The document discusses evaluating company resources and competitive capabilities. It identifies various types of strengths a company can have, including skills, physical and organizational assets, intangible assets, and competitive capabilities. Strengths are evaluated based on how hard they are to copy, how long they last, and how superior they are to competitors. Weaknesses and deficiencies are also identified. The document discusses identifying market opportunities and threats to a company. It evaluates assessing whether a company's costs are competitive through tools like strategic cost analysis and value chain analysis. Reasons for cost differences between companies are provided. The document defines strategic options like generic strategies, grand strategies, low-cost strategy, differentiation strategy, best-cost strategy, focus strategy, and various
Strategic management chapter 5 and 6 note for bba vii
1. Unit: 5 Evaluating Company Resources and Competitive capabilities
Identifying company strengths and resource capabilities
A strength is something a company is good at doing or a characteristic that gives it enhanced
competitiveness.
• A skill or important expertise: Low cost manufacturing capabilities, strong e commerce
expertise, unique advertising and promotional talents.
• Valuable physical assets: Attractive location, worldwide distribution network,
ownership of valuable natural resources.
• Valuable organizational assets: an experienced and capable workforce, talented
employees in key areas, motivated and energetic employees, entrepreneurship and
managerial know how
• Valuable organizational assets: Proven quality control system, key patents, computer
assisted design system, well supply chain management system
• Valuable intangible assets: brand name image, company reputation, buyer goodwill
• Competitive capabilities: short development time in bringing new product, strong
partnerships with key suppliers, R and D capabilities
• Alliances and cooperative ventures: fruitful collaborative partnership with suppliers
and distribution system
Determining the competitive value of a company resource:
• Is the resource hard to copy?
• How long does the resource last? The longer a resource lasts, the greater the value.
• Is the resource really competitively superior to competitors?
Identifying company weaknesses and resources deficiencies
A weakness is something a company lacks or does poorly or a condition that puts it at a
disadvantage. A company internal weaknesses can relate to
• Deficiencies in competitively important skill or expertise or intellectual capital
• Lack of physical organizational or intangible assets.
• Missing competitive capabilities in key areas
• Deficiencies in above mentioned competitiveness
Identifying a company's market opportunities
The market opportunities most relevant to a company are those that offer important avenues for
profitable growth those where a company has the most potential for competitive advantage and
those that match up well with the company's financial and organization resource capabilities.
2. Evaluate the opportunities based on
• attractiveness
• Match of with company's financial and organizational resources
• Situation and circumances
Identifying the threats to a company's future profitability
A threats is unfavorable condition that put it disadvantages for the company
Emergence of cheaper/better technologies
Introduction of better products by rivals
Onerous (burden) regulations
Rise in interest rates
Potential of a hostile takeover
Unfavorable demographic shifts
Adverse shifts in foreign exchange rates
Political upheaval in a country
Are the company's prices and costs competitive?
1. Assessing whether a firm’s costs are competitive with those of rivals is a crucial part of
company analysis
2. Key analytical tools
• Strategic cost analysis
• Value chain analysis
• Benchmarking
Why rival companies have different costs?
Companies do not have the same costs because of differences in
1. Prices paid for raw materials, component parts, energy, and other supplier
resources
2. Basic technology and age of plant & equipment
3. Economies of scale and experience curve effects
4. Wage rates and productivity levels
5. Marketing, promotion, and administration costs
6. Inbound and outbound shipping costs
7. Forward channel distribution costs
What is strategic cost analysis?
1. Focuses on a firm’s costs relative to its rivals
2. Compares a firm’s costs activity by activity against costs of key rivals
7. Link with other activities in the company or industry value chain: when the cost of one activity
is affected by how other activities are performed, costs can be managed downward by making
sure that linked activities are performed in cooperative and coordinated fashion.
The percentage of capacity utilization: higher rate of percentage use, getting more cost
advantage and vice versa
2. Revamping value chain: Dramatic cost advantage can emerge from finding innovative
ways to restructure process. The primary ways to achieve cost advantage by
reconfiguring their value chain include
Shifting to e business technologies: Use of the internet can enable online shopping and
purchases, online order processing and bill payment online data sharing. For example Amazon.
com
Using direct to end user sales and marketing approach
Simplifying product design: Unitizing computer assisted design technique, standardize parts and
components
Reengineering of business process and layout system
Dropping the "something for everyone" aproach
Pitfalls of Low-Cost Strategies
Being overly aggressive in cutting price
Low cost methods are easily imitated by rivals
Becoming too fixated on reducing costs
and ignoring
Buyer interest in additional features
Declining buyer sensitivity to price
Changes in how the product is used
Buyer may believe product or services are low quality
Differentiation strategy
The essence of a differentiation strategy is to be unique in ways that are valuable to customer
and can be sustained. Differentiation strategy are an attractive competitive approach
whenever buyer needs and preference are standardized product or by seller with identical
capabilities. Incorporate differentiating features that cause buyers to prefer firm’s product or
service over brands of rivals. It also refer to find out the ways for differentiation that create
value for buyers and that are not easily matched or cheaply copied by rivals
11. This grand strategy basically related with market related activities and tries to develop
competitive advantage through
• Cosmetic modification of the product and service
• Adding different channels of distribution
• By changing the content of advertising and promotional media
• By opening additional geographic market
• Attractive other market segment
When to pursue?
• When product life cycle stage reach to growth stage
• When Company able to attract new customer
• When favorable brand strategy
2. Product development
Product development involves substantial modification of existing products or creation of new
but related items that can be marketed to current customers through established channel. A
company can get competitive advantage through
• Developing new product feature (color, change sound shape stronger)
• Developing quality variation
• Developing additional model and size
When is best?
