SESSION 5 & 6

Evaluating a Company’s
Resources, Capabilities,
and Competitiveness

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Learning Objectives

1. Understand how to evaluate a company's internal situation and

capabilities and identify the resource strengths capable of becoming the
cornerstone of the company's strategic approach.

2. Grasp how and why activities performed internally by a company and

those performed externally by its suppliers and forward channel allies
determine a company's cost structure and ability to compete successfully.

3. Learn how to evaluate a company's competitive strength relative to key

rivals.

4. Understand the role and importance of industry and competitive analysis

and internal situation analysis in identifying strategic issues company
managers must address.

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 How well is the firm’s present strategy
working?

• Best indicators of a well-conceived,

well-executed strategy:
– The firm is achieving its stated financial and
strategic objectives.
– The firm is an above-average industry
performer.

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Specific Indicators of Strategic Success

• Growth in firm’s sales and market share

• Acquisition and retention of customers
• Strengthening image and reputation with customers
• Increasing profit margins, net profits and ROI
• Growing financial strength and credit rating
• Leadership in factors relevant to market\industry
success
• Continuing improvement in key measures of
operating performance

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 What are the firm’s competitively important
resources and capabilities?

• Competitive Assets
– Are the firm’s resources and capabilities.
– Are the determinants of its competitiveness and
ability to succeed in the marketplace.
– Are what a firm’s strategy depends on to develop
sustainable competitive advantage over its rivals.

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Is the company able to seize market
opportunities and nullify external threats?

• SWOT Analysis
– Is a powerful tool for sizing up a firm’s:
• Internal strengths (the basis for strategy)
• Internal weaknesses (deficient capabilities)
• Market opportunities (strategic objectives)
• External threats (strategic defenses)

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Identifying a company’s internal strengths

• A Competence
– Is an activity that a firm has learned to perform
with proficiency—a capability.
• A Core Competence
– Is a proficiently performed internal activity that is
central to a firm’s strategy and competitiveness.
• A Distinctive Competence
– Is a competitively valuable activity that a firm
performs better than its rivals.
Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).
Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Competencies -Explained

• A competence is the product of organizational learning and

experience and represents real proficiency in performing an
internal activity
• Some competencies relate to specific skills and expertise
• They spring from proficiency in a single discipline or function
and may be performed in single department or unit
 Just in time inventory control
 Low cost manufacturing efficiency
• Other competencies are inherently multi disciplinary and cross
functional
• They are result of effective collaboration among people with
different expertise working indifferent departments
 Continuous product innovation comes from teaming the efforts
of people or groups with expertise in market research, R&D,
design engineering, and market testing
Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).
Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Core Competence -Explained

• A core competence is a competitively-important

activity that a company performs better than other
internal activities.
– e.g. 3M corporation has a core competence in product
innovation.
– e.g. Ben & Jerry’s Homemade, a subsidiary of Unilever, has a
core competence in creating unusual flavors of ice creams
and marketing them with catchy names like Chunky Monkey,
Wavy Gravy, Chubby Hubby, The Gobfather, Dublin Mudslide,
and Marsha Marsha Marshmallow.

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Distinctive Competence -Explained

• A distinctive competence is a competitively-important

activity that a company performs better than its rivals
– it thus represents a competitively superior resource
strength.
– e.g. Toyota has worked diligently over several decades to
establish a distinctive competence in low-cost, high-quality
manufacturing of motor vehicles; its “lean production”
system is far superior than any of its rivals, and the company
is pushing the boundaries of its production advantage with a
new type of assembly line (Global Body line) – that costs
50% less to install and can be changes to accommodate a
new model for 70% less than its previous production system.
Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).
Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 What is the competitive power of a
resource strength?

1. Is the resource strength hard to copy?

2. Is the resource strength durable – does it
have staying power?
3. Is the resource really competitively
superior?
4. Can the resource strength be trumped by
the different resource strengths and
competitive capabilities of rivals?
Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).
Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Identifying a firm’s weaknesses and
competitive deficiencies

• A Weakness (Competitive Deficiency)

– Is something a firm lacks or does poorly (in
comparison to others) or a condition that puts it
at a competitive disadvantage in the marketplace.
• Types of Weaknesses:
– Inferior skills, expertise, or intellectual capital
– Deficiencies in physical, organizational, or intangible
assets
– Missing or competitively inferior capabilities
in key areas
Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).
Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).
Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Identifying a company’s market opportunities

• Characteristics of Market Opportunities:

– An absolute “must pursue” market
• Represents much potential but is hidden
in “fog of the future.”
– A marginally interesting market
• Presents high risk and questionable profit potential.
– An unsuitable\mismatched market
• Is best avoided as the firm’s strengths are not matched
to market factors.

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).
Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Are the company’s cost structure and
customer value proposition competitive?

• Signs of A Firm’s Competitive Strength:

– Its prices and costs are in line with rivals.
– Its customer-value proposition is competitive
and cost effective.
– Its bundled capabilities are yielding
a sustainable competitive advantage.

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 The concept of a company value chain

• The Value Chain

– Identifies the primary internal activities that create
and deliver customer value and the requisite
related support activities.
– Permits a deep look at the firm’s cost structure
and ability to offer low prices.
– Reveals the emphasis that a firm places on
activities that enhance differentiation and support
higher prices.

