Chapter 3B


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Chapter 3B

  1. 1. Internal Analysis: Benchmarking MAN 4720 – Strategic Management Chapter 3B
  2. 2. <ul><li>Key Success Factors </li></ul><ul><li>Company Benchmarks </li></ul><ul><li>Actual vs. Plan vs. SPLY </li></ul><ul><li>Industry Ratings and Averages </li></ul><ul><li>Operational Metrics, Statistics, Indices </li></ul><ul><li>Key Performance Indicators (KPI) </li></ul><ul><li>Competitive Strength Assessment </li></ul>Chapter Checklist
  3. 3. Key Success Factors <ul><li>KSFs are those competitive factors most affecting every industry member’s ability to succeed in that industry </li></ul><ul><li>KSFs concern </li></ul><ul><ul><li>Meeting customer expectations </li></ul></ul><ul><ul><li>Specific strategy elements </li></ul></ul><ul><ul><li>Product attributes </li></ul></ul><ul><ul><li>Resources </li></ul></ul><ul><ul><li>Competencies </li></ul></ul><ul><ul><li>Competitive capabilities </li></ul></ul><ul><li>KSFs are attributes that spell the difference between </li></ul><ul><ul><li>Profit and loss </li></ul></ul><ul><ul><li>Competitive success or failure </li></ul></ul>
  4. 4. <ul><li>Pinpointing KSFs involves determining </li></ul><ul><ul><li>On what basis do customers choose between competing brands of sellers? </li></ul></ul><ul><ul><li>What resources and competitive capabilities does a seller need to have to be competitively successful? </li></ul></ul><ul><ul><li>What are the defining characteristics of a particular industry </li></ul></ul><ul><li>KSFs constitute the crucial elements for success in a particular industry </li></ul>Key Success Factors
  5. 5. <ul><li>Common Types of Industry Key Success Factors </li></ul><ul><ul><li>Technology-related </li></ul></ul><ul><ul><li>Manufacturing-related </li></ul></ul><ul><ul><li>Distribution-related </li></ul></ul><ul><ul><li>Marketing-related </li></ul></ul><ul><ul><li>Skills and capability-related </li></ul></ul><ul><ul><li>Other types </li></ul></ul><ul><ul><ul><li>Convenient locations </li></ul></ul></ul><ul><ul><ul><li>Patent protection </li></ul></ul></ul><ul><ul><ul><li>Etc. </li></ul></ul></ul>Key Success Factors
  6. 6. <ul><li>Example: KSFs for Fast Food Industry </li></ul><ul><ul><li>Quick service </li></ul></ul><ul><ul><li>Consistent quality of food </li></ul></ul><ul><ul><li>Clean facilities </li></ul></ul><ul><ul><li>Reasonable prices </li></ul></ul><ul><li>Example: KSFs for Fine Dining Industry </li></ul><ul><ul><li>Leisurely, relaxed dining </li></ul></ul><ul><ul><li>An exquisite “Dining Experience” </li></ul></ul><ul><ul><li>Clean facilities </li></ul></ul><ul><ul><li>Ambience </li></ul></ul>Key Success Factors
  7. 7. <ul><li>Benchmark Characteristics </li></ul><ul><ul><li>Comparison of organization’s operational performance to: </li></ul></ul><ul><ul><ul><li>Best in industry </li></ul></ul></ul><ul><ul><ul><li>Largest in industry </li></ul></ul></ul><ul><ul><ul><li>Closest rival </li></ul></ul></ul><ul><ul><li>Comparison of organization’s financial performance to: </li></ul></ul><ul><ul><ul><li>Best in industry </li></ul></ul></ul><ul><ul><ul><li>Largest in industry </li></ul></ul></ul><ul><ul><ul><li>Closest rival </li></ul></ul></ul>Company Benchmarks
