BSG Chpter 4 PDF

Chapter 4 Evaluating a Companys Resources and Ability to Compete Successfully 64
Strategy: Core Concepts and Analytical Approaches

Arthur A. Thompson, The University of Alabama 4th Edition, 2016-2017
An e-book published by McGraw-Hill Education, Burr Ridge, IL
CHAPTER 4
Evaluating a Companys Resources
and Ability to Compete Successfully
Before executives can chart a new strategy, they must reach common understanding of the companys current
position.
W. Chan Kim and Rene Mauborgne
Organizations succeed in a competitive marketplace over the long run because they can do certain things their
customers value better than can their competitors.
Robert Hayes, Gary Pisano, and David Upton
A new strategy nearly always involves acquiring new resources and capabilities.
Laurence Capron and Will Mitchell
C
hapter 3 described how to use the tools of industry and competitive analysis to assess a companys
external environment and lay the groundwork for matching a companys strategy to its external situation.
This chapter discusses techniques for evaluating a companys internal situation, with emphasis on its
resource capabilities, relative cost position, and competitive strength versus rivals. The analytical spotlight is
trained on five questions:
1. How well is the companys present strategy working?
2. Does the company have attractively strong resource capabilities, and how well do these match its market
opportunities and the external threats to its future well-being?
3. Are the companys prices and costs competitive with those of key rivals, and does it have an appealing
customer value proposition?
4. Is the company competitively stronger or weaker than key rivals?
5. What strategic issues and problems merit front-burner managerial attention?
In probing for answers to these questions, four analytical toolsSWOT analysis, value chain analysis,
benchmarking, and competitive strength assessmentare used. All four are valuable techniques for revealing a
companys competitiveness and for helping company managers match their strategy to the companys particular
circumstances.
64
Copyright 2016 by Arthur A. Thompson. All rights reserved. Not for distribution.
Question 1: How Well Is the Companys Present Strategy

Working?
In evaluating how well a companys present strategy is working, one must start with a clear view of what
the strategy is. Figure 4.1 shows the key components of a single-business companys strategy. The first thing
to examine is the companys competitive approach. What moves has the company made recently to attract
customers and improve its market positionfor instance, has it cut prices, improved the design of its product,
added new features, stepped up advertising, entered a new foreign or domestic geographic market, or merged
with a competitor? Is it striving for a competitive advantage based on low costs or an appealingly different or
better product offering? Is it concentrating on serving a broad spectrum of customers or a narrow market niche?
The companys functional strategies in R&D, production, marketing, finance, human resources, information
technology, and so on further characterize company strategy, as do any efforts to establish competitively valuable
alliances or partnerships with other enterprises.
Figure 4.1 Identifying the Components of a Single-Business Companys

Strategy
Planned, proactive moves to attract
customers and out-compete rivals Actions to respond to changing
via improved product design, better conditions in the macroenvironment or
features, higher quality, wider in industry and competitive conditions
selection, lower prices, and so on
Initiatives to build competitive

advantage based on:
R&D, technology,
Lower costs relative to rivals?
product design BUSINESS
A different or better product
strategy STRATEGY offering?
The actions and Superior ability to serve a
Supply chain approaches crafted market niche or specific
management to compete successfully group of buyers?
strategy in a particular
business
Production Efforts to expand or
strategy narrow geographic
coverage
Sales, marketing,
and distribution Efforts to build competitively
strategies valuable partnerships and
Information strategic alliances with other
technology enterprises
strategy
Human
resources Finance
strategy strategy
The three best indicators of how well a companys strategy is working are (1) whether the company is achieving
its stated financial and strategic objectives, (2) whether the company is an above-average industry performer,
and (3) whether the company is gaining customers and gaining market shares. Persistent shortfalls in meeting
company performance targets and mediocre performance in the marketplace relative to rivals are reliable warning
signs that the company has a weak strategy, suffers from poor strategy execution, or both. Specific indicators of
how well a companys strategy is working include:
n Whether the firms sales are growing faster, slower, or at about the same pace as the market as a whole,
thus resulting in a rising, eroding, or stable market share.
n How well the company stacks up against rivals on product innovation, product quality, price, customer
service, and other relevant factors on which buyers base their choice of brands.
n Whether the firms brand image and reputation is growing stronger or weaker.
n Whether the firms profit margins are increasing or decreasing.
n Trends in the firms net profits and return on investment and how these compare to the same trends for
other companies in the industry.
n Whether the companys overall financial strength, credit rating, key financial and operating ratios, and
cash flows from operations are improving, remaining steady, or deteriorating.
The bigger the improvements in a companys market standing and competitive strength and the stronger its
financial performance, the more likely it has a well-
conceived, well-executed strategy. Run-of-the-mill market Sluggish financial performance and second-rate
results and mediocre financial performance are red flags market accomplishments almost always signal
that raise questions about a companys strategy and whether weak strategy, weak execution, or both.
radical changes in strategy may be needed.
Table 4.1 provides a compilation of the financial ratios most commonly used to evaluate a companys financial
performance and balance sheet strength.
Table 4.1 Key Financial Ratios: How to Calculate Them and What They Mean
Ratio How Calculated What It Shows

Profitability Ratios
1. Gross profit margin Sales revenues Cost of goods sold Shows the percentage of revenues available to cover
Sales revenues operating expenses and yield a profit. Higher is better and
the trend should be upward.
2. Operating profit margin Sales revenues Operating expenses Shows the profitability of current operations without
(or return on sales) Sales revenues regard to interest charges and income taxes. Earnings
or before interest and taxes is commonly referred to as
Operating income EBIT. Higher is better and the trend should be upward.
Sales revenues
3. Net profit margin (or net Profits after taxes Shows after-tax profits per dollar of sales. Higher is better
return on sales) Sales revenues and the trend should be upward.
4. Total return on assets Profits after taxes + Interest A measure of the return on total monetary investment in
Total assets the enterprise. Interest is added to after-tax profits to form
the numerator since total assets are financed by creditors
as well as by stockholders. Higher is better and the trend
should be upward.
5. Net return on total assets Profits after taxes A measure of the return earned by stockholders on the
(ROA) Total assets firms total assets. Higher is better, and the trend should
be upward.
6. Return on stockholders Profits after taxes Shows the return stockholders are earning on their capital
equity (ROE) Total stockholders equity investment in the enterprise. A return in the 1215% range
is average, and the trend should be upward.
7. Return on invested capital Profits after taxes A measure of the return shareholders are earning on the
(ROIC)sometimes Long-term debt + long-term monetary capital invested in the enterprise. A
referred to as return on Total stockholders equity higher return reflects greater bottom-line effectiveness
capital employed (ROCE) in the use of long-term capital, and the trend should be
upward.
8. Earnings per share (EPS) Profits after taxes Shows the earnings for each share of common stock
Number of shares of common stock outstanding. The trend should be upward, and the bigger
outstanding the annual percentage gains, the better.
continued

Liquidity Ratios
1. Current ratio Current assets Shows a firms ability to pay current liabilities using
Current liabilities assets that can be converted to cash in the near term. Ratio
should definitely be higher than 1.0; ratios of 2 or higher
are better still.
2. Working capital Current assets Current liabilities Bigger amounts are better because the company has more
internal funds available to (1) pay its current liabilities
on a timely basis and (2) finance inventory expansion,
additional accounts receivable, and a larger base of
operations without resorting to borrowing or raising more
equity capital.
Leverage Ratios
1. Total debt-to-assets ratio Total debt Measures the extent to which borrowed funds (both short-
Total assets term loans and long-term debt) have been used to finance
the firms operations. A low fraction or ratio is bettera
high fraction indicates overuse of debt and greater risk of
bankruptcy.
2. Long-term debt-to-capital Long-term debt An important measure of creditworthiness and balance
ratio Long-term debt + Total stockholders sheet strength. It indicates the percentage of capital
equity investment in the enterprise that has been financed by
both long-term lenders and stockholders. A ratio below
0.25 is usually preferable since monies invested by
stockholders account for 75% or more of the companys
total capital. The lower the ratio, the greater the capacity
to borrow additional funds. Debt-to-capital ratios above
0.50 and certainly above 0.75 indicate a heavy and
perhaps excessive reliance on long-term borrowing, lower
creditworthiness, and weak balance sheet strength.
3. Debt-to-equity ratio Total debt Shows the balance between debt (funds borrowed
Total stockholders equity both short term and long term) and the amount that
stockholders have invested in the enterprise. The further
the ratio is below 1.0, the greater the firms ability to
borrow additional funds. Ratios above 1.0 and definitely
above 2.0 put creditors at greater risk, signal weaker
balance sheet strength, and often result in lower credit
ratings.
4. Long-term debt-to- Long-term debt Shows the balance between long-term debt and
equity ratio Total stockholders equity stockholders equity in the firms long-term capital
structure. Low ratios indicate greater capacity to borrow
additional funds if needed.
5. Times-interest-earned Operating income Measures the ability to pay annual interest charges.
(or coverage) ratio Interest expenses Lenders usually insist on a minimum ratio of 2.0, but
ratios progressively above 3.0 signal progressively better
creditworthiness.
Activity Ratios
1. Days of inventory Inventory Measures inventory management efficiency. Fewer days
Cost of goods sold 365 of inventory are usually better.
2. Inventory turnover Cost of goods sold Measures the number of inventory turns per year. Higher
Inventory is better.
3. Average collection Accounts receivable Indicates the average length of time the firm must wait
period Total sales 365 after making a sale to receive cash payment. A shorter
or collection time is better.
Accounts receivable
Average daily sales
continued

