Industry and Competitor Analysis

Value Creation
and Delivery
Value Chain Critical Success
Analysis Factors (CSF)
Sequence

Strategic
Alliances / Skills and core
collaboration Benchmarking competencies

The top management and the marketing function, in

particular, start thinking about the marketing strategies
of their product(s) they intend to offer.

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 B u s i n e s s a n d C u s t o m e r Va l u e
Preface
“Proving business and customer value” have always been a point of discussion among
scholars, business and technology students, and practicing managers. This topic is highly
regarded as the backbone of any business success; it is, therefore, included in diverse
range of subject modules in business and management studies e.g. Management
Information Systems, Marketing Management, Principles of Marketing, Customer
Relationship Management, Human Resource Management and Information Systems, etc.

While realizing the significance of the topic in today’s business world, the author made
an initial attempt to address some of its fundamental issues. These key notes and ideas are
compiled and edited from different resources. In addition, readers are also encouraged to
carry out their own research to facilitate their arguments.

Please note that your examination will include questions from this
literature.

Keywords: The Value Delivery Process, Value Creation and Delivery Sequence,
Importance of Competitor Analysis, Michael E. Porter’s Generic Value Chain,
Composite Value Chain, Critical Success Factors (CSF), Management Information
Systems (MIS), Benchmarking.

===============================================
Sunday, August 01, 2010
version 2.1

Compiled and edited by:

Shahnawaz Adil
Assistant Professor (Strategies & Management)
Iqra University Gulshan Campus, Karachi.

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Initial idea: The task of any business is to deliver customer value at a
profit.

Q. Why has it become more critical to the business

sustainability?
1. Hypercompetitive economy;
2. increasingly rational buyer; and
3. abundant choices / assortment (mean: variety with
competitive features)

What is Hypercompetition?

 According to the new dogma (mean: view/belief/doctrine), rivals

can quickly copy any market position; and competitive
advantage is, at best, temporary.
 In any industries Hypercompetition is a self-inflicted wound, not
the inevitable outcome of a changing paradigm of competition.

 Often a characteristic of new markets and industries,

Hypercompetition occurs when technologies or (product and/or
service) offerings are so new that standards and rules are in
rapid fluctuation, resulting in competitive advantages that
cannot be sustained.

 In response, companies must constantly compete in price or

quality, or innovate in supply chain management, new value
creation, or have enough financial capital to live longer than their
competitors.

 This phenomenon is described in Richard D'Aveni’s book

(pictured) of the same name.

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 Dr. Richard D'Aveni
Professor of Strategic Management at the Tuck School of Business at Dartmouth College, USA
(http://oracle-www.dartmouth.edu/dart/groucho/tuck_faculty_and_research.faculty_profile?p_id=A332QC)
The Value Delivery Process
Q. What happens normally (i.e. Traditional View)?

The firm makes something and then sells it. In this view, Marketing
takes place in the second half of the process. The company knows
what to make and the market will buy enough units to generate profits.
This view is acceptable when there are shortages of goods as well as
customers are not fussy (mean: choosy or selective) about quality,
features, or style.

You will agree that this traditional view of the business process will not
work in those economies where people face abundant choices. It
means that the “mass market” actually splinters into numerous micro-
markets, each with its own wants, perceptions, preferences, and
buying criteria. The smart competitor must design and deliver offerings
for well-defined target markets. This belief is the core of the new view
of business processes, which places Marketing at the beginning of the
planning.

Idea: Instead of emphasizing on making and selling, good companies

see themselves as part of the value delivery process.

Q. What should happen (i.e. Emergent View)?

The business should adopt the following value creation and delivery
sequence.

Value Creation and Delivery Sequence

The process consists of three phases:

Phase 1: Choosing the Value: represents the “homework”

marketing must do BEFORE and product exists. The marketing staff
must:
a. segment the market;
b. select the appropriate market target; and
c. develop the offering’s value positioning.

