1. MODULE 4
COMPANY
SITUATION
ANALYSIS

2. MODULE OUTLINE Determining How Well Present Strategy is Working
SWOT Analysis
Strengths & Weaknesses of Firm
Opportunities & Threats Facing Firm
Strategic Cost Analysis & Value Chains
Assessing Firm’s Competitive Position
Identifying Strategic Issues

3. KEY QUESTIONS IN COMPANY SITUATION ANALYSIS
How well is firm’s present strategy working?
What are firm’s strengths, weaknesses, opportunities,& threats?
Are firm’s prices & costs competitive?
How strong is firm’s competitive position?
What strategic issues does firm face?

4. WHAT IS COMPANY’S STRATEGY?
Identify competitive approach
Low-cost leadership
Differentiation
Focus
Determine competitive scope
Stages of industry’s production/distribution chain
Geographic coverage
Customer
Identify functional strategies
Examine recent strategic moves

5. HOW WELL IS PRESENT STRATEGY WORKING?
Key indicates of strategic & financial performance
Trends in profit margins
Trends in net profits & return on investment
Credit ranking
Leadership role(s), I.e. technology, quality, etc.
Competitive advantages or disadvantages
Is competitive position getting stronger/weaker?

6. HOW WELL IS PRESENT STRATEGY WORKING?
The stronger a company’s recent
Strategic and fi0nancial
Performance, the more likely it has
A well-conceived, well-executed strategy.
Weak strategic and financial performance
is usually a sign of weak strategy or
Weak execution or both!

7. SWOT analysis SWOT represents the first letter in
Strengths
Weaknesses
Opportunities
Threats
SWOT analysis involves sizing-up firm’s
INTERNAL strengths & weaknesses and
EXTERNAL opportunities & threats

8. IDENTIFYING INTERNAL STRENGTHS & WEAKNESSES
A STRENGTH is something firm is good at or
characteristic giving it an important capability
Useful skill
Important know-how
Competitive capability
Achievement giving firm a market advantage
A WEAKNESS is something firm lacks, does poorly,
or condition placing it at a disadvantage

9. IDENTIFYING INTERNAL STRENGTHS & WEAKNESSES
Basic Concept
A company’s internal strengths usually represent
COMPETITIVE ASSETS; its internal weaknesses
Usually represent COMPETITIVE LIABILITIES.
The desired condition is for the assets to
OUTWEIGH the liabilities by a hefty margin!

10. SIGNIFICANCE OF A COMPANY’S STRENGTHS & WEAKNESSES
strengths are significant to strategy-making
because they can
Serve as cornerstones of strategy
Help build COMPETITIVE ADVANTAGE
A good strategy aims at correcting firm’s
WEAKNESSES which can
Make it vulnerable
Prevent it from pursuing attractive
opportunities
Put it at a competitive disadvantage

11. STRATEGIC MANAGEMENT PRINCIPLE
Successful strategists seek to EXPLOIT what a company
does best:
Expertise
Strengths
Core competencies
Strongest competitive capabilities
Strategists shun strategies placing heavy demands on
Areas Where company is weakest or has
unproven ability!

12. BUILDING A CORE COMPETENCE
Definition
A CORE COMPETENCE is
something a company
Does ESPECIAALY WELL
in comparison to its
Competitors!

13. TYPE OF CORE COMPETENCIES
Superior skills in producing high quality product
Superior system for delivering customer orders
Accurately & swiftly
Better after-sale service capability
More skill in achieving low operating costs
Unique formula for selecting good retail locations
Unusual innovativeness in developing new products
Better merchandising & product display skills
Superior mastery of an important technology
Unusually effective sales force

14. SIGNIFICANCE OF A CORE COMPETENCE
A CORE COMPETENCE is important because of
Added capability it gives firm
Competitive edge it can yield
Potential for it being a cornerstone of strategy
COMPETITIVE ADVANTAGE is easier to build when
Firm has a CORE COMPETENCE
Rival firms do not have offsetting competencies
It’s costly & time-consuming for rivals to match competency

15. STRATEGIC MANAGEMENT PRINCIPLE
CORE COMPETENCIES
Empower a company to build
Competitive advantage!

16. IDENTIFYING EXTERNAL OPPORTUNITIES
OPPORTUNITIES most relevant to a firm are factors in EXTERNAL environment offering
Some kind of competitive advantage
Important avenues for growth

