g. Sharp corporation in LCDs, Toyota in low-cost, high
quality manufacturing and short design-to-market cycles
for new models
• It is important in terms of strategy-making
because
– it gives a competitively valuable capability
– it has the potential for being the cornerstone of strategy
– it produce competitive edge in the marketplace
• It is advantageous when a firm has a distinctive
competence which rivals do not have and it is
very costly and time consuming for rivals to
acquire the skill. E.g. processor design
capabilities of Intel
What is the competitive power of a resource strength?
• The competitive power of a company's strength is
measured by the following four tests:
1. Is the resource strength hard to copy?
• The more difficult and expensive it is to imitate a
company's resource strength, the greater its potential
competitive value.
• Resources tend to be difficult to copy when:
– They are unique (real estate location, patent)
– Must be built over time in ways that are difficult to imitate
(brand name, mastery of a technology)
– When it needs big capital investment (a state-of-the-art
manufacturing plant)
• e.g. Wal-Mart's competence in super efficient
distribution and store operations capabilities.
2. Is the resource strength durable - does it have
staying power?
• The longer the competitive value of a resource
lasts, the greater its value.
• e.g. Intel's expertise in chip design has staying
power, Indian software industry's expertise in off-
shoring may be nullified by other countries in the
near future,

3. Is the resource really competitively superior?

• e.g. Jaguar was acquired by Tatas, Nirma was
able to penetrate the low cost detergent market,
4. Can the resource strength be trumped by the different
resource strengths and competitive capabilities of rivals?
• e.g. Bajaj scooters lost its market share to other two wheelers
like hero Honda, HMT watches lost the market to Titan,

• Most of the firms have a mixed bag of resources - one or two

valuable, some good and many satisfactory.
• Only a few market leaders have the distinctive competence.
• A company can derive competitive advantage from a
collection of good-to-adequate resources that collectively
have competitive power in the marketplace.
• e.g. Toshiba's laptop computers were the global
market leaders through most of the 1990s, an
indicator that Toshiba had competitively valuable
resource strength.
• The actual facts are
- they were not faster than rival's laptops
- they did not have bigger screens
- no more memory
- no longer battery power
- no superior performance features
- no superior technical support services
- they were not cheaper
- they seldom were ranked first in various ratings in the
overall performance
• The advantages for Toshiba were a combination
of good resource strengths and capabilities like
– its strategic partnerships with suppliers of laptop
components
– efficient assembly capability
– design expertise
– skills in choosing quality components
– a wide selection of models
– an attractive mix of built-in performance features
against price
– better-than-average reliability of its models
– good technical support services
Identifying company resource weaknesses and competitive deficiencies
• A weakness or competitive deficiency is something a company lacks
or does poorly (in comparison to others) or a condition that puts it at a
disadvantage in the marketplace.
• It can relate to:
1. inferior or unproven skills, expertise or intellectual capital in
competitively important areas of business
2. deficiencies in competitively important physical, organizational or
intangible assets
3. missing or competitively inferior capabilities in key areas.
• How much the resource weakness makes it competitively vulnerable
depends on how much they matter in the marketplace and if can they
be overcome by company's strengths.
• Sizing up a company's complement of resource capabilities and
deficiencies is like a strategic balance sheet, in which resources
strengths are competitive assets and resource weaknesses are
competitive liabilities.
Identifying a company's market opportunities
• Market opportunity plays a vital role in the strategy
formulation of a company.
• It is important to indentify opportunities and appraise the
growth and profit potential of each one.
• A company's opportunities can be plentiful or scarce and
can range from widely attractive (an absolute "must" to
pursue) to marginally interesting (the growth and profit
potential are questionable) to unsuitable (no good match
with company's strength and capabilities).
• Every industry opportunity is not a company opportunity.
• A opportunity is most relevant to the company when it
matches with the company's financial and organizational
resource capabilities.
Identifying threats to a company's future profitability
• They are factors in the company's external environment that
pose threat to its profitability and competitive well-being.
• Threats include:
– emergence of cheaper or better technologies e.g. typewriters replaced
by DTP
– rivals' introduction of new or improved products . E.g Nirma
– lower-cost foreign competitors' entry into a company's stronghold
– new regulations that may be more burdensome to a company than its
competitors
– vulnerability to a rise in interest rates
– the potential of a hostile takeover
– unfavorable demographic shifts
– adverse changes in foreign exchange rates
– political upheaval in a foreign country where the company has facilities
• External threats may pose a moderate degree of
adversity or they may be imposing enough to
make the company's position, situation and
outlook tenuous.
• The management must identify these threats and
initiate strategic changes to neutralize or lessen
the threat.
What do the SWOT listings reveal?
• SWOT analysis helps in drawing conclusions about
the company's overall situation and acting on those
conclusions to better match the strategy to its
strength and market opportunities and to correct
weaknesses and defend against external threats.

