[MHR 410] Internal Strategy

Key Points:

There are five key questions to consider in analyzing a company's own particular competitive circumstances and its competitive position vis-à-vis key rivals:

1. How well is the present strategy working?
• This involves evaluating the strategy from a qualitative standpoint (completeness, internal consistency, rationale, and suitability to the situation) and also from a quantitative standpoint (the strategic and financial results the strategy is producing). The stronger a company's current overall performance, the less likely the need for radical strategy changes. The weaker a company's 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. What are the company's competitively important resources and capabilities?
• A company's resources, competitive capabilities, and core competencies are strategically relevant because they are the most logical and appealing building blocks for strategy. In fact, many companies pursue resource-based strategies that attempt to exploit company resources in a manner that offers value to customers in ways rivals are unable to match. The most potent resource-based strategies exploit resources which are competitively valuable, rare, hard to copy or imitate, and are not easily trumped by substitute resources. A SWOT analysis is a simple but powerful tool for sizing up a company's resource strengths and competitive deficiencies, its market opportunities, and the external threats to its future well-being. 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 company's most attractive opportunities and at defending against threats to its well-being.
3. Are the company's prices and costs competitive?
• One telling sign of whether a company's situation is strong or precarious is whether its prices and costs are competitive with those of industry rivals. Value chain analysis and benchmarking are essential tools in determining 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 that how competently a company manages its value chain activities relative to rivals is a key to building a competitive advantage based on either better competencies and competitive capabilities or lower costs than rivals.
4. Is the company competitively stronger or weaker than key rivals?
• The key appraisals here involve how the company matches up against key rivals on industry key success factors and other chief determinants of competitive success and whether and why the company has a competitive advantage or disadvantage. Quantitative competitive strength assessments, using the method presented in Table 4.2, indicate where a company is competitively strong and weak and provide insight into the company's ability to defend or enhance its market position. As a rule a company's competitive strategy should be built around its competitive strengths and should aim at shoring up areas where it is competitively vulnerable. When a company has important competitive strengths in areas where one or more rivals are weak, it makes sense to consider offensive moves to exploit rivals' competitive weaknesses. When a company has important competitive weaknesses in areas where one or more rivals are strong, it makes sense to consider defensive moves to curtail its vulnerability.
5. What strategic issues and problems merit front-burner managerial attention?
• This analytical step zeros in on the strategic issues and problems that stand in the way of the company's success. It involves using the results of both industry and competitive analysis and company situation analysis to identify a “worry list” of issues to be resolved in order for the company to be financially and competitively successful in the years ahead. Actually deciding upon a strategy and what specific actions to take is what comes after the list of strategic issues and problems that merit front-burner management attention has been developed.

Good company situation analysis, like good industry and competitive analysis, is a valuable precondition for good strategy making.

CHAPTER 4:
EVALUATING A COMPANY’S RESOURCES, CAPABILITIES, AND COMPETITIVENESS Copyright ®2012 The McGraw-Hill Companies, Inc.

Objectives:

• Learn how to take stock of how well a company’s strategy is working.
• Understand why a company’s resources and capabilities are central to its strategic approach and how to evaluate their potential for giving the company a competitive edge over rivals.
• Discover how to assess the company’s strengths and weaknesses in light of market opportunities and external threats.
• Grasp how a company’s value chain activities can affect the company’s cost structure, degree of differentiation, and competitive advantage.
• Understand how a comprehensive evaluation of a company’s competitive situation can assist managers in making critical decisions about their next strategic move

QUESTION 1: 

HOW WELL IS THE COMPANY’S PRESENT STRATEGY WORKING?

• Best indicators of a well-conceived, well-executed strategy:
• The company is achieving its stated financial and strategic objectives.
• The company is an above-average industry performer.

Identifying the Components of a Single-Business Company’s Strategy

QUESTION 2: 

WHAT ARE THE COMPANY’S COMPETITIVELY IMPORTANT RESOURCES AND CAPABILITIES?

• Competitive Assets
• Are the firm’s resources and capabilities.
• Are the determinants of its competitiveness and ability to succeed in the marketplace.
• Are what a firm’s strategy depends on to develop sustainable competitive advantage over its rivals.

Resources and Capabilities

• A Resource
• Is a productive input or competitive asset that is owned or controlled by a company (e.g., a fleet of oil tankers).
• A Capability
• Is the capacity of a firm to perform some activity proficiently (e.g., superior skills in marketing).

Types of Company Resources

• Tangible Resources
• Physical resources
• Financial resources
• Technological assets
• Organizational resources
• Intangible Resources
• Human assets and intellectual capital
• Brands
• External relationships
• Company culture and incentive system

Resource and Capability Analysis

• Identify the firm’s resources and capabilities.
• Test the competitive power of the firm’s resources and capabilities:
• Is the resource (or capability) competitively valuable?
• Is the resource rare—is it something rivals lack?
• Is the resource hard to copy?
• Can the resource be overcome by different types of resources and capabilities—are there good substitutes available for the resource?

Managing Resources and Capabilities Dynamically

• Threats to Resources and Capabilities:
• Rivals providing better substitutes over time
• Capabilities decaying from benign neglect
• Disruptive competitive environment change
• Managing Capabilities Dynamically
• Is the process of creating new and\or updating existing resources\capabilities to obtain durable value in both resource types in syncing their support of a resource-based competitive strategy.

QUESTION 3: 

IS THE COMPANY ABLE TO SEIZE MARKET OPPORTUNITIES AND NULLIFY EXTERNAL THREATS?

• SWOT Analysis
• Is a powerful tool for sizing up a firm’s:
• Internal strengths (the basis for strategy)
• Internal weaknesses (deficient capabilities)
• Market opportunities (strategic objectives)
• External threats (strategic defenses)

What Do the SWOT Listings Reveal?

• SWOT Analysis Involves:
• Drawing conclusions from the SWOT listings about the firm’s overall situation.
• 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.

The Steps Involved in SWOT Analysis:

Identify the Four Components of SWOT, Draw Conclusions, Translate Implications into Strategic Actions

The Concept of a Company Value Chain

• The Value Chain
• Identifies the primary internal activities that create customer value and the related support activities.
• Permits a deep look at the firm’s cost structure and ability to offer low prices.
• Reveals the emphasis that a firm places on activities that enhance differentiation and support higher prices.

A Representative Company Value Chain

Benchmarking and Value Chain Activities

• Benchmarking:
• Involves improving a firm’s internal activities based on learning other companies’ “best practices.”
• Assesses whether the cost competitiveness and effectiveness of a firm’s value chain activities are in line with its competitors’ activities.
• Sources of Benchmarking Information
• Reports, trade groups, analysts and customers
• Visits to benchmark companies
• Data from consulting firms

Strategic Options for Remedying a Disadvantage in Costs or Effectiveness

• There are three places in the total value chain system for a company to look for ways to improve its efficiency and effectiveness:
• The firm’s own activity segments
• The suppliers’ part of the overall value chain
• The distribution channel portion of the chain.

QUESTION 5:

IS THE COMPANY COMPETITIVELY STRONGER OR WEAKER THAN KEY RIVALS?

• Competitive Advantage Indicators:
• Ability to effectively and efficiently bundle resources and capabilities.
• Achieving a high rank on each key success factor.
• Having a net competitive advantage over its rivals.

A Representative Weighted Competitive Strength Assessment