Strategic Competitiveness

Achieved when a firm successfully formulates

and implements a value-creating strategy

Sustained Competitive Advantage

Occurs when a firm develops a strategy that
competitors are not simultaneously implementing
Provides benefits which current and potential
competitors are unable to duplicate

Above-Average Returns
Returns in excess of what an investor expects to
earn from other investments with similar risk
What is an Internal Analysis?
Internal Analysis
 Identifies and evaluates resources, capabilities,
and core competencies
 Looks at the organization’s
o Current vision
o Mission
o Strategic objectives
o Strategies
Why Do an Internal Analysis?

1. It is the only way to identify an

organization’s strengths and weaknesses

1. It’s needed for making good strategic

decisions
Value Chain Analysis
 The premise behind value chain analysis is that
customers demand value from goods and services
they obtain
Customer value
 Product is unique and different
 Product is low priced
 Quick response to specific or distinctive customer needs
 A value chain is a systematic way of examining
organization’s functional activities
The Value Chain
General administration

Human resource management

Technology development

Procurement

Inbound Outbound Marketing

Operations Service
logistics logistics and sales
Value Chain Analysis
Inbound Logistics
• Materials control system
• Inventory control system
• Raw material handling and warehousing
Operations
• Equipment comparison to competitors
• Plant layout
• Production control system
• Level of automation in production processes
Value Chain Analysis
Outbound Logistics
• Timeliness and efficiency of finished products delivery
• Warehousing of finished products
Marketing and Sales
• Marketing research
• Sales promotions and advertising
• Alternative distribution channels
• Competency and motivation of sales force
• Organization’s image of quality
• Organization’s reputation
• Brand loyalty of customers
• Domination of various market segments
Value Chain Analysis
Customer Service
• Customer input for product improvements
• Handling of customer complaints
• Warranty and guarantee policies
• Employee training in customer education & service issues
• Replacement parts and services
Value Chain Analysis
Procurement
• Alternate sources for obtaining needed resources
• Timeliness of resources procurement
• Procurement of large capital expenditure resources
• Lease-versus-purchase decisions
• Long-term relationships with reliable suppliers
Technological Development
• R&D activities in product and process innovations
• Relationship between R&D and other departments
• Meeting deadlines in technological development activities
• Quality of labs and other research facilities
• Qualifications of lab technicians and scientists
• Creativity and innovation in organizational culture
Value Chain Analysis
Human Resource Management
• Recruiting, selecting, orienting, and training employees
• Employee promotion policies
• Reward systems to motivate and challenge employees
• Absenteeism and turnover
• Union-organization relations
• Employee participation in professional organizations
• Employee motivation, job commitment, and satisfaction
Value Chain Analysis
Firm Infrastructure
• Identification of external opportunities and threats
• Accomplishing goals with strategic planning system
• Coordination and integration of value chain activities
• Low-cost capital expenditures & working capital funds
• IS support for strategic and operational decisions
• Relationships with stakeholders
• Public image as a responsible corporate citizen
 The Analysis Process

 Within the organization's strategic context specify the

decisions to be made,
 Select, gather and analysis the most relevant data about the
organization, its environment, operations and people.
 Based on these data, formulate conclusions about the
organization its environment, operations and people.
 Determine and appraise feasible alternatives, weighing risks
and opportunities.
 Select the most appropriate alternative.
 Implement the selected alternative and monitor results.
Interrelationships among Value-Chain
Activities within and across Organizations

 Interrelationships among activities within the

firm
 Relationships among activities within the firm
and with other organizations (e.g., customers and
suppliers)
 INTERRELATIONSHIPS AMONG FUNCTIONAL AREAS
ENVIRONMENT

P/
HR
O

ENVIRONMENTAL ENVIRONMENTAL
INPUTS OUTPUT

R
an M
d

MD

MI
S

ENVIRONMENT
STRATEGIC INTERNAL FACTORS
 Tangible Resources
Relatively easy to identify, and include physical and
financial assets used to create value for customers
 Financial resources
 Firm’s cash accounts
 Firm’s capacity to raise equity

 Firm’s borrowing capacity

 Physical resources
 Modern plant and facilities
 Favorable manufacturing locations

 State-of-the-art machinery and equipment

 Tangible Resources

 Technological resources
 Trade secrets
 Innovative production processes

 Patents, copyrights, trademarks

 Organizational resources
 Effective strategic planning processes
 Excellent evaluation and control systems
 Intangible Resources

Difficult for competitors (and the firm itself) to account

for or imitate, typically embedded in unique routines and
practices that have evolved over time

 Innovation and creativity

 Technical and scientific skills
 Innovation capacities

 Reputation
 Effective strategic planning processes
 Excellent evaluation and control systems
 Intangible Resources

 Human
 Experience and capabilities of employees
 Trust

 Managerial skills
 Firm-specific practices and procedures
 Organizational Capabilities

Competencies or skills that a firm employs to transform

inputs to outputs, and capacity to combine tangible and
intangible resources to attain desired end
 Outstanding customer service
 Excellent product development capabilities
 Innovativeness of products and services
 Ability to hire, motivate, and retain human capital
Core Competencies What a firm
For a strategic capability to be a Core Does...
that is Strategically Valuable
Competency, it must be:

Valuable

Rare

Costly to Imitate

No substitutable
Is the Resource Valuable?
Organizational resources can be a source of
competitive advantage only when they are
valuable
 Enable a firm to formulate and implement strategies
that improve its efficiency or effectiveness
Is the Resource Rare?
Organizational resources also possessed by
competitors are not sources of competitive
advantage
 Common strategies based on similar resources give
no one firm an advantage
 Competitive advantages are gained only from
uncommon resources, resources that are rare to other
competitors
Can the Resource be Imitated?
Difficulty in imitating resources is key to value
creation because it constrains competition
 Profits generated from inimitable resources are more
likely to be sustainable
 Physical uniqueness
 Path dependency

 Causal ambiguity

 Social complexity
Are Substitutes Readily Available?
There must be no strategically equivalent valuable
resources that are themselves not rare or
inimitable
 Substitutability may take at least two forms
 Competitor may be able to substitute a similar resource
that enables it to develop and implement the same strategy
 Very different firm resources can become strategic

substitutes (such as e-business as a substitute for physical

retail facility)
Challenge of Internal Analysis
 How do we effectively manage current core
competencies while simultaneously developing
new ones?
 How do we assemble bundles of resources,
capabilities and core competencies to create value
for customers?
 How do we learn to change rapidly?
 What a firm Does...
Capabilities
Capabilities Represent:
The firm’s capacity or ability to integrate individual
firm resources to achieve a desired objective.
Capabilities develop over time as a result of complex
interactions that take advantage of the interrelationships
between a firm’s tangible and intangible resources that are
based on the development, transmission and exchange or
sharing of information and knowledge as carried out by the
firm's employees.
Capabilities become important when they are combined
in unique combinations which create core competencies
which have strategic value and can lead to competitive
advantage.
Human Resource Development Initiations

Measures :- Employee Motivation For Strategic

Effectiveness

Developed in-built appraisal system like–

(a) Productivity Honorarium Scheme

(b) Quarterly Incentive Scheme
(c ) Group Incentives for cohesive team working &
(d) Reward and Reconviction Scheme.
Coverage and Evaluation of Ratios

 The different types of financial ratios in

Financial Strategic Management includes:
 Liquidity
 Activity
 Debt
 Profitability
Liquidity Ratio Analysis
 Liquidity ratios measure a firm’s ability to
meet its current financial obligations.
 Liquidity Ratios include:
 Net working capital
 Current Ratio
 Quick Ratio

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Net Working Capital
 While not technically a ratio, Net Working
Capital (NWC) is a key element for internal
control.
 The higher this number the better.
 NWC is found by subtracting current
liabilities from current assets.
 This is a sign of growing assets while keeping
their liabilities stable.

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Current Ratio
 The Current Ratio is a direct evaluation of a
company’s liquidity.
 The higher this value, the more liquid a firm’s
resources are.
 Current Ratio is found by dividing current
assets by current liabilities.
 This could be improved by lowering the
reliance on debt financing.

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Quick Ratio
 The Quick Ratio is comparable to the Current
Ratio except that it takes inventory levels into
consideration.
 This is found by subtracting inventories from
current assets and then dividing by current
assets.

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Activity Ratio Analysis
 Activity Ratios are used to measure the speed
with which accounts are converted into cash.
 Activity Ratios include:
 Inventory Turnover
 Average Collection Period
 Total Asset Turnover

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Inventory Turnover
 Inventory Turnover is measurement of a
firm’s inventory liquidity.
 This is found by cost of goods sold(COGS)
by inventory.
 Generally a lower number is better.

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Total Asset Turnover
 Total Asset Turnover illustrates the firm’s ability
and proficiency in using its assets to generated sales.
 It is found by dividing sales by total assets, and is
measured in times per year
 When using cross-sectional analysis, a company
must take special care in comparing Total Asset
Turnover because new assets tend to have lower
turnover.
Debt Ratio Analysis
 A company’s debt position is a measure of how
much of the firm’s profits are generated using
money borrowed from other companies or
individuals.
 Debt Ratios include:
 Financial Leverage Multiplier
 Debt Ratio
 Interest Coverage Ratio
Financial Leverage Multiplier
 The Financial Leverage Multiplier (FLM) is
used to convert the company’s Return On
Assets to its Return on Equity. This reflects
the impact of leverage, or use of debt, on
owners’ return.
 It is the ratio of total assets to stockholders’
equity.
Profitability Ratio Analysis
 Profitability Ratios evaluate a company’s earnings
with respect to sales, assets, owner’s investments
and share values.
 Profitability Ratios include
 Gross Profit Margin
 Operating Profit Margin
 Net Profit Margin
 Return on Total Assets
 Return on Equity
Gross Profit Margin

 The Gross Profit Margin(GPR) is the

percentage of each sales dollar that remains
after the firm has paid for the goods sold.
 It is found by subtracting COGS from sales
and dividing by sales.
Net Profit Margin

 Net Profit Margin(NPR), one of the most

popular indicators of company health,
measures the percentage of sales revenue
remaining after ALL expenses are paid.
 NPR is found by dividing net profits by sales
Return on Total Assets

 Return of Total Assets(ROA), also known as

return on investment, measures a firm’s
effectiveness at generating profits with its
assets.
 ROA is found by dividing the net profits after
taxes by total assets.
Return on Equity

 The Return on Equity(ROE) is extremely

important to potential investors.
 ROE is found by dividing net profit by
owner’s equity.