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Environment analysis
This document discusses SWOT analysis and its role in crafting business strategy. SWOT analysis involves identifying a company's strengths, weaknesses, opportunities, and threats. It is an important tool for developing an overview of a company's strategic situation and matching its strategy to that situation. Conducting a SWOT analysis effectively involves drawing conclusions from the identified strengths, weaknesses, opportunities, and threats in order to better align a company's strategy with its resources and market opportunities while also addressing weaknesses.
Environment analysis
- 2. External Environment What theFirm Might Do Internal Environment What the Firm Can Do SustainableSustainable CompetitiveCompetitive AdvantageAdvantage
- 3.
- 4. Why SWOT Analysis? Itis an easy-to-use tool for developing an overview of a company’s strategic situation It forms a basis for matching your company’s strategy to its situation
- 5. S W OTS W O T analysis involves more than just developing the 4 lists of strengths, weaknesses, opportunities, and threats The most important part of S W O TS W O T analysis is Using the 4 lists to draw conclusions about a company’s overall situation Acting on the conclusions to Better match a company’s strategy to its resource strengths and market opportunities Correct the important weaknesses Role of SWOT Analysis in Crafting a Better Strategy
- 7. Strengths A STRENGTH issomething a company is good at doing or a characteristic that gives it an important capability. Possible Strengths: Name recognition Proprietary technology Cost advantages Skilled employees Loyal Customers
- 8. A strength issomething a firm does well or an attribute that enhances its competitiveness Valuable skills, competencies, or capabilities Valuable physical assets Valuable human assets Valuable organizational assets Valuable intangible assets Important competitive capabilities An attribute placing a company in a position of market advantage(Group exercise to identify such attributes) Alliances or cooperative ventures with partnersResource strengths and competitive capabilities are competitive assets! Identifying Resource Strengths and Competitive Capabilities
- 9. Weaknesses A WEAKNESS issomething a company lacks or does poorly (in comparison to others) or a condition that places it at a disadvantage Possible Weaknesses: Poor market image Obsolete facilities Internal operating problems Poor marketing skills
- 10. Identifying Resource Weaknesses andCompetitive Deficiencies A weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage Resource weaknesses relate to Inferior or unproven skills, expertise, or intellectual capital Lack of important physical, organizational, or intangible assets Missing capabilities in key areas Resource weaknesses and deficiencies are competitive liabilities!
- 11. Strengths and Weaknessform a basis for INTERNAL analysis By examining strengths, you can discover untapped potential or identify distinct competencies that helped you succeed in the past. By examining weaknesses, you can identify gaps in performance, vulnerabilities, and erroneous assumptions about existing strategies.
- 12. Qualitative assessment – Isthe strategy well- conceived? Covers all the elements of value chain? Internally consistent? Makes sense? Timely and in step with marketplace? Quantitative assessment – What are the results? Is company achieving its financial and strategic objectives? Is company an above- average industry performer? Approaches to Assess How Well the Present Strategy Is Working
- 13. How Well Isthe Company’s Present Strategy Working? Must begin by understanding what the strategy is Identify competitive approach Low-cost leadership Differentiation Focus on a particular market niche Determine competitive scope Broad or narrow geographic market coverage? In how many stages of industry’s production/distribution chain does the company operate? Examine recent strategic moves Identify functional strategies Key ConsiderationsKey Considerations
- 14. Resources * Tangible * Intangible Capabilities Teamsof Resources Sources of Core Competencies Competitive Advantage Strategic Competitiveness Above-Average Returns Competitive Advantage Gained through Core Competencies Discovering Core Competencies Discovering Core Competencies Criteria of Sustainable Advantages Value Chain Analysis Valuable Rare Costly to Imitate Nonsubstitutable * * * * *
- 15. Resources * Tangible * Intangible DiscoveringCore Competencies Are resources strengths and/or strategic assets ??
- 16. What a firmhas to work with:What a firm has to work with: itsits assets,assets, including itsincluding its peoplepeople and the value of itsand the value of its brand namebrand name What a firmWhat a firm Has...Has...Resources
- 17. Resources representResources representinputs into ainputs into a firm’s production process...firm’s production process... such as capital equipment, skillssuch as capital equipment, skills of employees, brand names,of employees, brand names, finances and talented managersfinances and talented managers What a firmWhat a firm HasHas...... What a firm has to work with:What a firm has to work with: its assets, including its people and theits assets, including its people and the value of its brand namevalue of its brand name Resources
- 18. What a firmhas to work with:What a firm has to work with: its assets, including its people and theits assets, including its people and the value of its brand namevalue of its brand name Resources represent inputs into a firm’sResources represent inputs into a firm’s production process...production process... such as capital equipment, skills ofsuch as capital equipment, skills of employees, brand names, finances andemployees, brand names, finances and talented managerstalented managers ““Some genius invented the Oreo. We’reSome genius invented the Oreo. We’re just living off the inheritance.”just living off the inheritance.” F. Ross Johnson,F. Ross Johnson, Former President & CEO,Former President & CEO, RJR NabiscoRJR Nabisco What a firmWhat a firm HasHas......Resources
- 19. Tangible Resources Financial* Physical* Human Resources* Organizational* Whata firm Has... What a firm has to work with: its assets, including its people and the value of its brand name Resources represent inputs into a firm’s production process... such as capital equipment, skills of employees, brand names, finances and talented managers Intangible Resources Technological* Innovation* Reputation* “Some genius invented the Oreo. We’re just living off the inheritance.” F. Ross Johnson, Former President & CEO, RJR Nabisco Resources
- 20. Resources * Tangible * Intangible Capabilities Teamsof Resources Discovering Core Competencies Discussion-What are capabilities??