  8. 8. Company Benchmarks <ul><li>Objectives of Benchmarking </li></ul><ul><ul><li>Identify best and most efficient means of performing various value chain activities </li></ul></ul><ul><ul><li>Learn what is the “best” way to perform a particular activity from those companies who have demonstrated that they are “best-in-industry” or “best-in-world” at performing the activity </li></ul></ul><ul><ul><li>Learn what other firms do to perform an activity at lower cost </li></ul></ul><ul><ul><li>Figure out what actions to take to improve a company’s own cost competitiveness </li></ul></ul>
  9. 9. <ul><li>Caveats for Benchmarking </li></ul><ul><ul><li>Duplication of best practices may not always be possible or desirable </li></ul></ul><ul><ul><ul><li>Situations differ for each firm </li></ul></ul></ul><ul><ul><ul><li>Imitators restricted to playing “catch-up” and may lose market share in economic downturns </li></ul></ul></ul><ul><ul><li>Accounting practices may vary from firm to firm </li></ul></ul><ul><ul><li>Longitudinal considerations should accompany cross-sectional comparisons </li></ul></ul>Company Benchmarks
  10. 10. Company Benchmarks <ul><li>The efficiency and activity costs should be examined for each factor in the value chain </li></ul><ul><ul><li>Inbound logistics </li></ul></ul><ul><ul><li>Operations </li></ul></ul><ul><ul><li>Outbound logistics </li></ul></ul><ul><ul><li>Marketing and sales </li></ul></ul><ul><ul><li>Service </li></ul></ul><ul><ul><li>General administration </li></ul></ul><ul><ul><li>Human resource management </li></ul></ul><ul><ul><li>Technology development </li></ul></ul><ul><ul><li>Procurement </li></ul></ul>
  11. 11. Actual vs. Plan vs. SPLY <ul><li>Benchmarks, indices, and ratios are expressed in two different forms </li></ul><ul><ul><li>Cross-Sectional Data </li></ul></ul><ul><ul><ul><li>Single Point in Time </li></ul></ul></ul><ul><ul><li>Longitudinal Data </li></ul></ul><ul><ul><ul><li>Over an extended period of time </li></ul></ul></ul>
  12. 12. Actual vs. Plan vs. SPLY <ul><li>Cross-Sectional Data </li></ul><ul><ul><li>Reveals status for a unit of time </li></ul></ul><ul><ul><ul><li>Daily </li></ul></ul></ul><ul><ul><ul><li>Weekly </li></ul></ul></ul><ul><ul><ul><li>Monthly </li></ul></ul></ul><ul><ul><ul><li>Quarterly </li></ul></ul></ul><ul><ul><ul><li>Annual </li></ul></ul></ul><ul><ul><ul><ul><li>Specified Fiscal Year </li></ul></ul></ul></ul><ul><ul><li>Usually compared to non-historical data </li></ul></ul><ul><ul><ul><li>Matched against financial or strategical objectives </li></ul></ul></ul><ul><ul><ul><li>Compared against industry average </li></ul></ul></ul><ul><ul><ul><li>Benchmarked to competitors </li></ul></ul></ul>
  13. 13. Actual vs. Plan vs. SPLY <ul><li>Longitudinal Data </li></ul><ul><ul><li>Usually includes several years or more </li></ul></ul><ul><ul><ul><li>Daily, Weekly, Monthly and Quarterly Data more subject to cyclical variations </li></ul></ul></ul><ul><ul><li>Reveals significant trends over time </li></ul></ul><ul><ul><li>More dependable for extrapolating data </li></ul></ul>
  14. 14. Actual vs. Plan vs. SPLY <ul><li>Many organizations use both cross-sectional and longitudinal data for monitoring and control </li></ul><ul><ul><li>Cross Sectional </li></ul></ul><ul><ul><ul><li>Actual vs. Plan </li></ul></ul></ul><ul><ul><ul><li>Industry and Competitor Benchmarks </li></ul></ul></ul><ul><ul><ul><li>Organizational Metrics, Statistics, and Indicators </li></ul></ul></ul><ul><ul><li>Longitudinal </li></ul></ul><ul><ul><ul><li>Actual vs. SPLY ( S ame P eriod L ast Y ear) </li></ul></ul></ul><ul><ul><ul><li>Ratio Streams </li></ul></ul></ul><ul><ul><ul><li>Trend Analysis </li></ul></ul></ul>