Other Important Measures of Financial Performance
1. Dividend yield on Annual dividends per share A measure of the return that shareholders receive in the
common stock Current market price per share form of dividends. A typical dividend yield is 23%.
The dividend yield for fast-growth companies is often
below 1% (maybe even 0); the dividend yield for slow-
growth companies can run 45%.
2. Price-earnings ratio Current market price per share P-E ratios above 20 indicate strong investor confidence
Earnings per share in a firms outlook and earnings growth; firms whose
future earnings are at risk or likely to grow slowly
typically have ratios below 12.
3. Dividend payout ratio Annual dividends per share Indicates the percentage of after-tax profits paid out as
Earnings per share dividends.
4. Internal cash flow After-tax profits + Depreciation A quick and rough estimate of the cash a companys
business is generating after payment of operating
expenses, interest, and taxes. Such amounts can be used
for dividend payments or funding capital expenditures.
5. Free cash flow After-tax profits + Depreciation A quick and rough estimate of the cash a companys
Capital expenditures Dividends business is generating after payment of operating
expenses, interest, taxes, dividends, and desirable
reinvestments in the business. The larger a companys
free cash flow, the greater its ability to internally
fund new strategic initiatives, repay debt, make new
acquisitions, repurchase shares of stock, or increase
dividend payments.
Question 2: Are The Companys Resources and Capabilities

Attractive and Well Matched to Its Market Opportunities and
External Threats?
An essential element of deciding whether a companys overall situation is fundamentally healthy or unhealthy
entails examining the attractiveness of its resources and competitive capabilities and the degree to which they
enable it to pursue its best market opportunities and defend
against the external threats to its future well-being.1 The SWOT analysis is a simple but powerful tool for
simplest and most powerful tool for evaluating the sizing up a companys resource capabilities and
competitive power of a companys resources and capabilities deficiencies, its market opportunities, and the
is widely known as SWOT analysis, so named because it external threats to its future well-being.
zeros in on a companys resource Strengths and Weaknesses,
market Opportunities, and external Threats. Just as important, a first-rate SWOT analysis provides the basis for
crafting a strategy that capitalizes on the companys resource strengths, aims squarely at capturing the companys
best opportunities, and defends against the threats to its future well-being and business prospects.
Identifying a Companys Important Resource Strengths and

Competitive Capabilities
A resource strength is something a company is good at doing or an attribute that enhances its competitiveness
in the marketplace. Resource strengths can take any of several forms:
n A skill, specialized expertise, or competitively important capability: skills in keeping operating costs
low, proven capabilities in developing and introducing innovative products, expertise in getting new
products to market quickly, expertise in producing a superior product, and expertise in providing good
customer service.
n Valuable physical assets: ownership of valuable natural-resource deposits, attractive real estate or store
locations, and state-of-the-art plants and/or equipment and/or distribution facilities.
n Valuable human assets and intellectual capital: a highly productive workforce, unusually talented
managers, and the cumulative learning and know-
how of key personnel and work groups regarding CORE CONCEPT
technology and/or other important business
A companys resource strengths represent its
functions.2
competitive assets and are big determinants of
n Valuable organizational assets: proven quality its competitiveness and ability to succeed in the
control systems, proprietary technology, key marketplace.
patents, a strong network of distributors and/or
retail dealers, sizable amounts of cash and marketable securities, or a strong balance sheet and credit
rating (thus giving the company access to additional financial capital).
n Valuable intangible assets: a powerful or well-known brand name, a reputation for technological
leadership or excellent product quality, or strong buyer loyalty and goodwill.
n An achievement or attribute that puts the company in a position of market advantage: low overall
costs relative to competitors, market share leadership, a wider product line than rivals, wide geographic
coverage, or award-winning customer service.
n Competitively valuable alliances or cooperative ventures: fruitful partnerships with suppliers that
reduce costs and/or enhance product quality and performance; alliances or joint ventures that provide
access to valuable technologies, specialized know-how, or attractive geographic markets.
A companys resource strengths are competitive assets and determine whether its competitive power in the
marketplace will be impressively strong or disappointingly weak. Companies with minimal or second-rate
competitive assets nearly always are relegated to a trailing position in the industry.
Assessing a Companys Resource StrengthsDoes It Have

Dynamic and Competitively Valuable Capabilities?
The strength of a company resource often is a function of a companys ability to perform an activity.3 For
instance, whether a companys product quality constitutes a resource strength hinges upon whether its product
quality is better than average or maybe even competitively superior in comparison to rivals product quality.
But a companys product quality usually is directly related to the caliber of its technological know-how, product
R&D capabilities, and manufacturing skills. Likewise, whether a companys customer service represents a
strength usually depends on its skills, expertise, and competence in performing activities related to the delivery
of good customer service.
A Companys CompetenciesWhat Activities Does It Perform Well? A companys skill or
proficiency in performing different facets of its operations can range from one of minimal ability to perform an
activity (perhaps having just struggled to do it the first time) to the other extreme of being able to perform the
activity better than any other company in the industry.
1. A companys proficiency rises from that of mere ability to perform an activity to the level of a compe-
tence when it learns to perform the activity consistently well and at acceptable cost. Usually compe-
tence in performing an activity originates with de-
liberate efforts to simply develop the ability to do it, CORE CONCEPT
however imperfectly or inefficiently. Then, as ex- A company has a competence in performing
perience builds and the company gains proficiency an activity when, over time, it gains the
to perform the activity consistently well and at an experience and know-how to perform an activity
acceptable cost, its ability evolves into a true com- consistently well and at acceptable cost.
petence and capability. Some competencies relate
to fairly specific skills and expertise (like just-in-time inventory control, low-cost manufacturing effi-
ciency, picking locations for new stores, or designing an unusually appealing and user-friendly website).
They spring from proficiency in a single discipline or function and may be performed in a single depart-
ment or organizational unit. Other competencies, however, are inherently multidisciplinary and cross-
functional. They are the result of effective collaboration among people with different expertise working
in different organizational units. A competence in continuous product innovation, for example, comes
from teaming the efforts of people and groups with expertise in market research, new product R&D, de-
sign and engineering, cost-effective manufacturing, and market testing. Virtually all organizational skills
and competencies are knowledge based, residing in people and in a companys intellectual capital and
not in its assets on the balance sheet.
2. A core competence is a proficiently performed internal activity that is central to a companys strategy
and competitiveness.4 A core competence is a more competitively valuable resource strength than a
competence because of the well-performed activi-
tys key role in the companys strategy and the con- CORE CONCEPT
tribution it makes to the companys market success
A core competence is an activity that a company
and profitability. A core competence can relate to
performs quite well and that is also central to its
any of several aspects of a companys business: ex-
strategy and competitiveness. A core competence
pertise in integrating multiple technologies to cre-
is a more important resource strength than
ate families of new products, skills in manufactur-
a competence because it adds power to a
ing a high-quality product at a low cost, or the ca-
pability to fill customer orders accurately and companys strategy and has a bigger positive
swiftly. Most core competencies are grounded in impact on its competitive strength and profitability.
cross-department combinations of knowledge and
expertise rather than being the product of a single department or work group. Amazon.com has a core
competence in online retailing and website operations. Nike has a core competence in designing and
marketing innovative athletic footwear and sports apparel. Kellogg has a core competence in develop-
ing, producing, and marketing breakfast cereals.
3. A distinctive competence is a competitively valuable activity that a company performs better than its
rivals.5 A distinctive competence thus signifies greater proficiency than a core competence. Because a
distinctive competence represents a level of profi-
ciency that rivals do not have, it qualifies as a com- CORE CONCEPT
petitively superior resource strength with competi-
A distinctive competence is a competitively
tive advantage potential. It is always easier for a
company to build competitive advantage when it important activity that a company performs
has a distinctive competence in performing an ac- better than its rivalsit thus represents a
tivity important to market success, when rival competitively superior resource strength.
companies do not have offsetting competencies,
and when it is costly and time-consuming for rivals to imitate the competence. Examples of companies
that have a distinctive competence include Google, which has a distinctive competence in search engine
technology; Apple, which has a distinctive competence in product innovation, as exemplified most re-
cently by its iPhone, iPad, and iWatch products; and Walt Disney Co., which has a distinctive compe-
tence in creating and operating theme parks.
In determining whether a company has a competitively attractive collection of resources and capabilities, it is im-
portant to identify which of its skills and proficiencies qualify as a competence, which represent a core competence,
and whether it may enjoy a distinctive competence in one or more activities it performs.6 Both core competencies
and distinctive competencies are valuable resources and enhance a companys competitiveness. But mere ability to
perform an activity well does not necessarily give a company competitive clout. Some competencies merely enable
market survival because most rivals also have themindeed, not having a competence or competitive capabil-
ity that rivals have can result in competitive disadvantage. An apparel manufacturer cannot survive without the
capability to produce its apparel items cost efficiently, given the intensely price-competitive nature of the apparel
industry. A cell-phone maker cannot survive without good product design and product innovation capabilities.
Four Ways to Test the Competitive Power of a Resource Strength or Capability What is most
telling about a companys resource strengths and competitive capabilities, individually and collectively, is how
powerful they are in the marketplace. The competitive power of a resource strength or competitive capability is
measured by how many of the following four tests it can pass:7
1. Does the resource strength or capability have competitive value? The competitive value of a
resource or capability is determined by how much it helps a company improve its customer value
proposition (and thereby better attract and please customers), the degree to which it enables a
company to compete effectively against rivals, and its role in the companys profit proposition.
Unless a resource strength or capability contributes to the power of a companys strategy and the
strength of its business model, it cannot pass the test of being competitively valuable. Companies
must guard against contending that most any kind of expertise or know-how or well-performed
activity qualifies as a core or a distinctive competence or gives them substantial competitive clout.
Apples iOS operating system for its PCs is by most accounts a world beater (compared to Windows
7 and Windows 8), but Apple has failed to convert its know-how and capability in operating system
design into competitive success in the global PC marketits global market share in PCs has lagged
far behind Dell, HP, and Lenovo for over two decades. Moreover, it is important to recognize that a
resource or capability can quickly lose its competitive value because of rapid changes in technology
or customer preferences or the importance of certain distribution channels or other market-related
factors. For example, a companys ability to benefit from strong capabilities in product innovation
is governed by how quickly rivals can introduce their own new products with many of the same
features. The branch offices of commercial banks are becoming a less potent competitive asset
because of growing use of direct deposits, automated teller machines, debit cards, and telephone and
Internet banking options that reduce the need to go to the bank.
2. Do many or most rivals have much the same resource or capability? A resource or capability that
most of a companys rivals also possess does not enhance a companys competitive power in the
marketplace and certainly cannot be a source of competitive advantage. Indeed, when most companies
in an industry can legitimately lay claim to having a particular resource or capability, then that resource
or capability has no competitive significance beyond that of putting competitors on the same footing
in the marketplace and perhaps indicating the resource or capability is an industry key success factor.
Hence, one of the factors that transforms a resource or capability into an important strength is that it
constitutes a weapon for competing that rivals lacksuch a resource or capability is truly a competitive
asset, and potentially a powerful one if it contributes significantly to a companys customer value
proposition or profitability.
3. Is the resource or capability hard to copy? The more difficult and more expensive it is for rivals to
imitate a valuable resource or competitive capability, the greater its potential for enabling a company to
outcompete rivals and win a competitive advantage. Resources tend to be difficult to copy when they
are unique (a fantastic real estate location, patent-protected technology or product features, an unusually
talented and motivated labor force), when they must be built over time in ways that are difficult to imitate
(a well-known brand name, mastery of a complex production process, a global network of dealers and
distributors), and when they entail financial outlays or large-scale operations that few industry members
can undertake. Such hard-to-copy resources and capabilities are valuable competitive assets, adding to
a companys market strength and contributing to sustained profitability.
4. Can the resource strength be trumped by the different resource strengths and competitive capabilities
of rivals? Resources that are valuable, not widely possessed by rivals, and hard to copy, lose much of
their competitive power if rivals have substitute types of resource strengths or capabilities of equal or
greater competitive power.8 A company may have the most technologically advanced and sophisticated
plants in its industry, but any advantage it enjoys may be nullified if rivals are able to produce equally
good products at lower cost by locating their plants in countries with both low wages and an adequately
skilled labor force.
The vast majority of companies are not well endowed with standout resources or capabilities that can pass all
four tests with high marks. Most firms have a mixed bag of resourcesone or two quite valuable, some good,
many satisfactory to mediocre. Companies in the top tier of
their industry may have as many as two or three core CORE CONCEPT
competencies in their resource strength lineup. But only a
The degree of success a company enjoys in the
few companies, usually the strongest industry leaders or
up-and-coming challengers, have a resource or capability marketplace hinges on the competitive power of its
that truly qualifies as a distinctive competence. Even so, a resourcesthe set of competencies, capabilities,
company that lacks a standout resource or distinctive and competitive assets at its command.
competence can still marshal a portfolio of good-to-
adequate resources and capabilities that collectively make it competitive enough to be profitable. Fast-food
chains like Wendys, Taco Bell, and Subway, despite having only satisfactory sets of resources and capabilities,
have nonetheless achieved respectable market positions competing against McDonalds. Discount retailers
Target and Kohls have assembled a good enough collection of resources to profitably compete against Walmart
and its richer and deeper resource portfolio.
Dynamic CapabilitiesThe Importance of Keeping Company Resources and Competencies