17. IDENTIFYING EXTERNAL THREATS
EXTERNAL FACTORS posing a danger to firm
Emergence of cheaper technologies
Introduction of new/better products by rivals
Entry of low-cost foreign competitors
New regulation
Vulnerability to rise interest rates
Potential of hostile takeover
Unfavorable demographic shifts
Adverse shifts in foreign exchange rates
Political upheaval in a country

18. SIGNIFICANCE OF A COMPANY’S OPPORTUNITIES & THREATS
Affect attractiveness of firm’s situation
Point to need for strategic action

19. STRATEGIC MANAGEMENT PRINCIPLE
A good strategy is always aimed at capturing
A company’s best growth opportunities and
Creating defenses against threat to its competitive
Position and future performance. Otherwise, it
Doesn’t fit the company’s situation!

20. ROLE OF SWOT ANALYSIS IN CRAFTING A BETTER STRATEGY
SWOT analysis helps answer key questions
Does firm have internal strengths an attractive strategy can be built on ?
Which weaknesses does strategy need to correct?
Do firm’s weaknesses disqualify it from pursuing certain opportunities?
Which opportunities does firm have resources to pursue with
a chance of success?
What threats should firm worry most about?

21. WHAT IS STRATEGIC COST ANALYSIS?
Definition
Comparing a firm’s cost position RELATIVE to key
Competitors ACTIVITY by ACTIVITIY
From raw materials purchase to
Price paid ultimate customers
Assessing if firm’s costs are competitive with those of
Rivals is a crucial part of company situation analysis.

22. WHAT IS STRATEGIC COST ANALYSIS?
Cost disparities among rivals can stem from
differences in
Prices paid for raw materials, component
parts, energy, & other supplier resources
basic technology & age of plant & equipment economies of scale & experience curve effects wage rates & productivity levels
Changes in inflation & foreign exchange rates
Marketing & distribution costs
Inbound & outbound shipping costs

23. PRINCIPLE OF COMPETITIVE MARKETS
The higher a company’s costs
Are above those of close rivals,
The more competitively
Vulnerable it becomes!

24. THE VALUE CHAIN CONCEPT
Definition
A VALUE CHAIN identifies :
Actives, functions, & business processes
that have to be performed in designing,
production, marketing, delivering,
& supporting a product or service

25. THE VALUE CHAIN CONCEPT
A VALUE CHAIN consists of two major types
of activities :
PRIMARY ACTIVITIES that create
value for customers
RELATED SUPPORT ACTIVITIES

26. Representative Company Value Chain
Primary Activities and Costs
Profit
Margin
Sales and
Marketing
Service
Inbound
Logistics
Operations
outbound
Logistics
Product R&D, Technology, Systems Development
Support
Activities
And Costs
Human Resources Management
General Administration

27. what determines costs of value Chain Activities?
Costs of performing each value chain activity can be
DRIVEN UP or DOWN by two types of factors
STRUCTURAL COST DRIVERS
EXECUTIONAL COST DRIVERS

28. STRUCTURAL COST DRIVERS
Scale economies
Experience curve effects
Technology requirements
Capital intensity
Complexity of product line

29. EXECUTIONAL COST DRIVERS
Commitment of work force to continuous improvement
Attitudes & capabilities regarding quality
Cycle time in getting new products to market
Utilization of existing capacity
Whether internet business processes are efficiently
designed & executed
How efficiently firm works with suppliers and/or
customers to costs

30. KEYS TO UNDERSTANDING A COMPAM\NY’S COST STRUCURE
Whether firm is trying to achieve a competitive advantage
Based on
Lower costs or
Differentiation
How costs in one value chain activity spill over to affect
Costs of others
Whether linkages among activities in value chain present
opportunities for cost reduction

31. THE VALUE CHAIN SYSTEM Downstream Value Chains Upstream Value Chains
Company
Value Chains
Activities,
Costs,&
Margins of
Suppliers
Internally
Performed
Activities,
Costs, &
Margins
Activities,
Costs, &
Margins of
Forward
Channel
Allies
Buyer/User
Value
Chains

32. THE VALUE CHAIN SYSTEM Cost COMPETITIVENESS DEPENDS ON
Costs of internally performed activities
Costs in value chains of suppliers & forward
Channel allies
Assessing firm’s COMPETITIVENESS requires
Knowledge of value chain system
Firm’s own value chain
Value chains of suppliers
Value chains of forward channel allies