- 21. What a firmDoes... Capabilities represent:Capabilities represent: the firm’s capacity or ability tothe firm’s capacity or ability to integrateintegrate individual firm’s resourcesindividual firm’s resources to achieve ato achieve a desired objective.desired objective. Capabilities
- 22. What a firmDoes... Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources that are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firm's employees.(Discussion on examples ) Capabilities represent: the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective. Capabilities
- 23. What a firmDoes... Capabilities represent: the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective. Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources that are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firm's employees. Capabilities become important when they areCapabilities become important when they are combined incombined in unique combinationsunique combinations which createwhich create core competencies which havecore competencies which have strategic valuestrategic value andand can lead tocan lead to competitive advantagecompetitive advantage.. Capabilities
- 24. Resources * Tangible * Intangible Capabilities Teamsof Resources Discovering Core Competencies Sources of Core Competencies Competitive Advantage Discovering Core Competencies
- 25. How do weassemble bundles of Resources,How do we assemble bundles of Resources, Capabilities and Core Competencies toCapabilities and Core Competencies to createcreate VALUEVALUE for customers?for customers? Will environmental changes make ourWill environmental changes make our core competencies obsolete?core competencies obsolete? And...And... Are substitutes available for our coreAre substitutes available for our core competencies?competencies? Are our core competencies easily imitated?Are our core competencies easily imitated? Key Questions for Managers in Internal Analysis
- 26. What a firmDoes... that is Strategically Valuable “…“…are the essence of what makes anare the essence of what makes an organization unique in its ability to provideorganization unique in its ability to provide value to customers.”value to customers.” Leonard-Barton, Bowen, Clark, Holloway &Leonard-Barton, Bowen, Clark, Holloway & WheelwrightWheelwright McKinsey & Co. recommends identifying three toMcKinsey & Co. recommends identifying three to four competencies to use in framing strategicfour competencies to use in framing strategic actions.actions. Core Competencies
- 27. Resources * Tangible * Intangible Capabilities Teamsof Resources Sources of Core Competencies Competitive Advantage Discovering Core Competencies Criteria of Sustainable Advantages Valuable Rare Costly to Imitate Non substitutable * * * * Discovering Core Competencies- Discussion * Outsource
- 28. For a strategiccapability toFor a strategic capability to be a Core Competency, itbe a Core Competency, it must be:must be: Core Competencies Valuable Rare Costly to Imitate Nonsubstitutable What a firm Does... that is Strategically Valuable
- 29. Core Competencies mustbe: Valuable Capabilities that help a firm to exploit opportunities to create value for customers or neutralise threats Nonsubstitutable Capabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships What a firm Does... that is Strategically Valuable Core Competencies Rare Costly to Imitate Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity Capabilities that are possessed by few, if any, current or potential competitors
- 30. Stem from skills,expertise, and experience usually representing an Accumulation of learning over time and Gradual buildup of real proficiency in performing an activity Involve deliberate efforts to develop the ability to do something, often entailing Selecting people with requisite knowledge and skills Upgrading or expanding individual abilities Molding work products of individuals into a cooperative effort to create organizational ability A conscious effort to create intellectual capital Company Competencies and Capabilities
- 31. Core Competencies – AValuable Company Resource A competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitability Often, a core competence is knowledge-based, residing in people, not in assets or a balance sheet A core competence is typically the result of cross- department collaboration A core competence gives a company a potentially valuable competitive capability and represents a definite competitive asset
- 32. Examples: Core Competencies Expertisein integrating multiple technologies to create families of new products Know-how in creating operating systems for cost efficient supply chain management Speeding new/next-generation products to market Better after-sale service capability Skills in manufacturing a high quality product Capability to fill customer orders accurately and swiftly
- 33. Examples: Distinctive Competencies Toyota Low-cost, high-quality manufacturingof motor vehicles Starbucks Innovative coffee drinks and store ambience
- 34. Determining the Competitive Powerof a Company Resource To qualify as competitively valuable or to be the basis for sustainable competitive advantage, a “resource” must pass 4 tests: 1. Is the resource hard to copy? 2. Is the resource durable – does it have staying power? 3. Is the resource really competitively superior? 4. Can the resource be trumped by the different capabilities of rivals?
