STRATEGIC MANAGEMENT

Course In charge
Dr. Mustaghis-ur-Rahman
Evaluating Company Resources
and Competitive Capabilities
 Evaluating Company Resources and
Competitive Capabilities
Overview:

Evaluating a companys resource and Competitive

capabilities is also the companys situation analysis.

It prepares the ground work for matching the companys

Strategy both to its external market circumstances and to its
Internal resources and competitive capabilities,
Relative cost position, and competitive strength versus rivals
 Evaluating Company Resources and
Competitive Capabilities

The company situation analysis is trained on five

questions:

1) How well is the companys present strategy

working
2) What are the companys resource strengths and
weaknesses and its external opportunities and
threats
3) Are the companys prices and costs competitive?
4) How strong is the companys competitive position
relative to its rivals?
5) What strategic issues does the company face?
 Evaluating Company Resources and
Competitive Capabilities

To find out the answers of the five questions

regarding the companys situation analysis, four
analytical techniques are used as
follows:
SWOT analysis
Value chain analysis
Strategic cost analysis, and
Competitive strength assessment
 Evaluating Company Resources and
Competitive Capabilities

Explanation of the questions related to

companys situation analysis.

Q-1 How well is the present strategy

working?

To explore this question there is a need to understand

what strategy is? As we know, strategy is a set of
competitive moves and business approaches to produce
successful performance
 Evaluating Company Resources and
Competitive Capabilities

In the light of basic understanding of strategy

of a company, The following aspects of the
companys are further explored:
a. Whether the firms sales are growing faster,
slower or about the same pace as the
market as a whole, thus resulting in a rising,
eroding, or subtle market share
 Evaluating Company Resources and
Competitive Capabilities

b. Whether the company is acquiring new

customers at an attractive rate as well as
retaining existing customers.

c. Whether the firms profit margins are

increasing or decreasing and how well its
margins are compare to rival firms margins
 Evaluating Company Resources and
Competitive Capabilities

d. Trends in the firms net profits, return on

investment, and economic value added, and
how these compare to the same trends for
other companies in the industry
e. Whether the companys overall financial
strength and credit rating are improving or on
the decline
 Evaluating Company Resources and
Competitive Capabilities

f. Whether the company can demonstrated

continuous improvement in such internal
performance measures as unit cost, defect
rate, scrap rate, employee motivation and
morale.
g. How shareholders view the company based
on trends in the companys stock price and
shareholders value
 Evaluating Company Resources and
Competitive Capabilities

g. The firms image and reputation with its

customers

h. Whether the company is regarded as a

leader in technology, product innovation, e-
commerce, product quality, short times from
order to delivery, having the best prices,
getting newly developed products to market
quickly, or other relevant factors on which
buyers base their choice of brands.
 Evaluating Company Resources and
Competitive Capabilities
SWOT Analysis:
Strengths
Skills and expertise
Valuable physical assets
Valuable human assets
Valuable organizational assets
Valuable intangible assets
Competitive capabilities
Achievements
Alliances and cooperative venture
 Evaluating Company Resources and
Competitive Capabilities

Weaknesses are just opposite to

the companys strengths
Evaluating Company Resources and
Competitive Capabilities

Opportunity
Market expansion
Product launching
Diversification
Merger and Acquisition
Evaluating Company Resources and
Competitive Capabilities

Threats
From cheaper or advanced technologies
Rivals
New and innovative products
Low cost competitors
New regulations
External environment
 Industry Analysis

What are the industrys dominant Economic feature

What is competition like and how strong are the
competitive forces
What is causing industrys environment to change
Which Companies are in strongest weakest position
What strategic moves rivals are likely to take
What are the key factors for competitive success
Is the industry attractive and what are the above
average prospects.
Industry
Analysis
Fitness,
Competitive, Sustainability The
Options of Strategy
Strategies Testing
Criteria
Companys
Evaluation
Strategy and Competitive Advantage
Winning Business Strategy
Strategy and Competitive Advantage

Winning business strategies are

grounded in sustainable
competitive advantage. A company
has competitive advantage
whenever it has an edge over rivals
in attracting customers and
defending against competitive
forces.
Strategy and Competitive Advantage
There are many routes to competitive advantage,
but the most basic is to provide buyers with what
they perceive as superior value in terms of the
following three:

A good product at low price;

A superior product that is worth paying more
for best value offering that represents an
attractive combination of price , features,
quality, service and other attributes buyers
find attractive
Delivering superior value
Strategy and Competitive Advantage
The above competitive objectives can be
achieved basically by applying any of the
following:

1) The five generic competitive strategies

2) Cooperative Strategies and Competitive
Advantage
3) Merger and Acquisition Strategies
4) Vertical integration strategies
5) Unbundlding and outsourcing strategies
6) Using offensive strategies to secure
competitive advantage
7) Using Defensive Strategies to protect
Strategy and Competitive Advantage The
five generic competitive strategies

The five generic competitive strategies

are:
a. A low cost provider strategy
b. A broad differentiation strategy
c. A best cost provider strategy
d. A focused strategy based on lower
cost (Market Niche)
e. A focused strategy based on
differentiation (Market Niche)
Strategy and Competitive Advantage The
five generic competitive strategies

a) A low cost provider strategy is appealing to a broad

spectrum of customers based on being the overall low cost
provider of a product or service.