33. THE VALUE CHAIN SYSTEM SUPPLIERS’ value chains matter
Suppliers incur costs in creating & delivering
inputs used in firm’s value chain
Cost & quality of inputs influence firm’s cost
and/or differentiation capabilities
FORWARD CHANNEL value chains matter
Costs & margins of downstream firms
are part of paid by ultimate end-user
Activities channel allies perform affect
satisfaction of end-user

34. EXAMPLE : KEY VALUE CHAIN ACTIVITIES
Pulp & paper industry
Timber farming
Logging
Pulp mills
Papermaking
Printing & publishing

35. EXAMPLE: KEY VALUE CHAIN ACTIVITIES
HOME APPLIANCE INDUSTRY
Parts & components manufacture
Assembly
Wholesale distribution
Retail sales

36. EXAMPLE : KEY VALUE CHAIN ACTIVITIES
Soft drink industry
Processing of basic ingredients
Syrup manufacture
Bottling & can filling
Wholesale distribution
Retailing

37. EXAMPLE: KEY VALUE CHAIN ACTIVITIES
COMPUTER SOFTWARE INDUSTRY
Programming
Disk Loading
Marketing
Distribution

38. DEVELOPING DATA FOR STRATEGIC COST ANALYSIS
Data requirements are formidable
Requires breaking department cost
accounting data out into cost of performing
SPECIFIC ACTIVITIE
ACTIVITY-BASED COSTING
New cost accounting mythology aimed
at assigning costs to
Specific tasks and
Value chain activities

39. Traditional Cost Accounting Vs. Activity-Based Costing
Categories in Department
Budget
Wages & Salaries
Employee Benefits
Supplies
Travel
Depreciation Charges
Miscellaneous
Operating Expenses
$ 350,000
115,000
6,500
2,400
17,000
124,000
25,520
$ 640,150
Departmental Activities
Using Activity-Based
Cost Accounting
Evaluate Suppliers
Process
Expedite Deliveries
Expedite Internal Process
Check Item Quality
Check Deliveries Against
Purchase Orders
Resolve Problems
Internal Administration
$ 135,750
82,100
23,500
15,840
94,300
48,450
110,000
130,210
$ 640,150

40. BENCHMARKING COSTS OF KEY ACTIVITIES
Concept
Benchmarking performance of a firm’s activities
Against rivals & best practice firms provides
Evidence of firm’s cost competitiveness
Benchmarking is an excellent tool to determine
If costs are in line with competitors
Which business processes need to be
scrutinized for improvement
Which firms perform a given activity best

41. BENCHMARKING COSTS OF KEY ACTIVITIES
Focuses on CROSS-COMPANY comparisons of
how well activities are performed
Purchase of materials
Payment of suppliers
Management of inventories
Training of employees
Processing of payrolls
Getting new products to market
Performance of quality control
Filling & shipping of customer orders

42. BENCHMARKING & ETHICS
BENCHMARKING involves discussions of competitively sensitive data
ETHICAL guidelines
Avoid talk pricing or compressively
Sensitive costs
Don’t ask rivals for sensitive data
Don’t share proprietary data without clearance
Have impartial third party assemble & present competitive data without names attached
Don’t disparage a rival’s business to outsiders based on data obtained

43. ACHIEVEING COST COMPETITIVENESS
Key Point
A firm’s COMPETITIVENESS depends on how well
It manages its VALUE CHAIN relative to competitors
Examining a firm’s value chain & comparing it to key
rivals indicates
Who has how much of a cost advantage or
disadvantage
Which cost components are responsible

44. ACHIEVING COST COMPETITIVENESS
Three areas in firm’s value chain contributes
to cost differences compared to rivals
1- SUPPLIERS’ activities
2- Firm’s INTERNAL activities
3- FORWARD channel activities
Strategic actions to eliminate a cost disadvantage
need to be Linked to where cost differences
originate!