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Value Chain – An Example

Source:
https://www.researchgate.net/figure/1-Retail-Value-
 Value Chain – An Example

Source:
http://www.affordablehousinginstitute.org/who-we-are
 Value Chain System for an Entire Industry

• Industry Value Chain:

– The firm’s internal value chain
– The value chains of industry suppliers
– The value chains of channel intermediaries
• Effects of the Industry Value Chain:
– Costs and margins of suppliers and channel
partners can affect prices to end consumers.
– Activities of channel partners can affect industry
sales volumes and customer satisfaction.
Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).
Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Value Chain System for an Entire Industry

• Accurately assessing a company’s competitiveness in

end use markets require that a company managers
must understand the entire value chain system for
delivering a product or service to end users, not just
company’s value chain. At the very least it means
considering the value chain of suppliers and forward
channel allies
• Suppliers value chains are relevant because;
1. Suppliers perform activities and incur costs in creating
and delivering the purchased inputs used in
company’s own value chain
2. The costs, performance features and quality of these
inputs influence a company’s own cost and product
differentiation capabilities.
Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).
Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Value Chain System for an Entire Industry

• Any thing a company can do to help its suppliers take

cost out of their value chain activities or improve
the quality and performance of the item being
supplied can enhance its own competitiveness

• Forward channel and customer value chain are relevant

because:
1. The costs and margins of a company’s distribution
allies are part of the price paid by end users
2. The activities that distribution allies perform affect end
users satisfaction
• For these reasons companies normally work closely
with forward channel allies to perform these value
chain activities in a mutually beneficial ways.
Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).
Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Representative Value Chain for an Entire
Industry

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Benchmarking and Value Chain Activities

• Benchmarking:
– Involves improving a firm’s internal activities based
on learning other companies’ “best practices.”
– Assesses whether the cost competitiveness and
effectiveness of a firm’s value chain activities are
in line with its competitors’ activities.
• Sources of Benchmarking Information
– Reports, trade groups, analysts and customers
– Visits to benchmark companies
– Data from consulting firms
Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).
Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Four Kinds of Benchmarking

Internal Benchmarking using comparisons with successful

practice within the organization

External or Competitive Benchmarking using comparisons with

successful practicing firms with one is competing directly.

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.

Generic Benchmarking using comparisons with firms in any

industry to try and understand how they have achieved superior
performance.
Source:
https://strategicmanagementinsight.com/tools/benchmarking.html
 Improving Value Chain Activities of Forward
Channel Allies

• Achieving Cost-Based Competitiveness:

– Pressure forward channel allies to reduce their costs
and markups so as to make the final price to buyers
more competitive.
– Collaborate with forward channel allies to identify
win-win opportunities to reduce costs.
– Change to a more economical distribution strategy,
including switching to cheaper distribution
channels.

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Enhancing Differentiation through Activities at
the Forward End of the Value Chain System

• Enhancing Differentiation:
– Engage in cooperative advertising and promotions
with forward channel allies.
– Use exclusive arrangements with downstream
sellers or other mechanisms that increase their
incentives to enhance delivered customer value.
– Create and enforce standards for downstream
activities and assist in training channel partners in
business practices.

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Benchmarking Costs of Key Value Chain
Activities

• Focuses on cross-company comparisons of how certain

activities are performed and costs associated with these
activities
– Purchase of materials
– Payment of suppliers
– Management of inventories
– Getting new products to market
– Performance of quality control
– Filling and shipping of customer orders
– Training of employees
– Processing of payrolls

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Is the firm competitively stronger or
weaker than key rivals?

• Assessing the firm’s overall competitive

strength:
– How does the firm rank relative to competitors on
each of the important factors that determine
market success?
– Does the firm have a net competitive advantage
or disadvantage versus major competitors?

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 The Competitive Strength Assessment Process

Make a list of the industry’s key success factors and

Step 1 measures of competitive strength or weakness (6 to 10
measures usually suffice).

Assign a weight to each competitive strength measure

Step 2
based on its perceived importance.

Rate the firm and its rivals on each competitive strength

Step 3 measure and multiply by each measure by its
corresponding weight.

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 What strategic issues and problems merit
front-burner managerial attention?

• Strategic “How To” Issues:

– How to meet challenges of new foreign
competitors.
– How to combat the price discounting of rivals.
– How to both reduce high costs and prepare for
price reductions.
– How to sustain growth as buyer demand slows.
– How to adapt to the changing demographics of
the firm’s customer base.

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 What strategic issues and problems merit
front-burner managerial attention?

• Strategic “Should We” Issues:

– Expand rapidly or cautiously into foreign markets.
– Reposition the firm to move to a different
strategic group.
– Counter increasing buyer interest in substitute
products.
– Expand of the firm’s product line.
– Correct the firm’s competitive deficiencies by
acquiring a rival firm with the missing strengths.

Source: Thompson, A., Strickland, A. J., & Gamble, J. (2015).

Crafting and executing strategy: Concepts and readings. McGraw-
Hill Education.
 Internal Factor Evaluation (IFE) Matrix

Source: David, F., & David, F. R. (2016). Strategic management: A

competitive advantage approach, concepts and cases. Pearson–
Prentice Hall.
Session Ends
 Disclaimer
The information provided in this module is derived from McGraw-Hill
Learning Solutions and other sources. All information is provided in
good faith for educational purposes only. Iqra University claims no
ownership of this information, and will not be liable for any claims
arising thereof, now or in the future.