Freshly Honed and on the Cutting-Edge For a companys competencies and capabilities to remain
valuable resource strengths over time, they must be
continually polished, updated, and sometimes augmented CORE CONCEPT
with altogether new kinds of expertise.9 It takes freshly
refined and sometimes totally refurbished or altogether new A company requires a dynamically evolving
competencies for a company to effectively respond to portfolio of competencies and capabilities to
ongoing changes in customer needs and expectations. sustain its competitiveness and help drive
Moreover, diligent managerial attention to sharpening and improvements in its performance. Otherwise, the
recalibrating company competencies and capabilities power of its competitive assets grow stale.
protects a companys long-term competitiveness against the
improving capabilities of rivals and their strategic maneuvering to win bigger sales and market shares. Absent
such attention, a companys competencies and capabilities risk becoming stale over time and contributing to an
erosion of company performance.10
Managements challenge in creating a dynamic and competitively effective portfolio of resources and capabilities
has two elements: (1) attending to ongoing recalibration of existing competencies and capabilities and (2) casting a
watchful eye for opportunities to develop totally new capa
bilities for delivering better customer value and/or outcom Keeping company competencies freshly honed
peting rivals. Companies that succeed in meeting these and on the cutting edge is a strategically important
challenges are likely to be in the enviable position of having top management task.
an ever-stronger and competitively potent arsenal of
competencies and capabilities. Company executives that grasp the strategic importance of incrementally improving
the companys existing resource portfolio and from time-to-time adding new resources/capabilities make a point of
ensuring that these actions are an ongoing, high-priority activity. By making proactive oversight of these activities
a routine managerial function, they gain the experience and know-how to do a consistently good job of dynamically
managing the companys resources and competitive assets. At that point, their ability to freshen and renew the
companys resource portfolio becomes what is known as a dynamic capability.11 When a companys executive
management team achieves proficient dynamic capability to modify, deepen, and augment the companys resources
and competitive capabilities, the companys competitiveness in the marketplace is significantly enhanced.
Tying Strategy to Competitively Powerful Resource Strengths As a general rule, a companys

strategy should be designed to leverage and capitalize on its most competitively powerful resource strengths
and capabilities. Why? Using its most potent resource strengths and capabilities to power strategic initiatives to
deliver value to customers and win business away from rivals gives a company its best chances for competitive
success and better performance. Deploying the companys resources and capabilities to maximum advantage is
a no-risk proposition: Theres nothing to lose and much to gain. Should the companys resource strengths and
capabilities turn out to be competitively stronger than those of some or many rivals, its business performance is
certain to improve. And, in the best-case outcome, effectively deploying competitively valuable resources and
capabilities that are hard for rivals to copy or trump usually puts achieving a sustainable competitive advantage
within reach.
Identifying a Companys Important Resource Weaknesses and

Competitive Deficiencies
A resource weakness, or competitive deficiency, is something a company lacks or does poorly (in comparison to
others) or a condition that puts it at a disadvantage in the marketplace. A companys resource weaknesses can
relate to (1) inferior or unproven skills, expertise, or intellec
tual capital in competitively important areas of the business; CORE CONCEPT
(2) deficiencies in competitively important physical, organi
zational, or intangible assets; or (3) missing capabilities in A companys resource weaknesses are
key areas. Resource weaknesses are thus shortcomings that shortcomings that constitute competitive
constitute competitive liabilities. Nearly all companies have liabilities.
competitive liabilities of one kind or another. Whether a
companys resource weaknesses make it competitively vulnerable depends on how much they matter in the
marketplace and whether they are offset by the companys resource strengths and capabilities.
Identifying a Companys Market Opportunities

Market opportunity is a big factor in shaping a companys strategy. Indeed, managers cant properly tailor
strategy to the companys situation without first identifying its market opportunities and appraising the growth
and profit potential each one holds. Depending on the prevailing circumstances, a companys opportunities can
be plentiful or scarce, fleeting or lasting, and can range from wildly attractive (an absolute must to pursue)
to marginally interesting (because of the high risks, large capital requirements, or unappealing revenue growth
and profit potentials) to unsuitable (because the companys resource strengths and capabilities are ill suited to
successfully capitalize on some opportunities). Typical market opportunities are shown in Table 4.2.
Newly emerging and fast-changing markets sometimes present stunningly big or golden opportunities, but it
is typically hard for managers at one company to peer into the fog of the future and spot them much ahead
of managers at other companies.12 But as the fog begins to clear, golden opportunities are nearly always seized
rapidly. And the companies that seize them are usually those that have been actively waiting, staying alert with
diligent market reconnaissance, and preparing themselves to capitalize on shifting market conditions by patiently
assembling an arsenal of competitively valuable resources and a war chest of cash to finance aggressive action
when the time comes.13 In mature markets, unusually attractive market opportunities emerge sporadically, often
after long periods of relative calmbut future market conditions may be less foggy, thus facilitating good
market reconnaissance and making emerging opportunities easier for industry members to detect.
In evaluating a companys market opportunities and ranking their attractiveness, managers have to guard against
viewing every industry opportunity as a company opportunity. Rarely does a company have the resource depth
to pursue all available market opportunities simultaneously
without spreading itself too thin. Some companies have A company is well advised to pass on a particular
resources and capabilities better-suited for pursuing some market opportunity unless it has or can acquire
opportunities than others, and a few companies may be the resources and capabilities to capture it.
hopelessly outclassed in competing for any of an industrys
attractive opportunities. The market opportunities most relevant to a company are those that match up well with
its resource strengths and competitive capabilities, offer the best prospects of growth and profitability, and
present the most potential for competitive advantage.
Table 4.2 lists the things to consider in compiling a companys resource strengths and weaknesses.
Table 4.2 What to Look for in Identifying a Companys Strengths,

Weaknesses, Opportunities, and Threats
Potential Resource Strengths and Potential Resource Weaknesses and