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 Formula: “Segmentation, Targeting, and Positioning (STP)” is the
essence of Strategic Marketing.

Phase 2: Providing the Value: Once the business unit has chosen
the value, the second phase is providing the value. Marketing must
determine specific product features, prices, sourcing (making) and
distribution.

Phase 3: Communicating the Value: by utilizing the sales force,

sales promotion, advertising and other communication tools to
announce and promote the product.

Idea: Each of these value phases has cost implications.

Q. What are the five Japanese concepts which as redefined this

emergent view of value creation and delivery sequence?

1. Zero Customer feedback time: Customer feedback should be

collected continuously after purchase to learn how to improve
the product and its marketing.

2. Zero product improvement time: The company should

evaluate its improvement ideas and introduced the most valued
and feasible improvements as soon as possible.

3. Zero purchasing time: The company should receive the

required parts and supplies continuously through Just-in-Time
(JIT) or “zero inventory” arrangements with suppliers.

Idea: By lowering its inventories, the company can reduce its costs.

4. Zero setup time: The company should be able to manufacture

any of its products as soon as they are ordered, without facing
high setup time or costs.

5. Zero defects: The product should be of high quality and free of

flaws.

Importance of Competitor Analysis

In conducting and external analysis, one of the key areas for review is
the competition. Despite this, it often tends to be neglected or
subjected to less formal analysis than other elements of the market

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appreciation. Following are the three major reasons due to which
companies usually condone ‘competitor analysis’:

Reason 1: Far too little emphasis has been given to competitor

analysis due to over-confidence about its importance;

Reason 2: confusion as to how to set about it; and/or

Reason 3: concern that such analysis might require companies to do

some thing unethical or illegal.

Following questions are usually suggested to ask:

1. Who is the competition now and who will it be in the future?

2. What are the key competitor’s strategies, objectives, and goals?
3. How important is a specific market to the competitors and are
they committed enough to continue to invest?
4. What unique strengths do the competitors have?
5. Do they have any weaknesses that make them vulnerable?
6. What changes are likely in the competitors’ future strategies?
7. What are the implications of competitors’ strategies on the
market, industry and one’s own company?

Idea: A company may easily get answers of above questions by

reviewing its competitors’ annual reports, own statements and
financial analysts’ reports.

In the new competitive environment which emerged in the second half

of the 20th century, the Rediscovery of Marketing, the sources of
competitive advantages which had characterized competition from the
time of the industrial revolution began to change. For instance, while
technological innovation in both process and product development
remains a necessary condition for competitiveness, it is no longer
sufficient save in a few industries such as pharmaceuticals where it is
still possible to enforce intellectual property rights (IPR).

Advantage based on technology is quickly eroded as firms benchmark

their competitors and develop comparable products of their own. In
this climate, other sources of competitive advantage assume greater
importance many of which depend on relationship with suppliers and
customers and recognition of the fact that firms do not exist in
isolation but are part of a network or a system represented by
a Value Chain.

Q. What are the main key effects when a firm realizes the
importance of Value Chain?

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Recognition of the existence of such a value chain focuses analysis on
the organizations that comprise them and the nature and strength of
the relationships between them. In turn such analysis has led the
following attempts:

1. To establish and define critical success factors and the role of

skills and competences as source of advantage.
2. To do so, benchmarking has become has both important and
fashionable and
3. Led to recognition that success will often depend more on
collaboration than competition leading to the formation of
partnerships and strategic alliances.

Idea: It is these issues which lie at the heart of Competitor Analysis.

The Value Chain Analysis & Competitive

Advantage (CA)
Value chain analysis was developed first by McKinsey and Co. in the
late 1960s as a tool to evaluate competition based on the view that
business is a system which links raw materials (supply) with customers
(demand) and comprising six basic elements:

Raw materials  Production  Wholesale Distribution  Retail

Distribution  Consumer or User  After-sale service.

