Chapter 4 Summary - book \"Crafting and Executing Strategy\" PDF

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Download Chapter 4 Summary - book "Crafting and Executing Strategy" PDF

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Chapter 4: Evaluating a Company’s Resources, Capabilities, and Competitiveness Question1: How Well Is The Firm’s Present Strategy Working?  The three best indicators of how well a company’s strategy is working are: o Whether the company is achieving its stated financial and strategic objectives o Whether its financial performance is above the industry average o Whether it is gaining customers and increasing its market share  Specific indicators of how well a company’s strategy is working include: o Trends in the company’s sales and earnings growth o Trends in the company’s stock price o The company’s overall financial strength o Customer retention rate o The rate at which new customers are acquired o Evidence of improvement in internal processes  Sluggish financial performance and second-rate market accomplishments almost always single weak strategy, weak execution or both Question 2: What are the firm’s most important resources and capabilities, and will they give the firm a lasting competitive advantage over rival companies?  A company’s resources and capabilities represent its competitive assets and are determines of its competiveness and ability to succeed in the marketplace  Competitive Assets o Are the firm’s resources and capabilities o Are the determinants of its competitiveness and ability to succeed in the marketplace o Are what a firm’s strategy depends on to develop sustainable competitive advantage over its rivals  Resource and Capabilities analysis provides mangers with a powerful tool for sizing up company’s competitive assets and determining whether the can provide the foundation necessary for competitive success  A resources is a competitive asset that is owed or controlled by a company; a capability or competence is the capacity of a firm to perform some internal activity competently  Capabilities are developed and enables through the deployment of a company’s resources o A Resource  A productive input or competitive asset that is owned or controlled by a firm (e.g., a fleet of oil tankers) o A Capability  The capacity of a firm to perform some activity proficiently (e.g., superior skills in marketing)  Type of Resources o Tangible  Touched and quantified readily  Physical resources: land

 Financial: cash  Technological: patents, copyrights  Organizational: IT and communication systems o Intangible  Human assets and intellectual capital  Brands, company image and reputational assets  Relationships: alliances, joint ventures  Company culture and incentive system  Resources bundle: is linked and closely integrated set of competitive assets centered around one or more cross functional capabilities o Ex: Nike’s R&D, marketing research efforts, styling expertise  Assessing the Competitive Power of a Company o The VIRN tests for sustainable competitive advantage ask whether a resource is:  Valuable: must be directly relevant to the company’s strategy, making the company a more effective competitor  Rare: is this something rivals lack?  Ex: Oreo Cookies brand strength  Inimitable: is it hard to copy?  Imitation is difficult for those that reflect high level of social complexity (company culture, relationships) and casual ambiguity, signifies the hard to distengle nature of the complex  Resources  Nonsubsituable o Dynamic capability: ongoing capacity of a company to modify its existing resources and capabilities or create new ones o A company requires a dynamically evolving portfolio of resources and capabilities to sustain its competitiveness and help drive improvements in its performance Question 3: What are the Firm’s Strengths and Weaknesses in relation to the market opportunities and external threats (SWOT)?  SWOT Analysis o Is a powerful tool for sizing up a firm’s:  Internal Strengths  Internal Weaknesses  External/market Opportunities  External Threats o Identifying a company’s internal strengths  A Competence: Is an activity that a firm has learned to perform with proficiency—a capability  A Core Competence: Is a proficiently performed internal activity that is central to a firm’s strategy and competitiveness

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A Distinctive Competence: Is a competitively valuable activity that a firm performs better than its rivals—thus represents a competitively superior internal strength  Weaknesses  Shortcoming that constitute competitive liabilities  Inferior or unproven skills, expertise or intellectual capital  Competitive deficiency  Lack of competencies  Lack of resources  Lack of cash  Excessive debt  Poor branding  Poor reputation o Identifying a company’s market opportunities  A company is well advised to pass on a particular market opportunity unless it has or can acquire the resources and capabilities needed to capture it  Increasing buyer demand  New geographic markets  Product line expansion  Technology breakthroughs  Falling trade barriers  Mergers, acquisitions, alliances  The marketing opportunities most relevant to a company are those that match up well with the company’s competitive assets, offer the best prospects for growth and profitability and present the most potential for competitive advantage o Identifying the Threats  Competition/rivalry  Economic downturn  Changing customer needs  Rising energy costs  Tightening credit conditions  Changing social values  What does SWOT Reveal? o Drawing conclusions from the SWOT listings about the firm’s overall situation. o Translating these conclusions into strategic actions by the firm that:  Match its strategy to its internal strengths and to market opportunities.  Correct important weaknesses and defend it against external threats. o Making lists of a company’s strengths, weaknesses, opportunities and threats is not enough; the payoff from SWOT analysis comes from the conclusions

about a company’s situation and the implications got strategy improvement that flow from the four lists o Strengths should always serve as the basis of its strategy Question 4: How do a firm’s value chain activities impact its cost structure and customer value proposition?  A company’s value chain indeifies the primary activities and related support activities that create customer value  The higher a company’s costs are above those of close rivals, the more competively vulnerable the company becomes  The greater the amount of customer value that a company can offer profitability relative to close rivals, the less competviely vulnerable the company becomes  Signs of a Firm’s Competitive Strength: o Its prices and costs are in line with rivals o Its customer-value proposition is competitive and cost effective o Its bundled capabilities are yielding a sustainable competitive advantage

 Comparing the Value Chains of Rival Firms o Value Chain Analysis  Facilitates a comparison, activity-by-activity, of how effectively and efficiently a firm delivers value to its customers, relative to its competitors o The Value Chain Analysis Process:  Segregate the firm’s operations into different types of primary and secondary activities to identify the major components of its internal cost structure  Use activity-based costing to evaluate the activities  Do the same for significant competitors  Benchmarking and Value Chain Activities o Benchmarking:  Involves improving a firm’s internal activities based on learning from other firms’ “best practices”

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Assesses whether the cost competitiveness and effectiveness of a firm’s value chain activities are in line with its competitors’ activities o Sources of Benchmarking Information  Reports, trade groups, analysts and customers  Visits to benchmark companies  Data from consulting firms o Best practice: a method of performing an activity or business process that consistently delivers superior results compared to other approaches o Benchmarking the costs of company activities against those of rivals provides had evidence of whether a company is cost-competitive  Ex: Xerox extended benchmarking to any company world class that does activity relevant to Xerox Question 5: Is the firm competitively stronger or weaker than key rivals?  High weighted competitive strengths ratings signal a strong competitive position and possession of competitive advantage; low ratings signal a weak position and competitive disadvantage  Assessing the firm’s overall competitive strength: o How does the firm rank relative to competitors on each of the important factors that determine market success? o Does the firm have a net competitive advantage or disadvantage versus major competitors?  Competitive Strengths Assessment Process o Step 1: Make a list of the industry’s key success factors and measures of competitive strength or weakness (6 to 10 measures usually suffice). o Step 2: Assign a weight to each competitive strength measure based on its perceived importance. o Step 3: Rate the firm and its rivals on each competitive strength measure and multiply by each measure by its corresponding weight. o Step 4: sum the weighted strength ratings on each factor to get an overall measure o Step 5: use the overall strength ratings to draw conclusions about the size and extend of the company’s net competiveness advantage Question 6: What Strategic issues and problems merit front-burner managerial attention?  Compiling a worry list of problems crates an agenda of strategic issues that merit prompt managerial attention...