Competitive Capabilities Competitive Deficiencies
Core competencies in _______ No clear strategic direction
A distinctive competence in _______ Resources that are not well matched to an industrys
A product strongly differentiated from those of rivals key success factors
Competencies and capabilities well matched to No well-developed or proven core competencies
industry key success factors A weak balance sheet; too much debt
A strong financial condition; ample financial resources Higher overall unit costs relative to those of key rivals
to grow the business Weak or unproven product innovation capabilities
Strong brand name/company reputation A product/service with attributes or features inferior to
Attractive customer base those of rivals
Proprietary technology/superior technological skills/ Too narrow a product line relative to rivals product
important patents lines
Strong bargaining power over suppliers or buyers Weak brand image or reputation
Cost advantages over rivals Weaker dealer network than key rivals and/or lack of
Skills in advertising and promotion adequate global distribution capability
Product innovation capabilities Behind on product quality, R&D, and/or technological
Proven capabilities in improving production processes know-how
Good supply chain management capabilities In the wrong strategic group
Good customer service capabilities Losing market share because _________
Better product quality relative to rivals Lack of management depth
Wide geographic coverage and/or strong global Inferior intellectual capital relative to rivals
distribution capability Subpar profitability because _________
Alliances/joint ventures with other firms that provide Plagued with internal operating problems or obsolete
access to valuable technology, competencies, and/or facilities
attractive geographic markets Short on financial resources to grow the business and
pursue promising initiatives
Too much underutilized plant capacity
Potential Market Opportunities Potential External Threats to a

Openings to win market share from rivals Companys Future Profitability
Sharply rising buyer demand for the industrys Increasing intensity of competition among industry
product rivalsmay squeeze profit margins
Serving additional customer groups or market Slowdowns in market growth
segments Likely entry of potent new competitors
Expanding into new geographic markets Loss of sales to substitute products
Expanding the companys product line to meet a Growing bargaining power of buyers or suppliers
broader range of customer needs A shift in buyer needs and tastes away from the
Utilizing existing company skills or technological industrys product
know-how to enter new product lines or new Adverse demographic changes that threaten to curtail
businesses demand for the industrys product
Online sales via the Internet Vulnerability to unfavorable industry driving forces
Integrating forward or backward Restrictive trade policies on the part of foreign
Falling trade barriers in attractive foreign markets governments
Acquiring rival firms or companies with attractive Costly new regulatory requirements
technological expertise or capabilities Tight credit conditions
Entering into alliances or joint ventures to expand Rising prices for energy or other key inputs
the firms market coverage or boost its competitive
capability
Openings to exploit emerging new technologies
Identifying the Threats to a Companys Future Profitability

Often, certain factors in a companys external environment pose threats to its profitability and competitive
well-being. Threats can stem from such factors as the emergence of cheaper or better technologies, the entry of
lower-cost foreign competitors into a companys market stronghold, new regulations that are more burdensome
to a company than to its competitors, unfavorable demographic shifts, and political upheaval in a foreign country
where the company has facilities. Table 4.2 shows a representative list of potential threats.
External threats may pose no more than a moderate degree of adversity (all companies confront some threatening
elements in the course of doing business), or they may be so imposing they make a companys situation and
outlook tenuous. On rare occasions, market shocks can give birth to a sudden-death threat that throws a company
into an immediate crisis and battle to survive. Many of the worlds major financial institutions were plunged
into unprecedented crisis in 20082009 by the aftereffects of high-risk mortgage lending, inflated credit ratings
on subprime mortgage securities, the collapse of housing prices, and a market flooded with mortgage-related
investments (collateralized debt obligations) whose values suddenly evaporated. It is managements job to
identify the threats to the companys future prospects and to evaluate what strategic actions can be taken to
neutralize or lessen their impact.
What Do the SWOT Listings Reveal?

SWOT analysis involves more than making four lists. The two most important parts of SWOT analysis are
drawing conclusions from the SWOT listings about the companys overall situation, and translating these
conclusions into strategic actions to better match the
companys strategy to its resource strengths and market Simply making lists of a companys strengths,
opportunities, to correct the important weaknesses, and to weaknesses, opportunities, and threats is
defend against external threats. Figure 4.2 shows the steps not enough. The payoff from SWOT analysis
involved in gleaning insights from SWOT analysis. comes from the conclusions about a companys
situation and the implications for strategy
The answers to the following questions often reveal just
improvement that flow from the four lists.
what story the SWOT listings tell about the companys
overall situation:
n What are the attractive aspects of the companys situation?
n What aspects are of the most concern?
n Are the companys resource strengths and competitive assets sufficiently strong to enable it to compete
successfully?
n Are the companys weaknesses/deficiencies of major or minor consequence? Must remedial action be
taken immediately? Or, are the weaknesses/deficiencies sufficiently offset by the companys strengths
and competitive assets that corrective action is probably not the best use of company resources?
n Does the company have attractive market opportunities well suited to its resource strengths and
competitive capabilities? Is the company lacking certain resources or capabilities that make it inadvisable
to pursue any of the identified market opportunities?
n Are the external threats alarming, or are they something the company appears able to deal with and
defend against?
n All things considered, where on a scale of 1 to 10 (where 1 is alarmingly weak and 10 is exceptionally
strong), does the companys overall situation and future prospects rank?
Figure 4.2 The Three Steps of SWOT Analysis: Identify, Draw Conclusions,
Translate into Strategic Action
What Can Be Gleaned from the

Identify company
SWOT Listings?
resource strengths and
competitive assets
Conclusions concerning the companys overall business

situation:
Identify company Where on the scale from alarmingly weak to
resource weaknesses exceptionally strong does the attractiveness of the
and competitive companys situation rank?
deficiencies What are the attractive and unattractive aspects of
the companys situation?
Identify the Implications for improving company strategy:

companys market Use of company strengths and capabilities as
opportunities cornerstones for strategy.
Pursue those market opportunities best suited to
company strengths and capabilities.
Correct weaknesses and deficiencies that impair
Identify external threats pursuit of important market opportunities to heighten
to the companys vulnerability to external threats.
future well-being Use company strengths to lessen the impact of
important external threats.
The final piece of SWOT analysis is to translate the diagnosis of the companys situation into actions for improving
the companys strategy and business prospects. A companys resource strengths and competitive capabilities should
always be key components of its strategyplacing heavy reliance on a companys best competitive assets is the
soundest route to competing successfully and achieving good business performance.14 As a rule, strategies that place
heavy demands on areas where the company is weakest or has unproven competitive ability should be avoided.
Plainly, managers must take action to correct competitive weaknesses that make the company vulnerable, hold
down profitability, or disqualify it from pursuing a particularly attractive opportunity. Furthermore, a companys
strategy should always be aimed squarely at capturing attractive market opportunities suited to the companys
collection of resource strengths and competitive assets. How much attention to devote to defending against external
threats hinges on how vulnerable the company is, whether attractive defensive moves can be taken to lessen their
impact, and whether the costs of undertaking such moves represent the best use of company resources.
Question 3: Are the Companys Prices and Costs Competitive

with Those of Key Rivals, and Does It Have an Appealing
Customer Value Proposition?
Company managers are often stunned when a competitor cuts its price to unbelievably low levels or when
a new market entrant comes on strong with a very low price. Such rivals may not, however, be dumping
(an economic term for selling at prices below cost), buying market share with a super-low price, or waging
a desperate move to gain salesthey may simply have substantially lower costs. Then there are occasions
when a competitor storms the market with a new product that ratchets the quality level up so high customers
will abandon competing sellers even if they have to pay more for the new productthis is what seems to have
happened with Apples iPhone 6 and iMac computers.
Regardless of where on the price-quality-performance spectrum a company competes, it must remain competitive
in terms of its customer value proposition to stay in the game. Two telling signs of whether a companys business
position is strong or precarious are (1) whether its prices are justified by the value it delivers to customers and
(2) whether its costs are competitive with industry rivals delivering similar customer value at a similar price. The
greater the amount of customer value a company can offer profitably compared to its rivals, the less vulnerable it
is to competitive attack. And if it can deliver the same amount of value with lower expenditures (or more value
at the same cost), it will enjoy a competitive edge.
Two analytical tools are particularly useful in determining whether a companys customer value proposition,
prices, and costs are competitive: value chain analysis and benchmarking.
The Concept of a Company Value Chain