Idea: McKinsey termed it as Creative Marketing Strategy in 1960s.

But it was Michael E. Porter (of Harvard Business School, USA) who
firmly established it as an important diagnostic technique to create
more value to the customers.

Porter (1985, p.33) states:

The value chain disaggregates a firm into its strategically
relevant activities in order to understand the behavior of costs
and the existing and potential sources of differentiation. A firm
gains CA by performing these strategically important activities
more cheaply and better than its competitors.

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.

Key point to ponder:

Support activities work in parallel with all the five primary activities. On
the contrary, each primary activity takes place one after another.
Hence, the output of the first primary activity is the input for the
following next primary activity and so on. A firm can observe
competitive advantage (or margin) over its competitor(s) once both
secondary and primary activities possess a closed link and appropriate
level of synchronization with each other.

For instance, suppose a senior manager from the Marketing function

(i.e. primary activity) leaves the organization at a critical point in time
during business growth (due to any reason); in this case the HR
function (i.e. support activity) should be capable enough to provide the
most suitable replacement as quickly as possible thus reducing the
setup time that could have been consumed in getting on the normal
routine procedures. The quicker the replacement is, the more chances
are to add values to the Marketing activities which, in turn, could lead
towards paying its contribution to gain competitive advantage.

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 Important: According to Porter (1985, p.36), “The most complete
descriptions of the business system concepts are Gluck (1980) and
Bauron (1981). See also Bower (1973)”.

1. Primary Activities Source: Porter

(1985, p. 39 to 40)

1.1 INBOUND LOGISTICS:

Activities associated with receiving, storing and disseminating inputs to
the product, such as material handling, warehousing, inventory control,
vehicle scheduling and return to suppliers.

1.2 OPERATIONS:
Activities associated with transforming inputs into the final product
form, such as machining, packaging, assembly, equipment
maintenance, testing, printing, and facility operations.

1.3 OUTBOUND LOGISTICS:

Activities associated with collecting, storing and physically distributing
the product to buyers, such as finished goods, warehousing, material
handling, delivery vehicle operation, order processing, and scheduling.

Key point to ponder: Buyers does not always mean customer

and/or consumer. Resellers, distributors, and warehouse
operators, wholesalers etc. may constitute as buyers of an
organization.

Example 1: Approximately over 75% of steel (produced by a

steel mill) is bought by car manufacturing companies or car
assemblers. For instance, Toyota is one of the major buyers of a
steel firm. Toyota’s (manufacturing company) Corolla (product) is
made available to its showrooms (Toyota’s buyers, say Toyota
Eastern Motors, Karachi) for customers to purchase.

Car manufacturing Car Showrooms

(A buyer of a Consumer / Corporate
A steel companies
car manufacturing client
mill or car assemblers
(a buyer of a steel mill) company)

Example:

Pakistan Steel Mills Toyota Indus Motors
(‘Steel’ as their finished (‘Steel’ as the raw material to
product) be used in the manufacturing
of Toyota Corolla 2009 model)
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Toyota Eastern Motors You (as an individual) or
ICI Pakistan, KPMG buy
Toyota Corolla 2009
models for their senior
executives / partners.
 Example 2: Boeing (manufacturing company 1) and Airbus
(manufacturing company 2) aircrafts (products) are purchased
by different airline companies (buyers of Boeing and Airbus) viz.
Pakistan International (PIAC), American Airlines (AA), Lufthansa,
Qatar Airways, British Airways (BA), KLM-Air France, etc. Now
you, as a traveler or commuter, purchase a travel ticket from
airline companies.

1.4 MARKETING AND SALES:

Activities associated with providing a means by which buyers can
purchase the product and inducing them to do so, such as advertising,
promotion, sales force, quoting, channel selection, channel relations,
and pricing.

1.5 SERVICE:
Activities associated with providing service to enhance or maintain the
value of the product such as installation, repair, training, parts supply,
and product adjustment.

