Lecture Notes for Chapter 4
Internal Situation Analysis: Evaluate a Company’s Resources, Cost Position and Competitive Strength Chapter Four discusses the techniques of evaluating a company’s internal situation, including its collection of valuable resources and capabilities, its relative cost position, and its competitive strength versus its rivals. The analytical spotlight will be trained on ﬁve questions: (1) How well is the company’s present strategy working? (2) What are the company’s competitively important resources and capabilities? (3) Are the company’s prices and costs competitive? (4) Is the company competitively stronger or weaker than key rivals? (5) What strategic issues and problems merit front-burner managerial attention? The answers to these ﬁve questions complete management’s understanding of “Where are we now?” and position the company for a good strategy situation ﬁt required of the “Three Tests of a Winning Strategy.”
I. Question 1: How Well is the Company’s Present Strategy Working? 1. The two best empirical indicators are: a. whether the company is achieving its stated ﬁnancial and strategic objectives b. whether the company is an above-average industry performer 2. Other indicators of how well a company’s strategy is working include: Trends in the company’s sales and earnings growth. Trends in the company’s stock price. The company’s overall ﬁnancial strength. The company’s customer retention rate. The rate at which new customers are acquired. Changes in the company’s image and reputation with customers. Evidence of improvement in internal processes such as defect rate, order fulﬁllment, delivery times, days of inventory, and employee productivity. 3. The stronger a company’s current overall performance, the less likely the need for radical changes in strategy. The weaker a company’s ﬁnancial performance and market standing, the more its current strategy must be questioned. Weak performance is almost always a sign of weak strategy, weak execution, or both. 357
Instructor’s Manual for Essentials of Strategic Management
II. Question 2: What are the Company’s Competitively Important Resources and Capabilities ? 1. A company’s competitive approach requires a tight ﬁt with a company’s internal situation and is strengthened when it exploits resources that are competitively valuable, rare, hard to copy, and not easily trumped by rivals’ equivalent substitute resources. 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. A. Identifying Competitively Important Resources and Capabilities 1. Common types of valuable resources and competitive capabilities that management should consider when crafting strategy include: A skill, specialized expertise, or competitively important capability Valuable physical assets Valuable human assets and intellectual capital Valuable organizational assets Valuable intangible assets An achievement or attribute that puts the company in a position of market advantage. B. Determining the Competitive Power of a Company Resource. 1. What is most telling about company’s aggregate of resources is how powerful they are in the marketplace 2. The competitive power of a company’s strength is measured by how many of the following four tests it can pass: a. Is the resource really competitively valuable? b. Is the resource strength rare – is it something rivals lack? c. Is the resource hard to copy or imitate? d. Can the resource strength be trumped by substitute resource strengths and competitive capabilities? Core Concept Companies that lack a stand-alone resource that is competitively powerful may nonetheless develop a competitive advantage through bundled resources. 3. Understanding the nature of competitively important resources allows...