Every companys business consists of a collection of activities undertaken in the course of designing, producing,
marketing, delivering, and supporting its product or service. All of the various activities a company performs
internally combine to form a value chainso-called because creating value for customers is what chains a
companys various activities into a purposeful group of functions and tasks. A company has no sound business
justification for performing any activity that does not result in greater value for customers.
As shown in Figure 4.3, a companys value chain consists of two broad categories of activities: the primary
activities foremost in the companys scheme for creating and delivering value to customers and the requisite
support activities that facilitate and enhance the performance of the primary activities.15 The kinds of primary
and secondary activities that comprise a companys value chain vary according to the specifics of its business
hence, the primary and secondary activities shown in Figure 4.3 are illustrative rather than definitive. For
example, the primary activities at a hotel chain like Sheraton include site selection and construction, reservations,
the operation of hotel properties (check-in and check-out,
maintenance and housekeeping, dining and room service, CORE CONCEPT
and conventions and meetings), and management of its
A companys value chain identifies the primary
portfolio of hotel property locations. Its principal support
activities it performs that create customer value and
activities include accounting, hiring and training, adver
the related support activities. The outputs of an
tising building a recognized and reputable brand name, and
organizations value chain activities are the value
general administration. The primary activities for a depart
delivered to customers and the resulting revenues
ment store retailer like Nordstrom or Dillards involve
merchandise selection and buying, store layout and product it collects. The inputs are all of the resources
display, sales floor operations, and customer service, required to conduct the various value chain
whereas its support activities include site selection, hiring activities; use of these resources creates costs.
and training, store maintenance, advertising, and general
administration. Supply chain management is a crucial activity for Nissan and Amazon.com but is not a value
chain component at Facebook or Twitter. Sales and marketing are dominant activities at Procter & Gamble and
Nike but have minor roles at oil drilling companies and natural gas pipeline companies. Customer delivery is a
crucial activity at Dominos Pizza but insignificant at Starbucks.
Note that there is a profit margin component in every companys value chain. This is because the value delivered
to the customer (as reflected in the price the customer agrees to pay) must be large enough to compensate owners/
shareholders for the risks they have borne and provide them with a return on the capital they have invested. When
the revenues generated from an organizations activities are sufficient to cover the various resource costs and
yield an attractive profit, then the organization has an appealing value chainits customer value proposition and
its profit proposition are well aligned. Absent the ability to create a value chain capable of delivering sufficient
customer value to generate a profitable revenue stream, a company is competitively vulnerable and its survival
open to question.
Comparing the Value Chains of Rival Companies Value chain analysis facilitates a comparison of
how rivals, activity-by-activity, deliver value to customers. Typically, there are important differences in the
value chains of rival companies. A company that makes a no-frills product and provides minimal customer
services has a value chain with activities and costs that are different from a competitor that produces a full-
featured, high-performance product and has a full range of customer service offerings. The operations
component of the value chain for a manufacturer that makes all of its own parts and components and assembles
them into a finished product differs from the operations of a rival producer that buys the needed parts and
components from outside suppliers and only performs
assembly operations. Movie theaters that show the new CORE CONCEPT
releases of movie studios and derive a big portion of their The greater the value a company can profitably
revenues from concession sales employ different value- deliver to its customers relative to the value close
creating activities and have different costs from Netflix rivals deliver, the less competitively vulnerable
and other providers of movies streamed over the Internet
it becomes. The higher a companys costs
directly to viewers TVs and mobile devices.
relative to those of rivals delivering comparable
Differences in the value chains of close competitors raise customer value at a comparable price, the more
two very important questions. One, whose value chain competitively vulnerable it becomes.
delivers the best customer value relative to the prices being
charged? Two, which company has the lowest cost value chain. When one competitor employs a value chain
approach that delivers greater value to customers relative to the price it charges, it gains competitive advantage
even if its costs are equivalent to (or maybe even higher than) those of its close rivals. When close competitors
deliver much the same value to customers, charge comparable prices, and employ similar value chains, then
competitive advantage accrues to the company that operates its value chain most cost efficiently. Consequently,
it is incumbent on company managers to vigilantly monitor how effectively and efficiently the company delivers
value to customers relative to rival companiesgaining a competitive edge over rivals hinges on being able to
deliver equivalent customer value at lower cost or greater customer value at the same cost.
A Companys Primary and Support Activities Identify the Major Components of Its Internal
Cost Structure The combined costs of all the various primary and support activities comprising a companys
value chain define its internal cost structure. Further, the cost of each activity contributes to whether the
companys overall cost position relative to rivals is
favorable or unfavorable. The roles of value chain analysis Each activity in a companys value chain gives
and benchmarking are to develop the data for comparing a rise to costs and ties up assets.
companys costs activity by activity against the costs of
key rivals and to learn which internal activities are a source of cost advantage or disadvantage.
Evaluating a companys cost-competitiveness involves using what accountants call activity-based costing to
determine the costs of performing each value chain activity (and the amount of assets each activity uses).16
The degree to which a companys total costs should be broken down into costs for specific activities depends
on how valuable it is to know the costs of specific activities versus broadly defined activities. At the very least,
cost estimates are needed for each broad category of primary and support activities, but cost estimates for more
specific activities within each broad category may be needed if a company discovers it has a cost disadvantage
vis--vis rivals and wants to pin down the exact source or activity causing the cost disadvantage. However,
a companys own internal costs are insufficient to assess whether its product offering and customer value
proposition are competitive with those of rivals. Cost and price differences among competing companies can
have their origins in activities performed by suppliers or by distribution allies involved in getting the product
to the final customers or end users of the product, in which case the companys entire value chain system
becomes relevant.
Figure 4.3 A Representative Company Value Chain
Primary Supply
Activities Chain Sales and Profit
Operations Distribution Service
and Manage- Marketing Margin
Costs ment
Support Product R&D, Technology, and Systems Development

Activities
and Human Resources Management
Costs
General Administration
PRIMARY ACTIVITIES
Supply Chain ManagementActivities, costs, and assets associated with purchasing fuel, energy, raw
materials, parts and components, merchandise, and consumable items from vendors; receiving, storing and
disseminating inputs from suppliers; inspection; and inventory management.
OperationsActivities, costs, and assets associated with converting inputs into final product from (producing,
assembly, packaging, equipment maintenance, facilities, operations, quality assurance, environmental protection).
DistributionActivities, costs, and assets dealing with physically distributing the product to buyers (finished
goods warehousing, order processing, order picking and packing, shipping, delivery vehicle operations,
establishing and maintaining a network of dealers and distributors).
Sales and MarketingActivities, costs, and assets related to sales force efforts, advertising and promotion,
market research and planning, and dealer/distributor support.
ServiceActivities, costs, and assets associated with providing assistance to buyers, such as installations,
spare parts delivery, maintenance and repair, technical assistance, buyer inquiries, and complaints.
SUPPORT ACTIVITIES
Product R&D, Technology, and Systems DevelopmentActivities, costs, and assets relating to product
R&D, process R&D, process design improvement, equipment design, computer software development,
telecommunications systems, computer-assisted design and engineering, database capabilities, and
development of computerized support systems.
Human Resource ManagementActivities, costs, and assets associated with the recruitment, hiring, training,
development, and compensation of all types of personnel; labor relations activities; and development of
knowledge-based skills and core competencies.
General AdministrationActivities, costs, and assets relating to general management, accounting and finance,
legal regulatory affairs, safety and security, management information systems, forming strategic alliances and
collaborating with strategic partners, and other overhead functions.
Source: Based on the discussion in Michael E. Porter, Competitive Advantage (New York: Free Press, 1985), pp. 3743.
The Value Chain System for an Entire Industry

A companys value chain is embedded in a larger system of activities that includes the value chains of its
suppliers and the value chains of whatever wholesale distributors and retailers it utilizes in getting its product or
service to end users.17 Suppliers value chains are relevant because suppliers perform activities and incur costs
in creating and delivering the purchased inputs used in a companys own value-creating activities. The costs,
performance features, and quality of these inputs influence a companys own costs and product differentiation
capabilities. Anything a company can do to help its suppliers drive down the costs of their value chain activities
or improve the quality and performance of the items being supplied can enhance its own competitivenessa
powerful reason for working collaboratively with suppliers in managing supply chain activities.8
Similarly, the value chains of a companys distribution channel partners are relevant because (1) the costs and
margins of a companys distributors and retail dealers are part of the price the ultimate consumer pays, and (2)
the activities that distribution allies perform affect sales volumes and customer satisfaction. For these reasons,
companies normally work closely with their distribution allies (who are their direct customers) to perform value
chain activities in mutually beneficial ways. For instance, motor vehicle manufacturers have a competitive
interest in working closely with their automobile dealers to promote higher sales volumes and better customer
satisfaction with dealers repair and maintenance services. Producers of bathroom and kitchen faucets are heavily
dependent on whether the sales and promotional activities of their distributors and building supply retailers are
effective in attracting the interest of home-builders and do-
it-yourselfers and whether distributors/retailers operate A companys cost-competitiveness depends not
their value chains cost effectively enough to be able to sell only on the costs of internally performed activities
at prices that lead to attractive sales volumes. (its own value chain) but also on costs in the value
chains of its suppliers and distribution channel
As a consequence, accurately assessing a companys allies.
competitiveness entails scrutinizing the nature and costs of
value chain activities across an industrys entire value chain
system for delivering a product or service to end-use customers. A typical industry value chain that incorporates
the value chains of suppliers and forward channel allies (if any) is shown in Figure 4.4. As was the case with
company value chains, the specific activities comprising industry value chains vary significantly from industry
to industry. The primary value chain activities in the pulp and paper industry (timber farming, logging, pulp
mills, and paper making) differ from the primary value chain activities in the home appliance industry (parts and
components manufacture, assembly, wholesale distribution, retail sales) and differ yet again for the soft drink
industry (processing of basic ingredients and syrup manufacture, bottling and can filling, wholesale distribution,
advertising, and retail merchandising).
Figure 4.4 A Representative Value Chain System for an Entire Industry

Supplier-Related A Companys Forward Channel
Value Chains Own Value Chain Value Chains
Activities,
Internally costs, and
Activities, performed margins Buyer or
costs, and activities, of forward end-user
margins of cost, channel value
suppliers and allies and chains
margins strategic
partners
Source: Based in part on the single-industry value chain displayed in Michael E. Porter, Competitive Advantage (New York: Free Press,
1985), p. 35.
Once a company has developed good cost estimates for each major activity in its own value chain, has a good
grasp of the value chains its close rivals employ, and has sufficient cost data relating to the value chain activities
of suppliers and distribution allies, it is ready to explore whether its costs compare favorably or unfavorably with
those of key rivals. This is where benchmarking comes in.
Benchmarking: A Tool for Assessing Whether the Costs and

