STRATEGIC ANALYSIS -2

1. 2.

Industry & Competitive Analysis Situation Analysis

Evaluating Company Resources and Competitive Capabilities

Strategic Analysis Leads to Strategic Choices

Assess Industry & Competitive Conditions
1. Industrys dominant economic traits 2. Nature of competition & strength of competitive forces 3. Drivers of industry change 4. Competitive position of rivals 5. Strategic moves of rivals 6. Key success factors 7. Conclusions about industry attractiveness

Assess Company Situation

1. Assessment of companys present strategy 2. Resource strengths and weaknesses, market opportunities, and external threats 3. Companys costs compared to rivals 4. Strength of companys competitive position 5. Strategic issues that need to be addressed

Identify Strategic Options for the Company

Select the Best Strategy for the Company

Situation Analysis 5 Questions

1.

How well is Present Strategy working?

2.

What are the Resource Strengths and Weaknesses and its External Opportunities and Threats? Threats?

3.

Are firms Prices and Costs competitive?

4.

How strong is Organizations Competitive Position relative to rivals?

5.

What Strategic Issues does Organization face?

1. Present Strategy
How well is the present strategy working? working?

Evaluating Current Strategy

Companys Overall Performance
From a Qualitative Standpoint
Completeness, Internal Consistency, Rationale, and Suitability to the Situation

From a Quantitative Standpoint

Strategic and Financial Results the strategy is producing.

The stronger a companys current overall performance, the less likely the need for radical strategy changes. The weaker a companys performance and/or the faster the changes in its external situation (which can be gleaned from industry and competitive analysis), the more its current strategy must be questioned.

2. SWOT Analysis
What are the resource strengths and weaknesses and its external opportunities and threats? threats?

Firms Strengths, Weaknesses, Opportunities and Threats

S W O T represents the first letter in:in:

S trengths W eaknesses O pportunities T hreats

For a companys strategy to be well-conceived, it wellmust be matched to both:both:

Resource strengths and weaknesses Best market opportunities and external threats to its well-being well-

What are the resource strengths and weaknesses and its external opportunities and threats? threats?
A SWOT analysis provides an overview of a firms situation. A Companys Resource strengths, competencies, and competitive capabilities are important because they are the most logical and appealing building blocks for strategy; A Companys resource weaknesses are important because they may represent vulnerabilities that need correction. External Opportunities and Threats come into play because a good strategy necessarily aims at capturing a companys most attractive opportunities and at defending against threats to its well-being. well-

SWOT Analysis - What to Look For

Potential Strengths 1. Powerful strategy Strong financial condition Strong brand /reputation Market leader Proprietary Technology 1. Potential Weaknesses No clear strategic direction Obsolete Facilities 1. Potential Opportunities Additional customer groups Expanding to new geographic areas Expanding product line Transferring skills to new products Vertical integration 1. Potential Threats Entry of potent new competitors Loss of sales to substitutes Slowing market growth Adverse shifts in exchange rates & trade policies Costly new regulations

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Weak B/S excess debt Higher costs than rivals Lack of key skills

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Continued..
Potential Resource Strengths 6. Cost advantages 7. Strong advertising 8. Product innovation skills 9. Good customer service 10. Better product quality 11. Alliances or JVs Potential Resource Weaknesses 6. Subpar profits 7. Internal operating problems 8. Falling behind in R&D 9. Too narrow product line 10. Weak marketing skills Potential Company Opportunities 6. Take market share from rivals 7. Acquisition of rivals 8. Alliances or JVs to expand coverage 9. Openings to exploit new technologies 10. Openings to extend brand name/image Potential External Threats 6. Vulnerability to business cycle Growing leverage of customers or suppliers Reduced buyer needs for product Demographic changes

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Mobilizing Resources for Competitive Advantage

Competitive Advantage

Strategic Assets and Market Achievements

Core and Distinctive Competencies Competitive Capabilities

Company Resources

Competencies, Core Competencies, Distinctive Competencies

A company 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 wellactivity 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

Distinctive Competence A Competitively Superior Resource

A Distinctive Competence is a competitively significant activity that a company performs better than its competitors. competitors. A Distinctive Competence
Represents a competitively valuable capability that rivals do not have Presents attractive potential for being a cornerstone of strategy Can provide a competitive edge in the market because it represents a competitively superior resource strength

Competitive Value of a Resource

To qualify as the basis for sustainable competitive advantage, a resource advantage, must pass 4 Tests:
1. Is the Resource hard to copy ? 2. Does the Resource have staying power? power? 3. Is the Resource really competitively superior ? 4. Can the Resource be trumped by the different capabilities of rivals ?

