Chapter 4. Evaluating a Company's Resources, Capabilities, and Competitiveness Question 1: How Well Is the Company's Strategy Working?
Learn how to assess how well a company's strategy is working. The two best indicators of how well a company's strategy is working are (1) whether the company is recording gains in financial strength and profitability and (2) whether the company's competitive strength and market standing are improving. Persistent shortfalls in meeting company financial performance targets and weak performance relative to rivals are reliable warning signs that the company suffers from poor strategy making, less-than-competent strategy execution, or both. 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. 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. (A compilation of financial ratios most commonly used to evaluate a company's financial performance and balance sheet strength is presented in the Appendix on pages 240–241.)
Question 2: What Are the Company's Competitively Important Resources and Capabilities? LO2
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. As discussed in Chapter 1, a company's business model and strategy must be well matched to its collection of resources and capabilities. An attempt to create and deliver customer value in a manner that depends on resources or capabilities that are deficient and cannot be readily acquired or developed is unwise and positions the company for failure. 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' substitute resources. In addition, long-term competitive advantage requires the ongoing development and expansion of resources and capabilities to pursue emerging market opportunities and defend against future threats to its market standing and profitability.1 Sizing up the company's collection of resources and capabilities and determining whether they can provide the foundation for competitive success can be achieved through resource and capability analysis.This is a two-step process: (1) identify the company's resources and capabilities, and (2) examine them more closely to ascertain which are the most competitively important and whether they can support a sustainable competitive advantage over rival firms.2 This second step involves applying the four tests of a resource's competitive power. Resource and capability analysis is a powerful tool for sizing up a company's competitive assets and determining if the assets can support a sustainable competitive advantage over market rivals. Identifying Competitively Important Resources and Capabilities A company's resources are competitive assets that are owned or controlled by the company and may either be tangible resources such as plants, distribution centers, manufacturing equipment, patents, information systems, and capital reserves or creditworthiness orintangible assets such as a well-known brand or a results-oriented organizational culture. Table 4.1 lists the common types of tangible and intangible resources that a company may possess. CORE CONCEPT
A resource is a...
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