2. Support Activities (specific to a given industry)

Please refer Porter (1985, p. 41 to 61)
==========================================
=============================

Idea: As originally conceived the value chain is concerned primarily

with Value Creation and Value Delivery and some aspects of Value
Improvement. The Holistic Marketing Framework is designed to
address three key management questions:

1. Value Exploration: How can a company identify new value

opportunities?
2. Value Creation: How can a company efficiently create more
promising new value offerings?
3. Value Delivery: How can a company use its capabilities and
infrastructure to deliver the new value offerings more efficiently?

Since 1985, a number of other influential contributions by writers have

elaborated further on value improving activities. These authors
include:
1. Hamel and Prahalad, 1994
2. Bartlett and Ghoshal, 1989

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 The additional insight proposed by these two authentic literatures and
then Senge’s (1990) work on Learning Organization led to
Norman and Remirez (1993) to propose an expansion of the
concept of the value chain into one of value constellation (mean:
collection or a group). They conclude that

The ‘value constellation’ does not offer any breakthrough which

warrants replacement of the value chain concept but it does lead
them to the conclusion that the latter (i.e. the new model called
Value Enhancement Activities) is capable of further
enrichment by taking into account those activities which involve
the entire organization for value improvement.

Value Enhancement Activities:

 Organizational entrepreneurship
 Organizational learning
 Cross-functional synergy
 Core competence building
 Organizational creativity, innovation and imagination

Idea: Now we have the Composite Value Chain shown below:

• Organizational
entrepreneurshi
p
• Organizational
learning
• Cross-functional
synergy
• Core
competence
building
• Organizational
creativity,
innovation
Value Enhancement Activities

Figure: Composite Value Chain Model

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 Value Chain – an example

As discussed, Value Chain Analysis is a well known strategic concept which enables you to
establish how value is being added within a business. The whole enterprise is 'broken down' into
key 'Support' and 'Primary' activities which are then compared with competitive 'benchmarks'
representing best practice.

Using the Value Chain example below, individual 'Support' and 'Primary Activities' can be
configured for a company as appropriate. Using activity based cost analysis, the resource
consumed by each value area in the production of a good or service is then determined.
Deducting these monetary values, together with the cost of raw materials from the overall selling
price gives an indication of the gross and net margins. The effect of changing the underlying data,
for example increasing the cost of raw materials, or reducing production costs can then be seen
on overall profitability. Comments about the competitiveness and colour coding can be added in
to highlight areas of strength and weakness.

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 Critical Success Factors (CSF)
Idea: There are few factors which are decisive for the success of the
company, and that these factors can be ascertained.

It was first introduced by Daniel (1961) and later mainly elaborated by

Rockart (1979); Bullen and Rockart (1981) in the context of designing
‘Management Information Systems (MIS)’.

The identification of the critical success factors was promoted by the

observation that many senior managers did not make use of formal
MIS. In turn, this led to the conclusion that this was due to the fact that
these systems were unnecessarily complex and should be structured
around a smaller number of what they called critical success
factors.

… The limited number of areas in which satisfactorily results will

ensure successful competitive performance for the individual,
department of organization. Critical success factors are the few
key areas where “things must go right” for the business to
flourish and for the managers’ goals to be attained.

Five sources of CSF:

1. The industry, e.g. demand characteristics, technology

employed, product characteristics, and so on. These can also
affect all competitors within an industry, but their influence will
vary according to the characteristics and sensitivity of individual
industry segments.

2. Competitive Strategy and Industry Position of the business

in question, which is determined by the history and the
competitive positioning in the industry.

3. Environmental factors are the macro-economic influences that

affect all competitors within an industry, and over which the
competitors have little, or no influence, e.g. demographics,
economic and governmental legislative policies, and so on.

4. Temporal factors which are areas within a business causing a

time limited distress to the implementation of a chosen strategy,
e.g. lack of managerial expertise or skilled workers.

