Figure 3.1: From Thinking Strategically to Choosing a Strategy

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Figure 3.1 From Thinking Strategically to
Choosing a Strategy
Thinking Strategically about External Environment
Identify Strategic Options
Select the Best Strategy
Form a Strategic Vision
Thinking Strategically about Internal Environment
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Question 1 Does the Industry Offer Attractive
Opportunities for Growth?

• Market size and growth rate
• Number of rivals
• Scope of competitive rivalry
• Number and types of buyers
• Life cycle stage
• Also
• Degree of product differentiation
• Product innovation
• Supply/demand conditions
• Pace of technological change
• Vertical integration
• Economies of scale
• Learning/experience curve effects

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Question 2 What Kinds of Competitive Forces are
Industry Members Facing?
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Question 3 What Forces Are Driving Industry
Change?

• Driving forces are the major underlying causes of
  changing industry and competitive conditions
• Identify those forces likely to exert greatest
  influence over next 1 - 3 years
• Usually no more than 3 - 4 factors qualify as
  real drivers of change
• 2. Assess impact
• What difference will the forces make - favorable?
  unfavorable?

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Question 4 How are Industry Rivals Positioned?

• One technique for revealing the different
  competitive positions of industry rivals is
  strategic group mapping
• A strategic group consists of those rivals with
  similar competitive approaches and positions in
  the market

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Procedure for Constructing aStrategic Group
Map

• STEP 1 Identify competitive characteristics
  that differentiate firms in an industry from one
  another
• STEP 2 Plot firms on a two-variable map using
  pairs of these differentiating characteristics
• STEP 3 Assign firms that fall in about the same
  strategy space to same strategic group
• STEP 4 Draw circles around each group, making
  circles proportional to size of groups
  respective share of total industry sales

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Example Strategic Group Map of the Video
Game Industry
Video Arcades/Coin-Op. Machines
Arcade operators
Publishers of games on CD-ROMs
Home PCs
Sony, Sega, Nintendo, several others
Types of Video Game Suppliers/Distribution
Channels
Video Game Consoles
MSN Gaming Zone, Pogo.com, America Online, HEAT,
Engage, Oceanline, TEN
Online Video Game Sites
Low (Coin-operated equipment)
Medium (Video players cost 100-300)
High (Use PC)
Overall Cost to Players of Video Games
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Question 5 What Strategic Moves Are Rivals
Likely to Make Next?

• A firms own best strategic moves are affected by
• Current strategies of competitors
• Future actions of competitors
• Profiling key rivals involves gathering
  competitive intelligence about their
• Current strategies
• Most recent moves
• Resource strengths and weaknesses
• Announced plans

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Question 6 What are the Key Factors for Future
Competitive Success?

• Competitive elements most affecting every
  industry members ability to prosper
• Specific strategy elements
• Product attributes
• Resources
• Competencies
• Competitive capabilities
• Market achievements
• KSFs spell the difference between
• Profit and loss
• Competitive success or failure

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Identifying IndustryKey Success Factors

• Answers to three questions pinpoint KSFs
• On what basis do customers choose between
  competing brands of sellers?
• What resources and competitive capabilities does
  a seller need to have to be competitively
  successful?
• What shortcomings put a company at a significant
  competitive disadvantage?
• KSFs consist of the 3 - 6 really major
  determinants of financial and
  competitive success in an industry

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Question 7 Does the Industry Offer Good
Prospects for Attractive Profits?
Objective

• Develop conclusions about whether the industry
  and competitive environment is attractive or
  unattractive, both near- and long-term, for
  earning good profits

Principle
A firm uniquely well-suited in an otherwise
unattractive industry can, under certain
circumstances, still earn unusually good profits
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Figure 3.1 From Thinking Strategically to
Choosing a Strategy
Thinking Strategically about External Environment
Identify Strategic Options
Select the Best Strategy
Form a Strategic Vision
Thinking Strategically about Internal Environment
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Question 1 How Well is theCompanys
Present Strategy Working?

• Two steps involved
• Determine current strategy of company
• Examine key indicators of strategic and financial
  performance

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Quest. 2 What are the Companys Competitively
Important Resources and Capabilities?

• Competitive Assets
• Are the firms resources and capabilities.
• Resources can be tangible and intangible
• Resources are combined together into important
  capabilities
• Can be leveraged into sustainable competitive
  advantages over rivals
• Resource and Capability Analysis
• Identify Resources and Capabilities
• Test to see if they are valuable, rare, hard to
  copy, and nonsubstitutable

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Question 3 Is the Company Able to seize Market
Opportunities and Nullify External 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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Competencies vs. Core Competenciesvs.
Distinctive Competencies

• A company competence is an activity that a
  company has learned to perform well
• A core competence is a competitively important
  activity that a company performs better than
  other internal activities
• A distinctive competence is a competitively
  important activity that a company performs better
  than its rivals

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Table 4.3 SWOT Analysis -What to Look For
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Role of SWOT Analysis inCrafting a Better
Strategy

• Developing a clear understanding of a companys
• Resource strengths
• Resource weaknesses
• Best opportunities
• External threats
• Drawing conclusions about how
• Companys strategy can be matched to both its
  resource capabilities and market opportunities
• Urgent it is for company to correct resource
  weaknesses and guard against external threats
• Developing actions for improving strategy

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Question 4 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
• Activity-based costing
• Benchmarking

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The Concept of a Company Value Chain

• A company consists of all the activities and
  functions it performs in trying to deliver value
  to its customers.
• A companys value chain shows the linked set of
  activities, functions, and business processes
  that it performs
• A companys value chain consists of two types of
  activities
• Primary activities (where most of the value for
  customers is created)
• Support activities that are undertaken to aid
  the individuals ands groups engaged in doing the
  primary activities

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Figure 4.3 Representative Company Value Chain
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Figure 4.4 Representative Value Chain for an
Entire Industry
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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
• Determine whether a company is performing
  particular value chain activities efficiently by
  studying the practices and procedures used by
  other companies
• Learn what is the best way to do a particular
  activity from those who have demonstrated they
  are best-in-industry or best-in-world
• Assess if companys costs of 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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Strategic Options for Remedying a Cost
Disadvantage

• Adopting best practices
• Reengineer/Revamp value chain
• Relocate high-cost activities
• Outsourcing
• Invest in technological improvements
• Find ways to detour around the activities or
  items where costs are high
• Redesign the product to speed manufacturing
• Work with suppliers and buyers to reduce their
  costs

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Question 5 Is the Company Competitively
Stronger or Weaker Than Key Rivals?

• Competitive Strength Assessment
• List KSFs/competitive strength measures
• Rate firms on each factor using rating scale of 1
  to 10 (1 very weak 5 average 10 very
  strong)
• Decide whether to use a weighted or unweighted
  rating system
• Sum individual ratings to get an overall measure
  of competitive strength for each rival
• Determine whether firm enjoys a competitive
  advantage or suffers from a competitive
  disadvantage based on the overall strength ratings

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An Unweighted Competitive Strength Assessment
Rating Scale 1 very weak 5 average 10
very strong
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Table 4.4 A WeightedCompetitive Strength
Assessment
Rating Scale 1 very weak 5 average 10
very strong
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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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Question 6 What Strategic Issues and Problems
Merit Front-Burner Managerial Attention?

• Based on the answers to the preceding 4 questions
  and the 7 questions posed in conducting industry
  and competitive analysis, 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!