45. OPTIONS : CORRECTING SUPPLIER- RELATED COST DISADVANTAGES
Negotiate more favorable prices with suppliers
work with suppliers to help them achieve lower
costs
Integrate backward
Use lower –prices substitute inputs
Do a better job of managing linkages between
suppliers’ value chains & firm’s own chain
Try to make up difference by initiating cost savings in other area of value chain

46. OPTIONS: CORRECTING FORWARD CHANNEL COST DISADVANTAGES
Push for more favorable terms with distributors & other forward channel allies
Work closely with forward channel allies & customers to identify win-win opportunities to reduce costs
Change to a more economical distribution strategy
Try to make up difference by initiating cost saving
earlier in value chain

47. OPTIONS: CORRECTING INTERNAL COST DISADVANTAGES
Initiate internal budget reductions
Re-engineer business processes to do better job of
managing exceptional cost drivers
Try to eliminate some cost-producing activities by
Relocate high-cost activities to lower-cost geographic areas
See if certain activities can be outsourced or performed cheaper by contractors

48. OPTIONS: CORRECTING INTERNAL COST DISADVANTAGES
Invest in cost-saving technological improvements
Innovate around troublesome cost components
Simplify product design to achieve cost reduction
Try to make up difference by achieving saving in
Others areas of value chain system

49. VALUE CHAIN ANALYSIS & COMPETITIVE ADVANTAGE
Value chain analysis is a powerful managerial
too for identifying which activities have
COMPETITIVE ADVANTAGE potential
A firm’s competitive edge is based on its ability to
Perform competitively crucial activities along
value chain better than rivals

50. VALUE CHAIN ANALYSIS & COMPETITIVE ADVANTAGE
Diagnosing competitive capabilities involves
Construct a value chain of firm’s activities
Examine linkages among internally performed
activities & linkage with suppliers’ &
customers’ chains
Identify activities & competencies critical to customer satisfaction & market success
Make appropriate internal & external benchmarking comparisons to determine
How well firm performs activities
How cost structure compares with rivals

51. VALUE CHAIN ANALYSIS & COMPETITIVE ADVANTAGE
The strategy-making lesson of value chain
analysis is that increased company
competitiveness Entails concentrating resources
on those activities where the company can gain
dominating expertise to serve its target customers!

52. EVALUATION A COMPANY’S COMPETITIVE POSITION
Factors to examine
How strongly firm holds present
competitive position whether firm’s position
can be expected
To improve or deteriorate if present strategy is continued
How firm ranks RELATIVE TO KEY RIVALS on each important measure of competitive strength/industry/KSF
Whether firm has a sustainable competitive
advantage or is a disadvantage

53. PROCETURE : ASSESSING A COMPANY’S COMPETITIVE STRENGTH
List success factors & other relevant
Measures of competitive strength
Rate firm & key rivals on each factor using
rating scales of 1-10 (1=weak; 10= strong)
Decide whether to use a WEIGHTED or UNWEIGHTED rating system
Sun individual ratings to get overall measure
of competitive strength for each rival
Evaluate firm’s overall competitive strength
relative to rivals

54. WHY DO A COMPETITIVE STRENGTH ASSESSMENT?
Reveals strength of firm’s competitive position
Shows how firm stacks up against rivals indicates
whether firm is at a competitive
advantage /disadvantage against each rival
Provides insight into how can build its strategy
on its competitive strengths
Provides insight into how can make strategic moves
to alleviate its competitive weaknesses

55. STRATEGIC MANAGEMENT PRINCIPLE
Competitive strengths and
Competitive advantages
Empower a company to improve
Its long-term market position!

56. DETERMINING STRATEGIC ISSUES TO BE ADDRESSED
Final analytical task that puts firm’s overall
situation into perspective
Issues come from thinking strategically about
Industry & competitive situation firm’s situation
A “ good” strategy must include actions to respond to firm’s strategic issues & problems

57. STRATEGIC MANAGEMENT PRINCIPLE
Having through understanding of the strategic
issues a company faces is precondition for
Effective strategy-making. Until strategists
have a clear fix on the issues, they are NOT
Ready to craft a strategy!

58. DECIDING WHAT THE STRATEGIC ISSUES ARE
Is present strategy adequate in light of driving
forces in industry & geared to industry’s FUTURE
key success factors?
How good a defense does present strategy offer
against the five competitive forces?
Does present strategy adequately protect firm against external threats & internal weaknesses?
Is firm vulnerable to competitive attack by rivals?
Does firm have a competitive advantage or must it work
to offset competitive disadvantage ?
Where are strong/weak spots in present strategy?