• When company's initial offering response positively by the customer
• When product reach to decline stage
• When customer prefer modified product
3. Growth and expansion
This strategy is recommend when a company in best position. In such condition company have
relatively high competitive position and high market growth rate as well. In such situation the
company is getting rapidly markets and require substantial investment to expand.
When is best?
1. When the product reach growth stage of PLC
2. When the product highly saleable and favorable
3. When both market growth rate and competitive position is relatively high
4. When company has numerous environmental opportunities and internally in strength
position.
4. Horizontal integration
This is long term strategy of a firm is based on growth through the acquisition of one or more
similar businesses operating at the same stage of the production marketing chain.
When it pursue?
• When integration provides access to new markets for the acquiring firm and eliminated
competitors
12. • When integrated makes organization more strong.
• When integrated will be benefited in regarding with resource availability market change
• When weakness of company will be fulfilled by integration
• When company is able to greatly expand its operation thereby achieving grater market
share, improving economies of scale, increase efficiency.
5. Vertical integration
This is long term strategy of a firm involves the acquisition of business that supply the firm with
inputs or serve as a customer for the firms output. For example if a shirt manufacturer acquire a
textile producer by purchasing its common stock and assets. It may be either backward or
forward integration.
When it pursue?
• When a company face different problems while distribution of final product to customer
or supply raw material from supplier.
• When integration is beneficial to the company
• Desire to decrease dependability of supply of raw material (backward integration)
• When the firm can better control its cost and thereby improve the profit margin.
6. Concentric diversification
When diversification involves related the existing business in terms of technology, markets and
products it is called concentric diversification. In such diversification the new business will be
selected on the basis of high degree of compatibility with current business.
When it pursue?
• When diversification increase strength and opportunities as well as decrease weakness
and risk
• When synergic effects increase the efficiency and capabilities of the company
• When existing technology, market and resource can be used even after diversification and
get competitive advantage.
• Better use of available resources.
7. Conglomerate diversification
When diversification is made for acquiring the most profitable business area in unrelated field.
The principal and often sole concern of the acquiring firm is the profit pattern.
(The principal difference between two types of diversification is that concentric acquisitions
emphasize some commonality in markets, products or technology whereas conglomerate
acquisition are based on profit consideration)
When to pursue?
• when company's available resources are mismatch for related diversification
• When unrelated diversification have high growth potentiality
• When current business is unsuccessful
• When current business is highly success (product mix concept)
8. Stability strategy
When company continues the previous strategy the strategy adopted is called Stability strategy.
13. When to pursue?
• When managers are risk avoider
• Incorporation of new things does not have significant impact for company's progress.
• Less volatile condition
• When company is getting advantage and profit from current strategy.
9 Retrenchment strategy
Large number of reasons a business can find itself with declining profit. The causes of declining
profit are different reasons. Because of this problem company can't continue their business. In
such condition the company faces maximum threats to continue their business and difficult to
sustain. Since the company faces threats and difficulties in the market, they reduce their business
activities. When company reduces their business activities it is called retrenchment. Such kind of
reduction is in two ways
Cost reduction: Decreasing the work force, leasing rather than purchasing equipment, extending
life of machinery
Assets reduction: sale of land, building, and equipment
When to pursue?
• If the country is facing economic recessions condition
• If the company is facing production inefficiency problem
• A innovative breakthrough by competitors
• When company continuously facing loss from long time and less chances to recoup
again.
10. Turnaround strategy
This is also almost similar to retrenchment strategy. This strategy again recommend when the
company is facing maximum threats and difficulties in existing business. The turnaround
commonly associated with change in management position. Here we change the leader top
management role.
When to pursue?
• Bringing new manager introduces needed new perspectives and raise employee morale
for the company.
• Facilitate to change drastic actions which lead to potential growth of the company.
• Refer (turnaround strategy)
11. Defensive strategy
Current scenario shows that the company is facing difficulties and little chance to revive. But in
coming years, there is chance to grow in future by the company. In such condition, this year the
company try to survive and will take necessary step in coming year. This is called defensive
strategy.
When to pursue?
• When the company have critical internal weakness and externally major environmental
threats
• When the company currently facing threats but there is chance to grow in future.
14. 12. Liquidation strategy
When the grand strategy is that of liquidation, t6he business is typically sold in parts. In such
condition the strategic managers of a business are admitting failure and recognize that this action
is likely to result in great hardships to themselves and their employees.
When is it best?
• When firms face severe loss for long time and there is difficult to cope such loss.
• When firms position lies on low industry attractiveness and low business strength in GE 9
cell matrix
• When firms position lies on Low market share and low market growth in BCG matrix
and there is difficult survive from that position
13.Joint venture/Merger/Strategic alliance
Joint venture : A joint venture is a partnership in which the domestic firm and foreign firm
negotiate tie ups involving one or mere of the following: equity, transfer of technology,
investment, production and marketing. Joint venture is a strategic alliance in which two or more
firms create a legally independent company to share some of their resources and capabilities to
develop a competitive advantage.
Mergers: The most extensive form of participation in global markets is 100 percent ownership;
which may be achieved by startup merger or acquisition.
Strategic alliance: A Strategic Alliance is a formal relationship between two or more parties to
pursue a set of agreed upon goals or to meet a critical business need while remaining
independent organizations.
When is it best?
1. When the each partners to concentrate on activities that best match their capabilities.
2. When the firm learning from partners & developing competences that may be more
widely exploited elsewhere
3. Adequacy a suitability of the resources & competencies of an organization for it to
survive.