Before executives can chart a new strategy, they must reach common understanding of the companys cur

1
Before executives can chart a new strategy, they
must reach common understanding of the companys
current position.
W. Chan Kim and Renee Mauborgne
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Company Situation AnalysisThe Key Questions

• 1. How well is the companys present strategy
  working?
• 2. What are the companys resource strengths and
  weaknesses and its external opportunities and
  threats?
• 3. Are the companys prices and costs
  competitive?
• 4. Is the company competitively stronger or
  weaker than key rivals?
• 5. What strategic issues merit managerial
  attention?

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Fig. 3.1 Identifying the Components of a
Single-Business Strategy
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How Well Is thePresent Strategy Working?
Two Key Steps

• Quantitative assessment -- What are the results?
• Is company achieving its financial and strategic
  objectives?
• Is company an above-average industry performer?

• Qualitative assessment -- What is the strategy?
• Competitive strategy
• Competitive scope
• Recent competitivemoves
• Functional strategies

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What Is the Strategy? Qualitative

• Identify competitive approach
• Low-cost leadership
• Differentiation
• Focus on a particular market niche
• Determine competitive scope
• Stages of industrys production/distribution
  chain
• Geographic coverage
• Identify functional strategies
• Examine recent strategic moves

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Key Indicators of How Wellthe Strategy Is
Working--Quantitative

• 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.

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What Are the Firms Strengths, Weaknesses,
Opportunities and Threats ?

• S W O T represents the first letter in
• S trengths
• W eaknesses
• O pportunities
• T hreats
• For a companys strategy to be well-conceived, it
  must be matched to both
• Resource strengths and weaknesses
• Best market opportunities and external threats to
  its well-being

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Identifying Resource Strengthsand 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 competitivecapabilities
are competitive assets !
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Competencies vs. Core Competenciesvs.
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 that is central (not peripheral or
  incidental) to a companys competitiveness and
  profitability
• A distinctive competence is a competitively
  valuable activity that a company performs better
  than its rivals
• Always use a distinctive competency as a Company
  STRENGTH---its more significant if its in a KSF

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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

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Examples Distinctive Competencies

• Sharp Corporation
• Expertise in flat-panel display technology
• Toyota, Honda, Nissan
• Low-cost, high-quality manufacturingcapability
  and short design-to-market cycles
• Intel
• Ability to design and manufactureever more
  powerful microprocessors for PCs
• Starbucks
• Store ambience and innovative coffeedrinks

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Determining the CompetitiveValue of a
Company Resource

• To qualify as the basis for sustainable
  competitive advantage, a resource is measured
  by 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 ?

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Identifying Resource Weaknessesand
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
• Missing capabilities in key areas

Resource weaknesses and deficienciesare
competitive liabilities !
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Internal Factor Analysis Summary (IFAS)Maytag
as Example
Internal Factors
Rating
Weighted Score
Weight
Comments
1
2
3
4
5
Strengths Quality Maytag culture Experienced
top management Vertical integration Employee
relations Hoovers international
orientation Weaknesses Process-oriented
RD Distribution channels Financial
position Global positioning Manufacturing
facilities Total Weighted Score
Quality key to success Know appliances Dedicated
factories Good, but deteriorating Hoover name in
cleaners Slow on new products Superstores
replacing small dealers High debt load Hoover
weak outside the United Kingdom and
Australia Investing now
.75 .20 .40 .15 .45 .10 .10 .30 .40 .20
.15 .05 .10 .05 .15 .05 .05 .15 .20 .05
5 4 4 3 3 2 2 2 2 4
1.00
3.05
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Identifying a CompanysMarket 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

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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

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Role of SWOT Analysis inCrafting a Better
Strategy

• Two key parts of SWOT analysis
• Drawing conclusions abouta companys overall
  situation
• and
• Acting on the conclusions to
• Better match a companys strategy to its resource
  strengths and market opportunities,
• Correct the important weaknesses, and
• Defend against external threats