Effectiveness of a Companys Value Chain Activities Are in Line
Benchmarking entails comparing how different companies (both inside and outside the industry) perform
various value chain activitieshow inventories are managed, how products are assembled, how fast the company
can get new products to market, how customer orders are filled and shippedand then making cross-company
comparisons of the costs of these activities.19 The objectives of benchmarking are to identify the best means of
performing an activity, to learn how other companies have actually achieved lower costs or better results in
performing benchmarked activities, and to take action to emulate those best practices whenever benchmarking
reveals that its costs and results of performing an activity are not on a par with what other companies have
achieved. A best practice is a method or technique of performing an activity or business process that produces
results superior to those achieved with other methods/techniques. To qualify as a legitimate best practice, the
method must have been employed by at least one enterprise
and shown to be consistently effective in lowering costs, CORE CONCEPT
improving quality or performance, shortening time require Benchmarking is a potent tool for learning which
ments, enhancing safety, or achieving some other highly
companies are best at performing particular
positive operating outcome.
activities and emulating their techniques (or best
Xerox pioneered the use of benchmarking in 1979 when practices) to improve the cost and effectiveness
Japanese manufacturers began selling midsize copiers in of a companys own internal activities.
the United States for less than Xeroxs production costs. 20
With the aid of joint venture partner, Fuji-Xerox, which knew the competitors well, Xerox learned its costs were
excessive due to gross inefficiencies in its manufacturing processes and business practices, prompting Xerox to
begin benchmarking 67 of its key work processes against companies identified as employing the best practices.
Xerox quickly decided not to restrict its benchmarking efforts to its office equipment rivals but to extend them to
any company regarded as world class in performing any activity relevant to Xeroxs business. Other companies
quickly picked up on Xeroxs approach. Toyota managers got their idea for just-in-time inventory deliveries by
studying how U.S. supermarkets replenished their shelves. Southwest Airlines reduced the turnaround time of its
aircraft at each scheduled stop by studying pit crews on the auto racing circuit. More than 80 percent of Fortune
500 companies reportedly use benchmarking for comparing themselves against rivals in performing activities in
ways that produce superior outcomes.
The tough part of benchmarking is not whether to do it but rather how to gain access to information about other
companies practices and costs. Sometimes benchmarking can be accomplished by collecting information from
published reports, trade groups, and industry research firms and by talking to knowledgeable industry analysts,
customers, and suppliers. Sometimes field trips to the facilities of competing or noncompeting companies
can be arranged to observe how things are done, ask questions, compare practices and processes, and perhaps
exchange data on various cost componentsbut the problem here is that most companies, even if they agree
to host facilities tours and answer questions, are unlikely to share competitively sensitive cost information.
Furthermore, comparing one companys costs to anothers costs may not involve comparing apples to apples
if the two companies employ different cost accounting principles to calculate the costs of particular activities.
However, a third and fairly reliable source of benchmarking information has emerged. The explosive interest of
companies in benchmarking costs and identifying best practices has prompted such organizations as Accenture,
A.T. Kearney, BenchnetThe Benchmarking Exchange, Best Practices, LLC, the Qualserve Benchmarking
Clearinghouse, and the Strategic Planning Institutes Council on Benchmarking to gather benchmarking data,
distribute information about best practices, and provide comparative cost data without identifying the names
of particular companies. Having an independent group gather the information and report it in a manner that
disguises the names of individual companies protects competitively sensitive data and lessens the potential for
unethical behavior by company personnel in gathering their own data about competitors.
Strategic Options for Creating a Cost Advantage or Remedying a

Cost Disadvantage
Examining the costs of a companys own value chain activities and comparing them to rivals indicates who has
how much of a cost advantage or disadvantage and which cost components are responsible. Such information
is vital in strategic actions to create a cost advantage or eliminate a cost disadvantage. The three main areas in
a companys total value chain system where company managers can try to create a cost advantage or remedy a
cost disadvantage are (1) a companys own activity segments, (2) suppliers part of the overall value chain, and
(3) the distribution channel portion of the chain.
Lowering the Costs of Internally Performed Value Chain Activities Managers can pursue any of
several strategic approaches to reduce the costs of internally performed value chain activities and improve a
companys cost competitiveness:21
n Implement best practices throughout the company, particularly for high-cost activities.
n Redesign the product and/or some of its components to eliminate high-cost components or facilitate
speedier and more economical manufacture or assembly.
n Relocate high-cost activities (such as manufacturing) to geographic areas like Southeast Asia, Latin
America, or Eastern Europe where they can be performed more cheaply.
n Outsource certain internally performed activities if vendors or contractors can perform them more
cheaply than they can be performed in-house.
n Shift to lower-cost technologies and/or invest in productivity-enhancing, cost-saving technological
improvements (robotics, flexible manufacturing techniques, state-of-the-art information systems).
n Stop performing activities of minimal value to customers. Examples include seldom-used customer
services and maintaining large raw material or finished goods inventories.
In searching for cost-reduction opportunities, it is important to recognize that the manner in which one activity
is done affects the costs of performing other activities. For instance, how a television or washing machine is
designed has a huge impact on the number of parts and components, their respective manufacturing costs, and
the time and expense of assembling the various parts and components into a finished product.
Lowering the Costs of Supplier-Related Value Chain Activities A company can gain cost savings
in supplier-related value chain activities by pressuring suppliers for lower prices, switching to lower-priced
substitute inputs, and collaborating closely with suppliers to identify mutual cost-saving opportunities.22 For
example, just-in-time deliveries from suppliers can lower a companys inventory and internal logistics costs
and may also allow suppliers to economize on their warehousing, shipping, and production scheduling costsa
winwin outcome for both. In a few instances, companies may find it is cheaper to integrate backward into the
business of high-cost suppliers and make the item in-house instead of buying it from outsiders.
Lowering the Costs of Distribution-Related Value Chain Activities Any of three means can be
used to achieve better competitiveness in the forward portion of the industry value chain:23
1. Pressure distributors, dealers, and other forward channel allies to reduce their costs and markups to
make the final price to buyers more competitive with the prices of rival brands.
2. Collaborate with forward channel allies to identify winwin opportunities to reduce costsfor example,
a chocolate manufacturer learned that by shipping its bulk chocolate in liquid form in tank cars instead
of in 10-pound molded bars, it could save its candy bar manufacturing customers the costs associated
with unpacking and melting and also eliminate its own costs of molding and packing bars.
3. Change to a more economical distribution strategy, including switching to cheaper distribution channels
(selling direct via the Internet) or integrating forward into company-owned retail outlets.
Translating Proficient Performance of Value Chain Activities

into Competitive Advantage
A company that does a first rate job of managing its value chain activities relative to competitors stands a good
chance of achieving sustainable competitive advantage.
As shown in Figure 4.5, competitive advantage can be Performing value chain activities in ways that
achieved by out-managing rivals in either of two ways: (1) give a company either a lower-cost advantage
by performing value chain activities more efficiently and or a differentiation advantage over rivals are two
cost effectively, thereby gaining a low-cost advantage surefire ways to secure competitive advantage.
over rivals or (2) by performing certain value chain
activities in ways that drive value-creating improvements in quality, features, performance, and other aspects,
thereby gaining a differentiation-based competitive advantage keyed to what customers perceive as a superior
product offering.
Achieving Proficient Performance of Value Chain Activities Depends on Having the Right
Resources, Competences, and Capabilities As laid out in Figure 4.5, either approach requires focused
management attention on building and nurturing specific competencies and capabilities that enable the value
chain activities to be performed proficiently enough to produce the desired outcomelower costs or stronger
differentiation. A companys value chain is all about performing activities, and proficient performance of key
activities requires having not just the right kinds of competencies and capabilities but developing and constantly
improving them so they evolve into first-rate competencies and capabilities.
Achieving a cost-based competitive advantage requires determined efforts to be cost-efficient in performing

value chain activities. Such efforts must be ongoing and persistent, and they have to involve each and every
value chain activity. The goal must be continuous cost reduction, not a one-time or on-again/off-again effort.
This requires a frugal culture where all company personnel not only exhibit cost-conscious behavior but also
where they are diligent in finding and implementing operating practices that lower costs. Cost-benchmarking and
aggressive implementation of cost-lowering best practices must be the norm. Companies whose managers are
truly committed to low-cost performance of value chain activities and succeed in engaging company personnel
to discover innovative ways to drive costs out of the business have a real chance of gaining a durable low-cost
edge over rivals. It is not as easy as it seems to imitate a companys low-cost practices. Walmart, Nucor Steel,
Dollar General, Irish airline Ryanair, Toyota, and French discount retailer Carrefour have been highly successful
in preserving a low-cost advantage by out-managing their rivals in how cost efficiently company value chain
activities are performed.
On the other hand, companies that succeed in achieving a differentiation-based competitive advantage do so
because of a strong commitment to proficiently performing those value chain activities essential to the desired
basis for differentiation. For example, uniquely good customer service capabilities are crucial at such high-
end hotel properties as Ritz-Carlton, Four Seasons, and St. Regis. First-rate product innovation capabilities
are paramount at Apple. Product design capabilities underlie IKEAs success in the furniture business. Standout
engineering design and manufacturing/assembly capabili-
ties are essential at Mercedes and BMW. Sterling brand Becoming more cost efficient than rivals in
name reputations require not only proficient performance performing value chain activities entails building
of value chain activities relating to the caliber of a com- and nurturing resources, competences, and
panys product offering but also marketing/advertising capabilities that differ substantially from those
skills in brand-building and consistent messaging to plant needed to achieve a differentiation-based
and reinforce the desired type of image/reputation. To the competitive advantage.
extent that a company continues to invest resources in
building greater and greater proficiency in performing the targeted value chain activities, and top management
makes the associated competencies and capabilities cornerstones of the companys strategy to attract and
please customers, then, over time, its proficiencies rise to the level of a core competence. Later, with further
organizational learning and gains in proficiency, a core competence may evolve into a distinctive competence.
Such superiority over rivals in performing one (or possibly several) differentiation-enhancing value chain
activities can prove unusually difficult to match or offset. As a general rule, it is substantially harder for rivals
to achieve best in industry proficiency in performing a key value chain activity than it is for them to clone
the features and attributes of a hot-selling product or service.24 This is especially true when a company with
a distinctive competence avoids becoming complacent and works diligently to maintain its industry-leading
expertise and capability.
Figure 4.5 Translating Company Performance of Value Chain Activities