The following questions help in SWOT analysis of a

company:
1. Does the company have an attractive set of resource
strengths? Does it have any strong core competencies or a
distinctive competence? Are the company's strengths and
capabilities well matched to the industry key success
factors? Do they add adequate power to the company's
strategy? Will the company's current strengths and
capabilities matter in the future?
2. How serious are the company's weaknesses and competitive deficiencies?
Are they mostly inconsequential and readily correctable or could they
prove fatal if not remedied soon? Are some of the company's weaknesses
in areas that relate to the industry's key success factors? Are there any
weaknesses that if uncorrected would keep the company from pursuing an
otherwise attractive opportunity? Does the company have important
resource gaps that need to be filled for it to move up in the industry
rankings and/or boost its profitability?
3. Do the company's resource strengths and competitive capabilities (its
competitive assets) outweigh its resource weaknesses and competitive
deficiencies (its competitive liabilities) by an attractive margin?
4. Does the company have attractive market opportunities that are well
suited to its resource strengths and competitive capabilities? Does the
company lack the resources and capabilities to pursue any of the most
attractive opportunities?
5. Are the threats alarming, or are they something the company appears
able to deal with and defend against?
6. All things considered, how strong is the company's
overall situation? Where on a scale of 1 to 10 (where 1 is
alarmingly weak and 10 is exceptionally strong) should
the firm's position and overall situation be ranked? What
aspects of the company's situation are particularly
attractive? What aspects are the most concern?
The following questions help us to know the
importance of SWOT listings for strategic action:
1. Which competitive capabilities need to be strengthened
immediately (so as to add greater power to the
company's strategy and boost sales and profitability)?
Do new types of competitive capabilities need to be put
in place to help the company better respond to
emerging industry and competitive situations? Which
resources and capabilities need to be given greater
emphasis and which merit less emphasis? Should the
company emphasize leveraging its existing resource
strengths and capabilities or does it need to create new
resource strengths and capabilities?
2. What actions should be taken to reduce the company's
competitive liabilities? Which weaknesses or competitive
deficiencies are in urgent need of correction?
3. Which market opportunities should be top priority in
future strategic initiatives (because they are good fits
with the company's resource strengths and competitive
capabilities, present attractive growth and profit
prospects, and/or offer the best potential for securing
competitive advantages)? Which opportunities to be
ignored, at least for the time being (because they offer
less growth potential or are not suited to the company's
resources and capabilities)?
4. What should the company be doing to guard against the
threats to its well-being?
Are the company's prices and costs competitive?
• Competitors have an opportunity to cut the price
when their cost of production is substantially lower
than their competitors.
• One of the most important signs of a company's
business position being strong or precarious is
whether its prices and costs are competitive with
industry rivals.
• The trend is more strong in a commodity product
industry and lower-cost companies have an
advantage.
• Even in industries where products are differentiated
according to their attributes, it is necessary to keep
the cost in line with competitors, to ensure that
premium charged on the products create value to the
customers.
• A small disparity in price is justified when the
product or service has highly differentiated
attributes than the competitor offers.
• The two analytical tools useful for determining if
the company's costs and prices are competitive
are:
– value chain analysis
– benchmarking
The concept of a company value chain
• A company's value chain consists of the linked set of value-
creating activities the company performs internally.
• It consists of two broad categories of activities
– primary activities that are foremost in creating value for
customers
– support activities that facilitate and enhance the performance of
the primary activities
• It includes a profit margin, a mark up over the cost of
performing the value-creating activities.
• Assigning the company's operating costs and assets to each
individual activity in the chain provides cost estimate and
capital requirements.
• Manner in which one activity is done can affect the costs of
performing other activities. e.g. cost of producing Japanese
VCRSs was reduced from $ 1300 to $ 300 with focus on
better design
• Cost of each activity contributes to whether the
company's overall cost position relative to rivals
is favorable or unfavorable.
• The tasks of value chain analysis and
benchmarking are to develop the data for
comparing a company's costs activity against the
costs of key rivals and to learn which internal
activities are a source of cost advantage or
disadvantage.
Why the value chains of rival companies often differ
• The value chain of rival companies differ because
– the manner in which it performs each activity reflect the evolution
of its own particular business and internal operations
– its strategy
– the approaches it is using to execute its strategy
– the underlying economics of the activities themselves
• e.g. costs of internally performed activities for a fully
integrated manufacturer will be greater than a partially
integrated manufacturer.
• A company pursuing a low-cost/low-price strategy and a rival
that is positioned on the high end differ in their value chain.
• The cost and price differences among rival companies
depends on activities performed by suppliers or by
distribution channel allies involved in getting the product to
end users.