Two available options for achieving this goal are:

i) To use the lower-cost edge to under price

competitors and attract price sensitive buyers in
great number enough to increase profit

ii) To refrain from price cutting altogether , be content

with the present market share and use the lower-cost
edge to earn higher profit margin on each unit
sold
Strategy and Competitive Advantage The
five generic competitive strategies
b. A broad differentiation strategy

Seeking to differentiate the companys product

offering from rivals in ways that will appeal to a
broad spectrum of buyers. Successful differentiation
allows a firm to:
i) Command a premium price for its product
ii) Increase unit sales (Because additional buyers
are won over by the differentiating features)
iii) Gain buyer loyalty to its brand (Because some
buyers are strongly attracted to the differentiating
features and bond with the company and its
products)
Strategy and Competitive Advantage The
five generic competitive strategies

c. A best cost provider strategy

Giving customers more value for the

money by incorporating to good to
excellent product attributes at a
lower cost than rivals
Strategy and Competitive Advantage: The
five generic competitive strategies
d. A focused strategy based on lower cost (Market Niche)

Concentrating on a narrow buyer segment and out

competing rivals by serving niche members at a lower cost
than rivals. A focusers basis for competitive advantage is
by either

i) Lower costs than competitors in serving market niche

ii) An ability to offer niche members something they
perceive is better suited their own unique tastes and
preferences.
Strategy and Competitive Advantage The
five generic competitive strategies

e. A focused strategy based on

differentiation (Niche)

Concentrating on a narrow buyer

segment and out competing rivals by
offering niche members customized
attributes that meet their tastes and
requirements better than rivals
products.
 Strategy and Competitive Advantage:
Cooperative Strategies and Competitive
Advantage

2) Cooperative Strategies and Competitive

Advantage

In last couple of years, companies in all types

of industries and in all parts of the world
have formed strategic alliances and
partnerships to complement their own
strategic initiatives and strengthen their
competitiveness in domestic and
international markets.
 Strategy and Competitive Advantage:
Cooperative Strategies and Competitive
Advantage

What are Strategic Alliances and

Partnerships?

Strategic Alliances are cooperative

agreement between firms that go beyond
normal company to-company dealings but
fall short of merger or full joint venture
partnership with formal ownership ties.
 Strategy and Competitive Advantage:
Cooperative Strategies and Competitive
Advantage

The needs of this strategy arises because of two

main reasons:

a) The global race to build a market presence in

many different national markets and to
establish an attractive position among the
global market leaders

a) The technology race to capitalize on todays

technological and information age revolution
and build the resource strengths and
business capabilities to compete in the
industries
 Strategy and Competitive Advantage:
Cooperative Strategies and Competitive
Advantage
Examples of Strategic alliances
Organizations Cooperation/Alliances
General Electric 1,00
IBM 4,00
Microsoft Many independent
software developers
Oracle 15,000 alliances
Toyota A network of suppliers
of automotive part manufacturers
On average the large corporations have 30 alliances
worldwide
 Strategy and Competitive Advantage:
Cooperative Strategies and Competitive
Advantage
How Strategic Alliances can be
advantageous?

Since strategic alliances are cooperative

Arrangements between firms that go beyond
normal company to company dealings but
Fall short of merger or full joint venture with
Formal ownership ties. In following ways a
Company can be advantageous:

a) Get into critical country markets quickly

and accelerate the process of building a
potent global market
 Strategy and Competitive Advantage:
Cooperative Strategies and Competitive
Advantage

b) Gain inside knowledge about

unfamiliar markets and cultures
through alliances with local partners

c) Access valuable skills and

competencies that are concentrated
in particular geographic locations
(Such as software design
competencies in USA, fashion design
in Italy and efficient management
skills in Japan)
 Strategy and Competitive Advantage:
Merger and Acquisition Strategies
3) Merger and Acquisition Strategies

Merger and acquisitions are a much-used

Strategic option. They are especially suited for
situations where alliances and partnerships do
not go far enough in providing a company with
access to the needed resources and capabilities.
and also merging with competitors can
dramatically strengthen a companys market
position and open new opportunities for
competitive advantage
 Strategy and Competitive Advantage:
Merger and Acquisition Strategies

Some examples of merger in Pakistan in

the last five years?
 Strategy and Competitive Advantage:
Merger and Acquisition Strategies

Pitfalls of merger and acquisition:

Combining the operations of two companies

often entails formidable resistance from rank
and file organization members. Hard to resolve
conflicts in management styles and corporate
cultures and tough problems of integration
 Strategy and Competitive Advantage:
Vertical Integration Strategies
4) Vertical Integration Strategies

Vertical integration extends a firms competitive

Scope within the same industry. It involves
expanding the firms range of activities backward
into sources of supply and or forward toward
end users of the final Product.