into Competitive Advantage
Option 1: Beat rivals by performing value chain activities more cheaply, thus achieving a cost-
based competitive advantage
Company Competencies Company

managers Company proficiency in
and
decide to proficiency in cost-efficient Company
perform value capabilities
cost-efficient performance gains a
chain activities gradually
performance of value chain competitive
in the most emerge in
of value chain activities advantage
cost-efficient performing
activities continues based on
mannerevery many
rises to the to build and superior
value chain value chain
activity is level of a evolves into cost-lowering
activities
examined for core a distinctive capabilities
very cost
possible cost competence competence
efficiently
savings
Option 2: Beat rivals by performing certain differentiation-enhancing value chain activities more
proficiently, thus creating a differentiation-based competitive advantage keyed to delivering what
customers perceive as a superior product offering.
Company
Company Competencies Company
proficiency in
managers decide and proficiency Company
performing
to perform value capabilities in performing gains a
differentiation-
chain activities in gradually some of these
enhancing competitive
ways that drive emerge in differentiation-
improvements in value chain advantage
performing enhancing based on
quality, features, activities
certain value chain superior
performance, continues
differentiation- activities differentiation
and other to build and
enhancing rises to the capabilities
differentiation- evolves into
enhancing value chain level of a core
a distinctive
aspects activities competence
competence
Question 4: Is the Company Competitively Stronger or

Weaker Than Key Rivals?
Using value chain analysis and benchmarking to determine a companys competitiveness on price and cost is
necessary but not sufficient. A more comprehensive assessment needs to be made of the companys overall
competitive strength. The answers to two questions are of particular interest: First, how does the company rank
relative to competitors on each important factor that determines market success? Second, all things considered,
does the company have a net competitive advantage or disadvantage versus its closest rivals?
An easy-to-use method for answering these two questions involves developing quantitative strength ratings for
the company and its key competitors on each industry key success factor and each competitive trait or capability
that impacts a companys competitiveness and determines whether it is competitively strong or weak. Much of
the information needed for doing a competitive strength assessment comes from previous analyses. Industry and
competitive analysis reveals the key success factors and competitive capabilities that separate industry winners
from losers. Benchmarking data and scouting key competitors provide a basis for judging the competitive strength
of rivals on such factors as cost, key product attributes, customer service, image and reputation, financial strength,
technological skills, distribution capability, and other competitively important resources and capabilities. SWOT
analysis reveals how the company in question stacks up on these same strength measures.
Step 1 in doing a competitive strength assessment is to make a list of the industrys key success factors and the
most telling measures of competitive strength or weakness (six to ten measures usually suffice). Step 2 is to
assign weights to each of the measures of competitive strength based on their perceived importanceit is highly
unlikely that the different measures are equally important. In an industry where the products/services of rivals
are virtually identical, for instance, having low unit costs relative to rivals is nearly always the most important
determinant of competitive strength. In an industry with strong product differentiation, the most significant
measures of competitive strength may be brand awareness, brand image and reputation, product attractiveness,
and distribution capability. The highest importance weights might be as high as 0.50 in situations where one
particular competitive variable is overwhelmingly decisive, or the high weights might be only 0.20 when two
or three strength measures are more important than the rest. Lesser competitive strength indicators can carry
weights of 0.05 or 0.10. No matter whether the differences between the importance weights are big or little, the
sum of the weights must add up to 1.0.
Step 3 is to rate the firm and its rivals on each competitive strength measure. Numerical rating scales (for example,
from 1 to 10) are best to use, although ratings of stronger (+), weaker (-), and about equal (=) may be appropriate
when information is scant and assigning numerical scores conveys false precision. Step 4 is to multiply each
strength rating by its importance weight to obtain weighted strength scores (a strength rating of 4 times a weight
of 0.20 gives a weighted strength score of 0.80). Step 5 is to sum each companys weighted strength ratings
to obtain an overall weighted competitive strength rating. Step 6 is to use the overall strength ratings to draw
conclusions about the size and extent of the companys net competitive advantage or disadvantage vis--vis its
rivals and to take specific note of areas of strength and weakness.
Table 4.3 provides an example of competitive strength assessment in which a hypothetical company (ABC
Company) competes against two rivals. In the example, relative cost is the most telling measure of competitive
strength and the other strength measures are of lesser importance. The company with the highest rating on
a given measure has an implied competitive edge on that measure, with the size of its edge reflected in the
difference between its weighted rating and rivals weighted ratings. For instance, Rival 1s 3.00 weighted
strength rating on relative cost signals a considerable cost advantage versus ABC Company (with a 1.50
weighted score on relative cost) and an even bigger cost advantage against Rival 2 (with a weighted score
of 0.30). The measure-by-measure ratings reveal the competitive areas where a company is strongest and
weakest, and against whom.
Table 4.3 A Representative Weighted Competitive Strength Assessment
Competitive Strength Assessments

[Rating scale: 1 = Very weak; 10 = Very strong]
ABC Co. Rival 1 Rival 2
Key Success Factors Importance Strength Weighted Strength Weighted Strength Weighted
and Strength Measures Weight Rating Score Rating Score Rating Score
Quality/product performance 0.10 80.80 5 0.50 1 0.10
Reputation/image 0.10 80.80 7 0.70 1 0.10
Manufacturing capability 0.10 20.20 10 1.00 5 0.50
Technological skills 0.05 10 0.50 1 0.05 3 0.15
Dealer network/distribution capability 0.05 90.45 4 0.20 5 0.25
New product innovation capability 0.05 90.45 4 0.20 5 0.25
Financial resources 0.10 50.50 10 1.00 3 0.30
Relative cost position 0.30 51.50 10 3.00 1 0.30
Customer service capabilities 0.15 50.75 7 1.05 1 0.15
Sum of importance weights 1.00
Weighted overall
5.95 7.70 2.10
strength rating
The overall competitive strength scores indicate how all the different strength measures add upwhether the
company is at a net overall competitive advantage or disadvantage against each rival. The higher a companys
overall weighted strength rating, the stronger its overall
competitiveness versus rivals; the lower a companys score, High overall weighted strength scores signal a
the weaker its ability to compete successfully. The bigger high degree of competitiveness and ability to
the difference between a companys overall weighted rating compete successfully; low scores signal weak
and the scores of lower-rated rivals, the greater its implied competitiveness vis--vis rivals. The sizes of
net competitive advantage over these rivals. Thus, Rival 1s the differences between a companys score and
overall weighted score of 7.70 indicates a greater net those of its rivals are indicative of the size of its
competitive advantage over Rival 2 (with a score of 2.10) net competitive advantage or disadvantage vis-
than over ABC Company (with a score of 5.95). Conversely, -vis these rivals.
the bigger the difference between a companys overall
rating and the scores of higher-rated rivals, the greater its implied net competitive disadvantage. Rival 2s score
of 2.10 gives it a smaller net competitive disadvantage against ABC Company (with an overall score of 5.95)
than against Rival 1 (with an overall score of 7.70).
Strategic Implications of the Competitive Strength Assessments

In addition to showing how competitively strong or weak a company is relative to rivals, the strength ratings
provide guidelines for designing wise offensive and defensive strategies. For example, if ABC Co. wants to
go on the offensive to win additional sales and market share, such an offensive probably needs to be aimed
directly at winning customers away from Rival 2 (which has a lower overall strength score) rather than Rival
1 (which has a higher overall strength score). Moreover, while ABC has high ratings for technological skills (a
10 rating), dealer network/distribution capability (a 9 rating), new product innovation capability (a 9 rating),
quality/product performance (an 8 rating), and reputation/image (an 8 rating), these strength measures have low
importance weightsmeaning that ABC has strengths in areas that dont translate into much competitive clout in
the marketplace. Even so, it outclasses Rival 2 in all five areas, plus it enjoys substantially lower costs than Rival
2 (ABC has a 5 rating on relative cost position versus a 1 rating for Rival 2)and relative cost position carries
the highest importance weight of all the strength measures. ABC also has greater competitive strength than Rival
2 regarding customer service capabilities (which carries the second-highest importance weight). Hence, because
ABCs strengths are in the very areas where Rival 2 is weak, ABC is in good position to attack Rival 2. Indeed,
ABC may well be able to persuade a number of Rival 2s customers to switch their purchases over to its product.
But ABC should be cautious about cutting price aggressively to win customers away from Rival 2, because Rival
1 could interpret that as an attack by ABC to win away Rival
1s customers as well. And Rival 1 is in far and away the best A companys competitive strength scores
position to compete on the basis of low price, given its high pinpoint its strengths and weaknesses against
rating on relative cost in an industry where low costs are rivals and point directly to the kinds of offensive/
competitively important (relative cost carries an importance defensive actions it can use to exploit its
weight of 0.30). Rival 1s very strong relative cost position competitive strengths and reduce its competitive
vis--vis both ABC and Rival 2 arms it with the ability to use vulnerabilities.
its lower-cost advantage to thwart any price-cutting on
ABCs part. Clearly ABC is vulnerable to any retaliatory price cuts by Rival 1Rival 1 can easily defeat both
ABC and Rival 2 in a price-based battle for sales and market share. If ABC wants to defend against its vulnerability
to potential price-cutting by Rival 1, it needs to aim a portion of its strategy at lowering its costs.
The point here is that a competitively astute company should take both the individual and overall strength scores
into account in deciding what strategic moves to make. When a company has important competitive strengths in
areas where one or more rivals are weak, it makes sense to consider offensive moves based on these strengths to
exploit rivals competitive weaknesses. When a company has important competitive weaknesses in areas where
one or more rivals are strong, it makes sense to consider defensive moves to curtail its vulnerability.
Question 5: What Strategic Issues And Problems Merit