5. Managerial position that is the various functional managerial

positions in a business have each their generic set of SCF.

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The above are the major factors which are often emphasized on the
development of management information systems as only one of four
different approaches to CSF, the others being:

1. As a unique characteristic of a company;

2. As a heuristic tool for managers to sharpen their thinking
3. As a description of the major skills and resources required to
perform successfully in a given market.

Based on these considerations, SCF can be defined as:

A skill or resource that a company can invest in, which, on the

market the company is operating on, explains a major part of the
observable differences in perceived value and/or costs.
Benchmarking
Traditionally, a benchmark was a survey mark or reference point used
to determine altitude. In a business context this has now come to
mean as reference point for the measurement of quality or excellence.
A firm benchmarks its competitors in order to gain a clear
understanding which competitors possess some competitive
advantage over the firm.

Benchmarking is all about organizational learning if it is carried out in a

systematic and structured way. This is relatively same as
environmental scanning, an activity most managers practice in an
informal and unstructured way on a continuing basis.

Four kinds of Benchmarking:

1. Internal Benchmarking using comparisons with successful

practice within the organization
2. Competitive Benchmarking using comparisons with successful
practicing firms with one is competing directly.
3. Functional Benchmarking using comparisons with firms in any
industry which have developed particularly effective processes
and / or procedures for given functions, e.g. order processing,
inventory control.
4. Generic Benchmarking using comparisons with firms in any
industry to try and understand how they have achieved superior
performance.

Seven benefits of Benchmarking:

1. Improved understanding of the internal systems and business

practices.

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 2. Establishment of the key success factors and true measure of
productivity.
3. New ideas leading either to continuous improvement or
breakthrough change.
4. Improvement in understanding and meeting the needs of
customers.
5. A view of external conditions leading to the establishments of
more relevant goals.
6. Becoming more competitive in the marketplace.
7. Becoming aware of and emulating industry best practices.

Summary

We looked at competitor analysis as an initial input to the development

of the competitive advantage. In achieving this, it was argued that it is
important to understand where one’s own organization lies within the
Value Chain that converts resources and skills into products and
resources that compete with one another in the marketplace. In turn,
such analysis should lead to the identification of Critical Success
Factors which are necessary conditions to be met if one is to compete
effectively.

While the critical success factors are necessary to compete effectively

they are rarely sufficient – to outperform the competition something
extra is required. In fact, it is the skills and competences which firms
possess that determine performance relative to their competitors. In
identifying both critical success factors and skills and competences,
the evaluation of one’s competitors using benchmarking techniques
has become a common practice. Seven major benefits and types
mentioned in the literature also facilitate the understanding and usage
of benchmarking.

References

 Bartlett, C. A. and Ghoshal, S. (1989) Managing Across Borders: The

Transnational Solution. London: Hutchinson

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 Bauron (1981) <further details not available>
 Bower, J. L.(1973) Simple economic tools for strategic analysis,
Harvard Business School Case Study, No. 9-373-094
 Gluck, F. W. (1980), Strategic choice and resource allocation, The
McKinsey Quarterly, pp.22-23
 Hamel, G. and Prahalad, C.K. (1994) Competing for the Future.
Boston, MA: Harvard Business School Press
 Kotler, P. and Keller, K.L (2006) Marketing Management, 12e Low
Price Edition, Pearson Prentice Hall.
 Norman, R. and Remirez, R. (1993) From Value Chain to Value
Constellation: Designing Interactive Strategy, Harvard Business
Review.
 Porter, M. E. (1985) Competitive Advantage: creating and sustaining
superior performance, New York: Free Press
 Rockart, J.F. (1979) “Chief Executives define their own data needs”,
Harvard Business Review.
 Senge, P. M. (1990) The Fifth Discipline: The Art and Practice of the
Learning Organization. New York: Doubleday/Currency.

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