Vertical integration strategies can aim at full

Integration (participating in all stages of the
industrys value chain) or partial integration
(Building positions in selected stages of the
industrys total value chain
 Strategy and Competitive Advantage:
Vertical Integration Strategies
The strategic advantages of vertical
integration:

The good reason for investing

companys resources in vertical
integration is to strengthen the
firms competitive position. Although
there are some disadvantages of this
strategy.
 Strategy and Competitive Advantage:
Unbuilding and Outsourcing Strategy

5) Unbundling and Outsourcing Strategy

In this strategy, company focuses more
narrowly on certain value chain activities and
rely on outsiders to perform the remaining
value chain activities. More specifically it refers
to withdrawing from certain activities in the
value chain system and relying on outside
vendors to supply the needed products, support
services, or functional activities
 Strategy and Competitive Advantage:
Unbuilding and Outsourcing Strategy
Outsourcing pieces of the value chain
make sense when:

a) An activity can be performed better or

more cheaply by outside specialists.
Many PC makers have shifted from in-
house assembly to utilizing contract
assemblers to make their PCs because
of sizeable scale of economies

b) The activity is not crucial to the firms

ability to achieve sustainable
competitive advantage
 Strategy and Competitive Advantage:
Unbundling and Outsourcing Strategy

c) It reduces the companys risk exposure

to changing technology or changing
buyers preferences
 Strategy and Competitive Advantage:
Offensive Strategies to secure competitive
advantage

6) Offensive Strategies to secure competitive

advantage:

Offensive advantage is an initiatives calculated

to yield a cost advantage, a differentiation
advantage , or a resource advantage.

Competitive advantage is acquired by

employing a creative offensive strategy that is
not easily thwarted by rivals
 Strategy and Competitive Advantage:
Offensive Strategies to secure competitive
advantage

There are six basic types of strategic offensives:

Initiatives to match or exceed competitors

strengths
Initiatives to capitalize on competitors
weaknesses
Simultaneous initiatives on many fronts
End run offensive to move to less contested
ground
Guerrilla offensive
Preemptive strikes
 Strategy and Competitive Advantage:
Offensive Strategies to secure competitive
advantage

Initiatives to capitalize on
competitors weaknesses:
Focusing on competitors products
which lag on quality, features, or
product performance and come up
with better product with competitive
price
 Strategy and Competitive Advantage:
Defensive Strategies to protect
competitive advantage

7) Defensive strategy:
In a competitive market, all firms are
subject to challenges from rivals. The
purpose of defensive strategy is to lower
the risk of being attacked , weaken the
impact of any attack that occurs, and
influence challengers to aim their efforts
At other rivals
 Strategy and Competitive Advantage:
Offensive Strategies to secure competitive
advantage

Approaches to defensive strategy:

a) Moving to block challengers

b) Signaling the likely hood of strong
retaliation
 Strategy and Competitive Advantage:
Offensive Strategies to secure competitive
advantage
a) Moving to block challengers
There are any number of obstacles that can be
put in the path of would be challengers. A
defenders can introduce new features, add new
models or broaden its product line to close off
gaps and vacant niches to would be challenges

b) Signaling Challenges the retaliation is likely:

Would be challengers can be signaled by;
i) Publicly announcing managements
commitment to maintain the firms present
market share
 Strategy and Competitive Advantage:
Offensive Strategies to secure competitive
advantage

i) Publicly announcing plans to put adequate

capacity in place to meet and possibly
surpass the forecasted growth in industry
volume
ii) Giving out the advance information about a
new product, technology breakthrough or
the planned introduction of important new
brands or models in hopes that
challengers will delay their moves until they
see the announced actions are forthcoming
First Mover Advantages and
Disadvantages
 First Mover Advantages and
Disadvantages
Being first to initiate a strategic move have a high payoff when

1) Pioneer ring helps build a firms image and

reputation with buyers
2) early commitments to new technologies, new
style components, distribution channels and
so on can produce an absolute cost
advantage over rivals
3) first time customers remain strongly loyal to
pioneering firms in making repeat purchases
4) moving first constitutes a preemptive strike
making imitation extra hard or unlikely