3. Companys Prices and Costs Are the Companys Prices and Costs competitive? competitive?

Are the Companys Prices and Costs competitive? competitive?

One telling sign of whether a companys situation is strong or precarious is whether its prices and costs are competitive with industry rivals. Essential Tools in benchmarking a companys Prices and Costs against rivals are: 1. Strategic Cost Analysis 2. Value Chain Analysis Strategic Cost Analysis determines whether the company is performing particular functions and activities cost effectively, learning whether its costs are in line with competitors, and deciding which internal activities and business processes need to be scrutinized for improvement. Value Chain Analysis teaches as to how competently a company manages its value chain activities relative to rivals, which is a key to building valuable competencies and competitive capabilities and then leveraging them into sustainable competitive advantage.

Strategic Cost Analysis

Focuses on firms costs relative to its rivals Compares firms 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 source of cost advantage or disadvantage

Typical Company Value Chain

Primary Activities and Costs
Purchased Supplies and Inbound Logistics

Operations

Distribution And Outbound Logistics

Sales and Marketing

Service

Profit Margin

Product R&D, Technology, Systems Development Human Resources Management General Administration

Support Activities and Costs

Value Chain System for an Entire Industry

Supplier Value Chains A Companys Value Chain Forward Channel Value Chains

Activities, Costs, & Margins of Suppliers

Internally Performed Activities, Costs, & Margins

Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners

Buyer or End User Value Chains

4. Competitive Position
How strong is companys competitive position? position?

How strong is the companys competitive position? position?

Key Appraisals here involve:
Whether the companys position is likely to improve or deteriorate if the present strategy is continued? How does the company match up against key rivals on industry key success factors and other chief determinants of competitive success? Whether and why the company has a competitive advantage or disadvantage?

Competitive Strength indicate where a company is competitively strong and weak and provide insight into the companys ability to defend or enhance its market position. As a rule, a companys competitive strategy should be built around its competitive strengths and should aim at shoring up areas where it is competitively vulnerable. Also, the areas where company strengths match up against competitor weaknesses represent the best potential for new offensive initiatives.

From Value Chain Analysis 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 ways that build valuable capabilities Build dominating expertise in a value chain activity critical to customer satisfaction or market success

5. Identify Strategic Issues

What Strategic Issues does the company face? face?

What strategic issues does the company face? face?

The purpose of this analytical step is to zero in on the strategic challenges to the companys future success, identified by using the results of both industry and competitive analysis and company situation analysis. The objective is to resolve the strategic issues in order for the company to be competitively successful in the years ahead. Strategic Issues frame the strategic agenda that management needs to act on.

I e tif i

tr te ic I

ue

I Pre e t tr te a equate i the li ht of trate competitive pre ure a rivi force ? I trate well-matche to the i wellsuccess factors? ustrys u trys future key

Does the compa y ee ew or iffere t resource stre ths a competitive capabilities? Does prese t strate y a equately protect a ai st external threats and resource deficiencies? Is firm vulnerable to competitive attack by rivals? Where are strong/weak spots in present strategy?

CONCLUSION
Good company situation analysis, like good industry and competitive analysis, is a crucial prerequisite to good strategy-making. strategyA competently done evaluation of a companys resources and competencies exposes strong and weak points in the present strategy, company capabilities and vulnerabilities, and the companys ability to protect or improve its competitive position in the light of driving forces, competitive pressures, and the competitive strengths of rivals. Managers need such understanding to craft a strategy that fits the companys situation well.

THANK YOU