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Strategic Factor Analysis Summary (SFAS) Maytag
as Example
Duration
Key Strategic Factors (Select the most important
opportunities/threats from EFAS and the most
important strengths and weaknesses from
IFAS) S1 Quality Maytag culture (S) S3 Hoovers
international orientation (S) W3 Financial
position (W) W4 Global positioning
(W) O1 Economic integration of European
Community (O) O2 Demographics favor quality
(O) O5 Trend to super stores (O T) T3 Whirlpool
and Electrolux (T) T5 Japanese appliance
companies (T) Total Score
Rating
Weighted Score
INTERMEDIATE
Weight
Comments
SHORT
LONG
X X
X X X
X X X X
.10 .10 .10 .15 .10 .10 .10 .15 .10
5 3 2 2 4 5 2 3 2
.50 .30 .20 .30 .40 .50 .20 .45 .20
Quality key to success Name recognition High
debt Only in N.A., U.K., and Australia Acquisitio
n of Hoover Maytag quality Weak in this
channel Dominate industry Asian presence
1.00
3.05
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TOWS Matrix
Strengths (S)

INTERNAL

Weaknesses (W)

FACTORS



(IFAS)
List 5 10 internal

List 5 10 internal

strengths here
weaknesses here
EXTERNAL

FACTORS

(EFAS)
SO Strategies

WO Strategies

Opportunities (O)




Generate strategies here

Generate strategies here

List 5 10 external

that use strengths to take

that take advantage of

opportunities here
advantage of opportunities

opportunities by

overcoming weaknesses
ST Strategies

WT Strategies

Threats (T)




Generate strategies here

Generate strategies here

List 5 10 external

that use strengths to

that minimize weaknesses

threats here
avoid threats
and avoid threats
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TOWS Matrix Maytag as Example
Strengths (S)
Weaknesses (W)

INTERNAL


S1 Quality Maytag Culture S2 Experience top
management S3 Vertical integration S4 Employee
relations S5 Hoovers international
orientation
W1 Process-oriented W2 Distribution channels W3
Financial position W4 Global positioning W5
Manufacturing facilities
FACTORS



(IFAS)


EXTERNAL

FACTORS

(EFAS)
Opportunities (O)
SO Strategies
WO Strategies
O1 Economic integration of European
community O2 Demographics favor quality O3
Economic development, Asia O4 Opening
Eastern Europe O5 Trend toward super stores



Expand Hoovers presence in continental Europe
by improving quality reducing costs Emphasize
superstore channel for all non-Maytag brands

• Expand Hoovers presence in continental Europe
  by improving quality reducing costs
• Emphasize superstore channel for non-Maytag
  brands

• Use worldwide Hoover dis-
• tribution channels for Hoover
• and Maytag
• Find joint venture partners in
• Eastern Europe Asia

ST Strategies
WT Strategies
Threats (T)
T1 Increasing government regulation T2 Strong US
competition T3 Whirlpool Electrolux positioned
for global economy T4 New product
advances T5 Japanese companies

• Sell off Dixie-Narco division to
• reduce debt
• Emphasize cost reduction to reduce break-even
  point
• Sell out to Raytheon or a
• Japanese firm.

• Acquire Raytheons appliance business
• Merge with major Japanese home appliance company
• Sell off non-Maytag brands defend Maytags US
  niche.

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Are the CompanysPrices and Costs
Competitive?

• Assessing whether a firms 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 aCompany Value Chain

• A companys business consists of all activities
  undertaken in designing, producing, marketing,
  delivering, and supporting its product or service
  
• A companys 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

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Fig. 3.3 RepresentativeCompany Value Chain
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Fig. 3.4 Representative Value Chain for an
Entire Industry
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Characteristics of Value Chain Analysis

• Combined costs of all activities in a companys
  value chain define the companys internal cost
  structure
• Compares a firms costs activityby activity
  against costs of key rivals
• From raw materials purchase to
• Price paid by ultimate customer
• Pinpoints which internal activities are a source
  of cost advantage or disadvantage

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The Value Chain Systemfor an Entire
Industry

• Assessing a companys cost competitiveness
  involves comparing costs all along the industrys
  value chain
• Suppliers value chains are relevant because
• Costs, quality, and performance of inputs
  provided by suppliers influence a firms own
  costs and product performance
• Forward channel allies value chains are relevant
  because
• Forward channel allies costs and margins are
  part of price paid by ultimate end-user
• Activities performed affect end-user satisfaction

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Activity-Based Costing A KeyTool in
Analyzing Costs

