Key Questions in Situation Analysis

1. Key Questions in Situation Analysis • Question 1: How well is the company’s strategy working? • Question 2: What are the company’s resource strengths and weaknesses and its external opportunities and threats? • Question 3: Are the company’s prices and costs competitive? • Question 4: Is the company competitively stronger or weaker than key rivals? • Question 5: What strategic issues and problems meritfront-burner managerial attention?

2. Is the company achieving its financial and strategicobjectives? Is the company an above-average industry performer? Situation Analysis Question 1: How Well is the Company’s Strategy Working?

3. Performance Indicators • Trends in sales and earnings growth • Trends in the company’s stock price • The company’s overall financial strength • The rate at which new customers are acquired • Image and reputation with customers • Evidence of improvement in internal processes such as defect rate, order fulfillment, and days of inventory

4. Situation Analysis Question 2: The Company’s Strengths, Weaknesses, Opportunities and Threats • S W O Trepresents the first letter in • Strengths • Weaknesses • Opportunities • Threats • For a company’s strategy to be well-conceived, it must be • Matched to its resource strengths and weaknesses • Aimed at capturing its best market opportunities and defending against external threats to its well-being

5. Identifying Resource Strengthsand Competitive Capabilities • Common types of resource strengths include • Skills or specialized expertise in a competitively important capability • Valuable physical assets • Valuable human assets or intellectual capital • Valuable organizational assets • Valuable intangible assets • Competitively valuable alliances or cooperative ventures

6. Identifying Resource Weaknessesand Competitive Deficiencies • A weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage in the marketplace • Resource weaknesses relate to • Inferior or unproven skills,expertise, or intellectual capital • Deficiencies in competitively important physical, organizational, or intangible assets • Missing or competitive inferior capabilities in key areas

7. Identifying a Company’sMarket Opportunities • Opportunities most relevantto a company are those offering • Good matchwith its financial andorganizational resource capabilities • Best prospectsfor growth and profitability • Most potentialforcompetitive advantage

8. Identifying External Threats to Profitability and Competitiveness • Entry of lower-cost foreign competitors • Burdensome regulations • Rise in interest rates • Potential of a hostile takeover • Unfavorable demographic shifts • Adverse shifts in foreign exchange rates

9. Potential Resource Strengths Resource Weaknesses Company Opportunities Potential External Threats • Powerful strategy • Strong financial condition • Strong brand name image/reputation • Widely recognized market leader • Proprietary technology • Cost advantages • Strong advertising • Product innovation skills • Good customer service • Better product quality • Alliances or JVs • No clear strategic direction • Obsolete facilities • Weak balance sheet; excess debt • Higher overall costs than rivals • Missing some key skills/competencies • Subpar profits • Internal operating problems . . . • Falling behind in R&D • Too narrow product line • Weak marketing skills • Serving additional customer groups • Expanding to new geographic areas • Expanding product line • Transferring skills to new products • Vertical integration • Take market share from rivals • Acquisition of rivals • Alliances or JVs to expand coverage • Openings to exploit new technologies • Openings to extend brand name/image • Entry of potent new competitors • Loss of sales to substitutes • Slowing market growth • Adverse shifts in exchange rates & trade policies • Costly new regulations • Vulnerability to business cycle • Growing leverage of customers or suppliers • Reduced buyer needs for product • Demographic changes SWOT Analysis

10. Situation Analysis Question 3: How Competitive Are the Company’s Prices and Costs? • Assessing whether a firm’s costsare competitive with those of rivals is a crucial part of company situation analysis • Key analytical tools • Value chain analysis • Benchmarking

11. Company Value Chain

12. Developing Data to Measure a Company’s Cost Competitiveness • After identifying key value chain activities, the next step involves determining costs of value chain activities using activity-based costing • Appropriate degree of disaggregation • Depends on the number of broad categories of primary and support activities • Requires finer classifications if problematic cost disadvantages exist