Front-Burner Managerial Attention?
The final and most important analytical step is to zero in on exactly which strategic issues company managers
need to worry about and consider in crafting a strategy well-suited to the companys specific circumstances.
Compiling a worry list involves drawing heavily on the results of both the analysis of the companys external
environment and the evaluations of the companys resources and ability to compete successfully. The task here
is to get a clear fix on exactly what strategic and competitive challenges confront the company, which of the
companys competitive shortcomings need fixing, what obstacles stand in the way of improving the companys
competitive position in the marketplace, and what specific problems/issues merit front-burner attention by
company managers in crafting future strategic actions.
The worry list of significant strategic issues and problems that need to be dealt with can include such things as
how to stave off market challenges from new foreign competitors, how to combat the price discounting of rivals,
how to reduce the companys high costs and pave the way
for price reductions, how to sustain the companys present Compiling a worry list that zeros in on the
rate of growth in light of slowing buyer demand, whether to strategic issues and problems a company faces
expand the companys product line, whether to correct the always centers on such concerns as how to,
companys competitive deficiencies by acquiring a rival what to do about, and whether to. The
company with the missing strengths, whether to expand purpose of compiling a worry list is to create an
into foreign markets rapidly or cautiously, whether to agenda of items that merit top-priority managerial
reposition the company and move to a different strategic consideration before attempting to craft a strat-
group, what to do about growing buyer interest in substitute egy well-suited to the companys overall situation.
products, and what to do to combat the aging demographics
of the companys customer base. The worry list thus always centers on such concerns as how to, what to
do about, and whether tothe purpose of the worry list is to highlight the specific issues/problems that
management needs to address in deciding what upcoming strategic actions to take. The worry list thus serves as
an agenda of strategically relevant issues/problems that managers need to deal with in crafting a refurbished
strategy that is better suited to the particulars of the companys external and internal situation.
Only after managers have first done serious strategic thinking about the items on the worry list are they truly
prepared to pick and choose among the alternative strategic actions and initiatives and otherwise fashion an
overall strategy that fits the companys circumstances and,
more specifically, contains strategic actions and initiatives CORE CONCEPT
to address all the items on the worry list. If the items on
25
A strategy is neither complete nor well matched
the worry list are relatively minorwhich suggests the to the companys situation unless it contains
companys present strategy is mostly on track and actions and initiatives to address each issue or
reasonably well matched to the companys overall situation, problem on the worry list.
company managers seldom need to go much beyond fine-
tuning the present strategy to arrive at a strategy suitable for the road ahead. If, however, the issues and problems
confronting the company signal that the present strategy requires significant overhaul, the task of crafting a
revamped strategy better suited to the companys internal and external situation needs to be right at the top of
managements action agenda.
Key Points
There are five key questions to consider in evaluating a companys resources and ability to compete successfully:
1. How well is the present strategy working? This involves evaluating the strategy from a qualitative
standpoint (completeness, internal consistency, rationale, and suitability to the situation) and also from
a quantitative standpoint (the strategic and financial results the strategy is producing). The stronger a
companys current overall performance, the less likely the need for radical strategy changes. The weaker
a companys performance and/or the faster the changes in its external situation, the more its current
strategy must be questioned.
2. Does the company have attractively strong resource capabilities and how well do these match its market
opportunities and the external threats to its future well-being? A SWOT analysis provides an overview
of a firms situation and is an essential component of crafting a strategy tightly matched to the companys
situation. The two most important parts of SWOT analysis are (1) drawing conclusions about what story
the compilation of strengths, weaknesses, opportunities, and threats tells about the companys overall
situation, and (2) acting on those conclusions to better match the companys strategy to its resource
strengths and market opportunities, and correct the important weaknesses and defend against external
threats. A companys resource strengths, competencies, and competitive capabilities are strategically
relevant because they are the most logical and appealing building blocks for strategy. Resource weaknesses
are important because they may represent vulnerabilities that need correction. External opportunities and
threats come into play because a good strategy necessarily aims at capturing a companys most attractive
opportunities and defending against threats to its future profitability and well-being.
3. Are the companys prices and costs competitive with those of key rivals, and does it have an appealing
customer value proposition? The greater the value a company can profitably deliver to its customers
relative to the value delivered by close rivals, the less competitively vulnerable it becomes. The higher a
companys costs relative to those of rivals delivering comparable customer value at a comparable price,
the more competitively vulnerable it becomes. Value chain analysis and benchmarking are essential tools
in determining how well a company is performing particular functions and activities, learning whether
its costs are in line with competitors, and deciding which internal activities and business processes need
to be scrutinized for improvement. Performing value chain activities in ways that give a company the
capability to either outmatch rivals competencies and capabilities or else beat them on costs are two
good ways to secure competitive advantage.
4. Is the company competitively stronger or weaker than key rivals? The key appraisals here involve how
the company matches up against key rivals on industry key success factors and other chief determinants
of competitive success and whether and why the company has a competitive advantage or disadvantage.
Quantitative competitive strength assessments, using the method presented in Table 4.3, indicate where
a company is competitively strong and weak, and provide insight into the companys ability to defend
or enhance its market position. As a rule, a companys competitive strategy should be built around its
competitive strengths and should aim at shoring up areas where it is competitively vulnerable. When
a company has important competitive strengths in areas where one or more rivals are weak, it makes
sense to consider offensive moves to exploit rivals competitive weaknesses. When a company has
important competitive weaknesses in areas where one or more rivals are strong, it makes sense to
consider defensive moves to curtail its vulnerability.
5. What strategic issues and problems merit front-burner managerial attention? This analytical step zeros
in on the strategic issues and problems that stand in the way of the companys success. It involves
drawing on the results of both the analysis of the companys external environment and the evaluations
of the companys overall internal situation to compile a worry list of issues that managers need to
deal with in refurbishing the companys strategy to better fit its overall situation. The worry list always
centers on such concerns as how to, what to do about, and whether to. Items on a worry list
merit front-burner management attention. A companys strategy is neither complete nor well matched to
the particulars of its situation unless it contains actions and initiatives to address every issue or problem
on the worry list.
Accurate appraisal of a companys internal situation, like penetrating analysis of its external environment, is
a valuable precondition for good strategy making. A competently done evaluation of a companys resources,
competences, and competitive strengths and weaknesses exposes strong and weak points in the present strategy
and how attractive or unattractive the companys competitive position is and why. Absent such knowledge,
company managers are unlikely to craft a strategy that is well suited to the companys competitive capabilities
and best market opportunities.

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Chapter 4 Evaluating a Companys Resources and Ability to Compete Successfully 64

Strategy: Core Concepts and Analytical Approaches

1. How well is the companys present strategy working?

4. Is the company competitively stronger or weaker than key rivals?

5. What strategic issues and problems merit front-burner managerial attention?

Question 1: How Well Is the Companys Present Strategy

Figure 4.1 Identifying the Components of a Single-Business Companys

Initiatives to build competitive

n Whether the firms profit margins are increasing or decreasing.

Ratio How Calculated What It Shows

Ratio How Calculated What It Shows

Ratio How Calculated What It Shows

Question 2: Are The Companys Resources and Capabilities

Identifying a Companys Important Resource Strengths and

Assessing a Companys Resource StrengthsDoes It Have

Dynamic CapabilitiesThe Importance of Keeping Company Resources and Competencies

Tying Strategy to Competitively Powerful Resource Strengths As a general rule, a companys

Identifying a Companys Important Resource Weaknesses and

Identifying a Companys Market Opportunities

Table 4.2 What to Look for in Identifying a Companys Strengths,

Potential Resource Strengths and Potential Resource Weaknesses and

Potential Market Opportunities Potential External Threats to a

Identifying the Threats to a Companys Future Profitability

What Do the SWOT Listings Reveal?

n What are the attractive aspects of the companys situation?

n What aspects are of the most concern?

What Can Be Gleaned from the

Conclusions concerning the companys overall business

Identify the Implications for improving company strategy:

Question 3: Are the Companys Prices and Costs Competitive

The Concept of a Company Value Chain

Figure 4.3 A Representative Company Value Chain

Support Product R&D, Technology, and Systems Development

The Value Chain System for an Entire Industry

Figure 4.4 A Representative Value Chain System for an Entire Industry

Benchmarking: A Tool for Assessing Whether the Costs and

Strategic Options for Creating a Cost Advantage or Remedying a

Translating Proficient Performance of Value Chain Activities

Achieving a cost-based competitive advantage requires determined efforts to be cost-efficient in performing

Figure 4.5 Translating Company Performance of Value Chain Activities

Company Competencies Company

Question 4: Is the Company Competitively Stronger or

Table 4.3 A Representative Weighted Competitive Strength Assessment

Competitive Strength Assessments

Strategic Implications of the Competitive Strength Assessments

Question 5: What Strategic Issues And Problems Merit

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