• Determining whether a companys costs are in line
  with those of rivals requires
• Measuring how a companys costs compare with
  those of rivals activity-by-activity
• Requires having accounting data that measures the
  cost of each value chain activity
• Activity-based accounting systemsprovide data
  for determining costsfor each relevant value
  chain activity

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What Determines Whether aCompany 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, the high-cost
  activities can exist in any of three areas in the
  industry value chain
• 1. Suppliers activities
• 2. Companys own internal activities
• 3. Forward channel activities

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Benchmarking Costs ofKey Value Chain
Activities

• Focuses on cross-company comparisons of how
  certain activities are performed and the 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 Benchmarking

• Determine whether a company is performing
  particular value chain activities efficiently by
  studying practices and procedures used by other
  companies
• Understand the best practices in performingan
  activity -- learn what is the best wayto do a
  particular activity from thosedemonstrating they
  are best-in-world
• Assess if companys costs in performing
  particular value chain activities are in line
  with competitors
• Learn how other firms achieve lower costs
• Take action to improve companys cost
  competitiveness

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Options to CorrectInternal Cost Disadvantages

• Implement use of best practices throughout
  company
• Eliminate some cost-producing activities
  altogether by revamping value chain system
• Relocate high-cost activities to lower-cost
  geographic areas
• See if high-cost activities can be
  performedcheaper by outside vendors/suppliers
• Invest in cost-saving technology
• Innovate around troublesome cost components
• Simplify product design
• Make up difference by achieving savings in
  backward or forward portions of value chain system

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Translating Performance of Value Chain
Activities to Competitive Advantage

• 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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How Strong Is the Companys Competitive
Position?

• Overall competitive position involves answering
  two questions
• How does a company rank relative to competitors
  on the important factorsthat determine market
  success?
• Does a company have a netcompetitive advantage
  ordisadvantage vis-à-vis major competitors?

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Why Do a CompetitiveStrength Assessment ?

• Reveals strength of firms competitive position
  vis-à-vis key rivals
• Shows how firm stacks up against rivals,
  measure-by-measurepinpoints firms 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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What Strategic IssuesMerit Managerial
Attention?

• Based on the results of both industry and
  competitive analysis and an evaluation of a
  companys competitiveness, what items should be
  on the companys worry list ?
• Requires thinking strategically about
• Pluses and minuses in the industry and
  competitive situation
• Companys resource strengths and weaknesses and
  attractiveness of its competitive position

A good strategy must address what to do about
each and every strategic issue!
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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 companys high costs?
• How to sustain a companys present growth in
  light of slowing buyer demand?
• Whether to expand a companys product line?
• Whether to expand into foreign markets rapidly or
  cautiously?
• What to do about aging demographics of a
  companys customer base?

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Stating the IssuesClearly 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 listraise questions
  about
• What actions need to be considered
• What to think about doing

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Strategy QuestionsExam 1

• How would you go about devising a list of
  important issues for a CEO?
• What is the difference between a business
  strategy and a functional strategy?
• What does a corporate strategy entail?
• Describe Agency Theory?
• What are some Industry traits? How is this
  relevant to your job as a strategic planner?
• Under what circumstances will an industry have
  higher
• Rivalry
• Buyer Power
• Substitute Power
• Supplier Power
• Potential for new entrants

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Strategy QuestionsExam 1

• What is the difference between traditional cost
  accounting and ABC accounting?
• How would I tell whether the industry had
  sufficiently attractive prospects for
  profitability
• From a strategic planning standpoint, what is the
  prime difference between a for profit and
  not-for-profit companies
• Why do we examine the value chain?
• Describe three steps to benchmarking
• List strategic options to remedy a cost
  disadvantage
• What are two purposes of a SWOT analysis?
• What is the purpose of a TOWS matrix and how does
  it work?

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Strategy QuestionsExam 1

• What is the difference between a distinct
  competency and a core competency? What areas do
  you want to have your distinctive competencies
  in?
• How do you determine or what questions do you ask
  to identify a companys strategy?
• What are two uses of a strategy map?
• How do you perform an analysis of driving forces?
  Give an example.
• Describe the concept of a learning curve. Its
  use?
• Describe the concept of economy of scale. Its
  use?
• Describe the concept of vertical integration. Its
  use?
• Describe the relationship between vision,
  strategy and values.