  15. 15. Industry Ratings and Averages <ul><li>Numerous organizations track, record, and rate performance of companies </li></ul><ul><ul><li>Government regulatory agencies </li></ul></ul><ul><ul><li>Independent Credit Rating Agencies (Standard & Poor’s, Moody’s, Fitch Ratings) </li></ul></ul><ul><ul><li>Industry analysts </li></ul></ul><ul><ul><li>Industry Associations </li></ul></ul><ul><ul><li>Independent, non-governmental organizations, alliances and partnerships </li></ul></ul><ul><ul><ul><li>Independent consumer groups, etc. </li></ul></ul></ul>
  16. 16. Industry Ratings and Averages <ul><li>Independent, non-governmental organizations, alliances and partnerships </li></ul><ul><ul><li>The American Customer Satisfaction Index </li></ul></ul><ul><ul><ul><li>Partnership of the University of Michigan Ross School of Business, the American Society for Quality, and the CFI Group consulting firm </li></ul></ul></ul><ul><ul><ul><li>Measures customer satisfaction with over 200 companies in 43 industries and sizable portion of federal government </li></ul></ul></ul>
  17. 17. <ul><li>Independent, non-governmental organizations, alliances and partnerships </li></ul><ul><ul><li>International Organization for Standardization </li></ul></ul><ul><ul><ul><li>Non-governmental organization that forms bridge between public and private sectors </li></ul></ul></ul><ul><ul><ul><li>157 countries in network, including United States </li></ul></ul></ul><ul><ul><ul><li>Specific standards </li></ul></ul></ul><ul><ul><ul><ul><li>Product </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Material </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Process </li></ul></ul></ul></ul><ul><ul><ul><li>Generic Management Systems Standards </li></ul></ul></ul><ul><ul><ul><ul><li>ISO 9001 – Quality Management System </li></ul></ul></ul></ul><ul><ul><ul><ul><li>ISO 14001 – Environmental Management System </li></ul></ul></ul></ul>Industry Ratings and Averages
  18. 18. Operational Metrics <ul><li>Organization annual reports often contain performance indicators that measure overall company operational efficiency </li></ul><ul><ul><li>Cross-sectional indicators compared against industry averages </li></ul></ul><ul><ul><li>Cross-sectional indicators compared against major competitors </li></ul></ul><ul><ul><li>Cross-sectional indicators compared against break-even calculations </li></ul></ul><ul><ul><li>Longitudinal indicators that describe overall trend over time </li></ul></ul>
  19. 19. Operational Metrics <ul><li>Examples of Operational Metrics – Airline Industry </li></ul><ul><ul><li>Cost per available seat mile </li></ul></ul><ul><ul><li>Revenue per available seat mile </li></ul></ul><ul><ul><li>Fuel cost per available seat mile </li></ul></ul><ul><ul><li>Average passenger trip length (in miles) </li></ul></ul><ul><ul><li>Passenger load factor (in %) </li></ul></ul><ul><ul><li>Passenger breakeven load factor (in %) </li></ul></ul>
  20. 20. Operational Metrics <ul><li>Examples of Operational Metrics – Retail Industry </li></ul><ul><ul><li>Revenue per full-time equivalent employees (FTE) </li></ul></ul><ul><ul><li>Revenue per employee hour </li></ul></ul><ul><ul><li>Sales per check-out line </li></ul></ul><ul><ul><li>Sales per square foot </li></ul></ul><ul><ul><li>Sales per store </li></ul></ul>