- 35. A company’s businessconsists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service All these activities that a company performs internally combine to form a value chain—so-called because the underlying intent of a company’s activities is to do things that ultimately create value for buyers The value chain contains two types of activities Primary activities (where most of the value for customers is created) Support activities that facilitate Concept: Company Value Chain
- 36. Support Activities Primary Activities Value ChainAnalysis Identifying Resources and Capabilities That Can Add Value
- 37. Support Activities Primary Activities InboundInbound LogisticsLogistics Value ChainAnalysis Identifying Resources and Capabilities That Can Add Value
- 38. Support Activities Primary Activities InboundInbound LogisticsLogistics OperationsOperations Value ChainAnalysis Identifying Resources and Capabilities That Can Add Value
- 39. Support Activities Primary Activities InboundInbound LogisticsLogistics OperationsOperations OutboundOutbound LogisticsLogistics Value ChainAnalysis Identifying Resources and Capabilities That Can Add Value
- 40. Support Activities Primary Activities InboundInbound LogisticsLogistics OperationsOperations OutboundOutbound LogisticsLogistics MarketingMarketing &Sales&Sales Value ChainAnalysis Identifying Resources and Capabilities That Can Add Value
- 41. Support Activities Primary Activities InboundInbound LogisticsLogistics OperationsOperations OutboundOutbound LogisticsLogistics MarketingMarketing &Sales&Sales ServiceService Value ChainAnalysis Identifying Resources and Capabilities That Can Add Value
- 42. Support Activities Primary Activities InboundInbound LogisticsLogistics OperationsOperations OutboundOutbound LogisticsLogistics MarketingMarketing &Sales&Sales ServiceService ProcurementProcurement Value ChainAnalysis Identifying Resources and Capabilities That Can Add Value
- 43. Support Activities Primary Activities InboundInbound LogisticsLogistics OperationsOperations OutboundOutbound LogisticsLogistics MarketingMarketing &Sales&Sales ServiceService ProcurementProcurement Technological DevelopmentTechnologicalDevelopment Value Chain Analysis Identifying Resources and Capabilities That Can Add Value
- 44. Support Activities Primary Activities Technological DevelopmentTechnologicalDevelopment ProcurementProcurement InboundInbound LogisticsLogistics OperationsOperations OutboundOutbound LogisticsLogistics MarketingMarketing &Sales&Sales ServiceService Human Resource ManagementHuman Resource Management Value Chain Analysis Identifying Resources and Capabilities That Can Add Value
- 45. Support Activities Primary Activities Technological DevelopmentTechnologicalDevelopment Human Resource ManagementHuman Resource Management Firm InfrastructureFirm Infrastructure ProcurementProcurement InboundInbound LogisticsLogistics OperationsOperations OutboundOutbound LogisticsLogistics MarketingMarketing &Sales&Sales ServiceService Value Chain Analysis Identifying Resources and Capabilities That Can Add Value
- 46. Support Activities Primary Activities Technological DevelopmentTechnologicalDevelopment Human Resource ManagementHuman Resource Management Firm InfrastructureFirm Infrastructure ProcurementProcurement InboundInbound LogisticsLogistics OperationsOperations OutboundOutbound LogisticsLogistics MarketingMarketing &Sales&Sales ServiceService M A R G IN M A R G IN M A R G IN M A R G IN Value Chain Analysis Identifying Resources and Capabilities That Can Add Value
- 47. Assessing whether afirm’s costs are competitive with those of rivals is a crucial part of company situation analysis Key analytical tools Value chain analysis Benchmarking Are the Company’s Prices and Costs Competitive?
- 48. Example: Value Chain Activities fora Bakery Goods Maker Primary Activities Supply chain management Recipe development and testing Mixing and baking Packaging Sales and marketing Distribution Support Activities Quality control Human resource management Administration
- 49. Example: Value ChainActivities for a Department Store Retailer Primary Activities Merchandise selection and purchasing Store layout and product display Advertising Customer service Support Activities Site selection Hiring and training Store maintenance Administrative activities
- 50. Example: Value Chain Activitiesfor a Hotel Chain Primary Activities Site selection and construction Reservations Operation of hotel properties Managing lineup of hotel locations Support Activities Accounting Hiring and training Advertising Building a brand and reputation General administration
- 51. Core Competencies--Cautions andReminders Never take for granted that core competencies will continue to provide a source of competitive advantage All core competencies have the potential to become Core Rigidities Core Rigidities are former core competencies that sow the seeds of organizational inertia and prevent the firm from responding appropriately to changes in the external environment Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental change or competitive threats
- 52. Resources * Tangible * Intangible Capabilities Teamsof Resources Sources of Core Competencies Competitive Advantage Strategic Competitiveness Above-Average Returns Competitive Advantage Gained through Core Competencies Discovering Core Competencies Value Chain Analysis Valuable Rare Costly to Imitate Nonsubstitutable * * * * * Outsource Criteria of Sustainable Advantages Discovering Core Competencies