13. Activity-Based Costing

14. Benchmarking Costs ofKey Value Chain Activities • Focuses on cross-company comparisons of how certain activities are performed and costs associated with these activities • Purchase of materials • Payment of suppliers • Getting new products to market • Performance of quality control • Filling and shipping of customer orders

15. Industry Value Chain

16. Vertical Integration: Operating Across More Industry Value Chain Segments • Extend a firm’s competitive scope within the same industry • Backward into sources of supply • Forward toward end-users of final product • Can aim at either full or partial integration

17. Advantages of a Vertical Integration Strategy • Strengthen the firm’s competitive position • Boost profitability • Must achieve same scale economies as outside suppliers • Match or beat suppliers’ production efficiency with no drop-off in quality

18. Integrating Forward to Enhance Competitiveness • Gain better access to end users • Improve market visibility • Include the purchasing experience as a differentiating feature

19. Disadvantages of a Vertical Integration Strategy • Boosts capital investment in the industry • Increases business risk if industry growth and profits sour • May slow technological advances if the vertically integrated company is saddled with older technology • Poses all types of capacity-matching problems • May require radically different skills and business capabilities

20. The Case for Outsourcing • Activity can be performed better ormore cheaply by outside specialists • Activity is not crucial to achieve asustainable competitive advantage • It improves firm’s ability to innovate • Firm can concentrate on core value chain activities and leverage its resource strengths

21. Building a Competitively Superior Value Chain • There are three main areas of a company’s overall value chain where cost differences occur 1.Activities performed by suppliers 2. A company’s own internal activities 3.Activities performed by forward channel allies

22. Correcting Internal Cost Disadvantages • Implement best practices throughout the company • Try to eliminate some cost-producing activities altogether by revamping value chain • Relocate high-cost activities to lower-cost geographic areas • See if high-cost activities can be outsourced

23. Correcting Internal Cost Disadvantages • Invest in productivity enhancing, cost-saving technology • Find ways to detour aroundactivities or items where costs are high • Redesign the product or its components to reduce manufacturing costs • Make up difference by achieving savings in backward or forward portions of value chain system

24. Correcting Supplier-Related Cost Disadvantages • Pressure suppliers for lower prices • Switch to lower-priced substitutes • Collaborate closely with suppliers to identify mutual cost-saving opportunities • Integrate backward into business of high-cost suppliers

25. Correcting Cost Disadvantages Associated With Forward Channel Allies • Pressure dealer-distributors to reduce their costs • Work closely with forward channel allies to identify win-win opportunities to reduce costs • Change to a more economical distribution strategy • Switch to cheaper distribution channels • Integrate forward into company-owned retail outlets

26. Developing a Best Cost Advantage • Companies that do a first rate job of managing value chain activities relative to competitors can achieve a Best Cost Advantage

27. Developing a Best Cost Advantage • Best Cost Provider Strategies yield unique industry positioning by exceeding buyers’ expectations for differentiating features and low prices • Contingent on • A superior value chain configuration • Unmatched efficiency in managing value chain activities

28. Situation Analysis Question 4: What Is the Company’s Competitive Strength? • Overall competitive position involve answering two questions • How does a company rank relativeto competitors on each industry key success factor? • Does a company have a netcompetitive advantage or disadvantagevis-à-vis major competitors?

29. Competitive Strength Assessments

30. Interpreting the Competitive Strength Assessments • Shows how firm stacks up against rivals, measure-by-measure • Indicates whether firm is at a competitive advantage or disadvantage against each rival • Identifies possible offensive strategies that can be waged against rivals’ weaknesses • Identifies the need for defensive actions to correct competitive weaknesses

31. Situation Analysis Question 5: What Strategic Issues Must be Addressed by Management? • Final and most important analytical step in assessing “Where are we now?” • Based on results of both industry and competitive analysis • Pinpointing the precise things that should be on management’s “worry list”?