  21. 21. Key Performance Indicators (KPIs) <ul><li>Key Performance Indicators are internal operational metrics designed to measure unit efficiency within a single organization </li></ul><ul><ul><li>Division </li></ul></ul><ul><ul><li>Region </li></ul></ul><ul><ul><li>Installation </li></ul></ul><ul><ul><li>Function </li></ul></ul><ul><ul><li>Production/Service Unit </li></ul></ul>
  22. 22. Key Performance Indicators (KPI) <ul><li>KPIs used in motivation, monitoring, and control </li></ul><ul><ul><li>Measure unit efficiency for comparisons </li></ul></ul><ul><ul><li>Act as targets in Management by Objectives (MBO) and Goal Programming </li></ul></ul><ul><ul><li>Used to identify areas of concern that affect strategic and financial outcomes </li></ul></ul><ul><ul><li>Act as communications between management levels to emphasize areas of concern </li></ul></ul>
  23. 23. Key Performance Indicators (KPI) <ul><li>Four Major KPIs used by Publix </li></ul><ul><ul><li>Sales Growth % </li></ul></ul><ul><ul><li>Gross Profit % </li></ul></ul><ul><ul><li>Net Profit % </li></ul></ul><ul><ul><li>Items Per Labor Hour (IPLH) </li></ul></ul>
  24. 24. <ul><li>Overall competitive position involves answering two questions </li></ul><ul><ul><li>How does a company rank relative to competitors on each important factor that determines market success? </li></ul></ul><ul><ul><li>Does a company have a net competitive advantage or disadvantage vis-à-vis major competitors? </li></ul></ul>Competitive Strength Assessment
  25. 25. <ul><li>Assessing a Company’s Competitive Strength vs. Key Rivals </li></ul><ul><ul><li>1. List industry key success factors and other relevant measures of competitive strength </li></ul></ul><ul><ul><li>2. Rate firm and key rivals on each factor using rating scale of 1 to 10 (1 = very weak; 5 = average; 10 = very strong) </li></ul></ul><ul><ul><li>3. Decide whether to use a weighted or unweighted rating system (a weighted system is superior because chosen strength measures are unlikely to be equally important) </li></ul></ul><ul><ul><li>4. Sum individual ratings to get an overall measure of competitive strength for each rival </li></ul></ul><ul><ul><li>5. Based on overall strength ratings, determine overall competitive position of firm </li></ul></ul>Competitive Strength Assessment
  26. 26. Competitive Strength Assessment Unweighted Competitive Strength Assessment Strength Rating (Scale: 1 = Very Weak; 10 = Very Strong) Factor Competitor 1 Competitor 2 Competitor 3 Acme Co. 35 42 55 45 Overall Rating 2 7 5 7 Service 6 4 5 5 Performance 6 3 7 5 Image 2 8 7 6 Distribution 3 5 10 4 Market Share 2 4 3 3 Features 7 5 9 7 Cost 7 6 9 8 Quality
  27. 27. Competitive Strength Assessment Weighted Competitive Strength Assessment Strength Rating (Scale: 1 = Very Weak; 10 = Very Strong) Factor/Weight Competitor 1 Competitor 2 Competitor 3 Acme Co. Rating Score Rating Score Rating Score Rating Score 5.65 4.85 7.5 5.95 Overall Rating 1.00 2 0.25 7 0.35 5 0.25 7 0.35 Service .05 6 0.9 4 0.6 5 0.75 5 0.75 Performance .15 6 1.20 3 0.6 7 1.4 5 1.0 Image .20 2 0.10 8 0.4 7 0.35 6 0.3 Distribution .05 3 0.3 5 0.5 10 1.0 4 0.4 Market Share.10 2 0.1 4 0.2 3 0.15 3 0.15 Features .05 7 1.4 5 1.0 9 1.8 7 1.4 Cost .20 7 1.4 6 1.2 9 1.8 8 1.6 Quality .20