• If the suppliers or wholesalers/retailers have
excessively high cost structure or profit margin
then it jeopardizes a company's cost
competitiveness even though its costs for
internally performed activities are competitive.
The value chain system for an entire industry
• Accurately assessing a company's competitiveness in
end-use markets require that company managers
understand the entire value chain system for delivering
a product or service to end users, not just the
company's own value chain.
• Suppliers value chain are relevant because suppliers
perform activities and incur cost in creating and
delivering the purchased inputs used in a company's
own value chain.
• The costs, performance features and quality of these
inputs influence a company's own cost and product
differentiation capabilities.
• This is a powerful reason for working collaboratively
with suppliers in managing supply chain activities.
• Forward channels are relevant because
– - the costs and margins of a company's distribution allies
are part of the price the end user pays
– - the activities that distribution allies perform effect the
end user's satisfaction.
• Hence company' strive for mutually beneficial
ways of doing business with these channels.
Developing the data to measure a company's cost
competitiveness
• It involves disaggregating or breaking down of
departmental cost accounting data into the costs
of performing specific activities.
• The amount of disaggregation depends on the
economics of the activities.
• A good guideline is to develop separate cost
estimates for activities having different
economics and for activities representing a
significant or growing proportion of cost.
• Traditional accounting defines costs according to
broad categories of expenses like wages and
salaries, employee benefits. etc.
• A new method, activity based costing, entails defining
expense categories according to the specific activities
being performed and then assigning costs to the activity
responsible for creating the cost.
• To fully understand the costs of activities all along the
industry value chain, cost estimates for activities
performed in the competitively relevant portions of
suppliers' and customers' value chains also have to be
developed.
• Despite the tediousness and imprecision the payoff in
exposing the costs of a particular activity makes activity-
based costing a valuable analytical tool.
• The size of a company's cost advantage or disadvantage
varies from item to item, different consumer groups (if
different distribution channels are used) and different
geographic markets.
Benchmarking the costs of key value chain activities
• Benchmarking is a tool that allows a company to determine
whether the manner in which it performs particular functions
and activities represents industry "best practices" when both
cost and effectiveness are taken into account.
• Benchmarking is done by companies to compare their cost
against competitors' and sometimes against companies in other
industries who are efficient.
• The objectives of benchmarking are to identify the best
practices in performing an activity, to learn how other
companies have achieved low cost or better results and to
improve a company competitiveness.
• e.g. Xerox learning from Japanese manufacturers, Toyota
implementing just-in-time system after studying supermarkets
in USA, Southwest reduced turnaround time at stops by studying
pit crews on auto racing circuits.
• The tough part of benchmarking is to gain access to
information about other companies practices and
costs.
• Information is collected from published reports, trade
groups, industry research firms, taking to
knowledgeable industry analysts, customers and
suppliers.
• It is further complicated by use of different cost
accounting systems.
• Consulting firms, several councils and associates and
other online benchmarking organizations help in
benchmarking by collecting data and distributing
them without identifying the source. This helps
companies to avoid disclosing competitively sensitive
data to rivals and reduces risks of ethical problems.
Strategic options for remedying a cost disadvantage
• Value chain analysis and benchmarking are
important as strategy tools because a company's
competitiveness depends on how efficiently it
manages these actives compared to competitors.
• The three main areas where costs of competing
firms can differ are:
– a company's own activity segments
– suppliers' part of industry value chain
– forward channel portion of the industry chain
When the cost disadvantage in due to internal factors any of
the following strategic approaches can be used:
1. Implement the use of best practices throughout the company,
particularly for high cost activities.
2. Try to eliminate some cost-producing activities altogether by
revamping the value chain.
3. Relocate high-cost activities to geographic areas where they can be
performed cost effectively.
4. Search activities which can be outsourced to vendors or contractors.
5. Invest in productivity-enhancing, cost-saving technological
activities.
6. Innovate around the troublesome cost components.
7. Simplify the product design so that it can be manufactured or
assembled quickly and more economically.
8. Try to make up the internal cost disadvantage by achieving savings
in other two parts of the value chain system.
Translating proficient performance of value chain activities to
competitive advantage
• Competencies and capabilities in value chain activities can be
translated into competitive advantage.
• Since attributes and features are easy to clone, the real
competitive advantage comes from pleasing the buyers.
• The process of translating is:
1. Management makes efforts to build competencies and capabilities to
add power to its strategy and competitiveness.
2. The company invests in a couple of these competencies to take them
to the level of core competence.
3. Further learning and investments can take the core competence to a
level of distinctive competence.
4. This distinctive competence will become attractive competitive
advantage which will be difficult for the rivals to match.