Chapter 4: Evaluating a Company's Resources, Capabilities, and Competitiveness

Question 1

Question 1: How well is the firm’s present strategy working?

The best indicators of a well-conceived, well-executed strategy are:

Answer 1

1) Growth in firm’s sales and market share
2) Increasing profit margins, net profits, and ROI
3) Acquisition and retention of customers
4) Growing financial strength and improving credit rating
5) Continuing improvement in key measures of operating performance (eg: employee productivity, unit cost, defect rate, delivery times)

Question 2

Question 2: What are the firm’s competitively important resources and capabilities?

Competitive assets are:

Answer 2

1) The firm’s resources and capabilities
2) The determinants of its competitiveness and ability to succeed in the marketplace
3) What a firm’s strategy depends on to develop sustainable competitive advantage over its rivals

Question 3

What is the difference between a resource and a capability?

Answer 3

Resource is a productive input or competitive assets that is owned or controlled by the firm.

A capability is the capacity of a firm to perform some activity proficiently.

Question 4

Tangible resources are those that can be touched or quantified readily. They include:

Answer 4

1) Physical resources: access to raw materials; state-of-the-art manufacturing plants, equipment, locations
2) Financial resources: cash and cash equivalents; borrowing capacity by credit rating
3) Technological assets: patents, copyrights and trade secret; production technology
4) Organisational resources: strategic management thinking; IT and communication systems; proper planning and monitoring system

Question 5

Intangible resources includes:

Answer 5

1) Human assets and intellectual capital: experience, knowledge, education; creativity and innovativeness
2) Brands, company image, and reputational assets: brand names, trademarks, reputation for quality
3) Relationships: alliance or joint venture that provide access to technologies, specialised know-how, or geographical access; networks of distributors, established trust with partners
4) Company culture and incentive system: business principles, beliefs; motivation level of employee

Question 6

The four tests of a resource’s competitive power (if it is wanted by the market):

Answer 6

1) Is the resource (or capability) competitively valuable? (marketability)
2) Is the resource unique/rare?
3) Is the resource hard to copy?
4) Are there good substitutes available for the resource?

Question 7

Question 3: Is the company able to seize market opportunities and nullify external threats?

SWOT analysis is a simple but powerful tool for sizing up a firm’s:

Answer 7

1) Internal strengths: something a company is good at doing or an attribute that enhances its competitiveness in the marketplace
2) Internal weaknesses (deficient capabilities)
3) Market opportunities (strategic objectives)
4) External threats (strategic defenses)

Question 8

3 degree of competencies:

Answer 8

1) A competence: an activity that a firm has learned to perform with proficiency - a capability (the norm)
2) A core competence: a proficiently performed internal activity that is central to a firm’s strategy and competitiveness
3) A distinctive competence: a competitively valuable activity that a firm performs better than its rivals (so special you can maintain long term advantage)

Question 9

A weakness or competitive deficiency is:

Answer 9

something a company lacks or does poorly (in comparison to others) or a condition that puts it at a competitive disadvantage in the marketplace.

Question 10

3 different types of internal weaknesses:

Answer 10

1) Inferior skills, expertise, or intellectual capital
2) Deficiencies in competitively important physical, organisational, or intangible assets
3) Missing or competitively inferior capabilities in key areas

Question 11

3 different characteristics or market opportunities:

Answer 11

1) An absolute “must pursue market: a lot of potential but risky because hidden in “fog of the future”
2) A marginally interesting market: presents high risk and questionable profit potential (eg. if AirAsia copied Southwest Airline in Asia)
3) An unsuitable/mismatched market: best avoided as firm’s strengths are not matched to market factors

Question 12

Threats to a company:

Answer 12

1) Better substitute products
2) Technological products
3) New entry of low cost competitors
4) Costly government rules and regulations
5) Rising in the price of inputs
6) The closure of main business customers

They have negative effect towards sales and profitability

Question 13

What are the two most important parts of SWOT analysis?

Answer 13

1) Drawing conclusions from the SWOT listings about the company’s overall situation and,
2) Translating these conclusions into strategic actions to better match the company’s strategy to its internal strengths and market opportunities, to correct important weaknesses, and to defend against external threats

Question 14

What is the company’s value chain?

Answer 14

1) It identifies the primary internal activities that create and deliver customer value and the related support activities
2) It permits a deep look at the firm’s cost structure and ability to offer low prices
3) It reveals the emphasis that a firm places on activities that enhance differentiation and support higher prices

Question 15

Primary activities of Value Chain includes:

Answer 15

1) Supply Chain Management
2) Operations
3) Distribution
4) Sales and Marketing
5) Service

Question 16

Support activities includes:

Answer 16

1) Product R&D, Technology and Systems Development
2) Human Resources Management
3) General Administration

Question 17

Improving the efficiency and effectiveness of internally performed value chain activities by:

Answer 17

1) Implement the use of best practice (eg. just-in-time)
2) Outsource internally performed activities cheaply
3) Relocate high-cost activities to cheaper places or closer to customer’s most important purchasing criteria
4) Make full use of technology or automation
5) Stop performing activities that add little or no customer value

Question 18

Improving the back-end activities (supplier-related) of the value chain by:

Answer 18

1) Achieving cost-based competitiveness: pressure supplier to reduce their cost, switch to lower-priced substitute inputs, and identify mutual cost-saving opportunities; can backward integrate if cheaper that way
2) Enhance differentiation: select and retain higher quality suppliers, provide incentives to encourage suppliers to meet higher-quality standards, and assist them in their efforts to improve

Question 19

Improving the forward-end activities (distribution-related) of the value chain by:

Answer 19

1) Achieving cost-based competitiveness:
(a) pressure forward channel allies to reduce their costs and markups so as to make the final price to buyers more competitive;

(b) identify win-win opportunities to reduce costs;
(c) switch to cheaper distribution channels (eg. direct sales through Internet/forward integration)

2) Enhancing differentiation:
(a) engage in cooperative advertising and promotions with forward allies

(b) use exclusive arrangements with downstream sellers or other mechanisms that increase their incentives to enhance delivered customer value
(c) create and enforce standards for downstream activities and assist in training channel partners in business practices

Question 20

Question 5: Is the company competitively stronger of weaker than key rivals?

In making an overall assessment of a company’s competitiveness, the answers to 2 questions are of particular interest:

Answer 20

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

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 competitively pivotal resource and capability.

Question 21

3 steps in the process of doing a competitive strength assessment are:

Answer 21

Step 1: Make a list of the industry’s key success factors and measures of competitive strength or weakness (6 to 10 measures is usually enough)

Step 2: Assign a weight to each of the measures of competitive strength based on its perceived importance

Step 3: Rate the firm and its rivals on each competitive strength measure. Then (step 4), multiply each measure by its corresponding weight to obtain weighted scores. Next (step 5), take the sum of the weighted scores on each measure to get overall weighted competitive strength ratings for each company. Lastly (step 6), use the overall strength ratings to draw conclusions about the size and extent of the company’s net competitive advantage or disadvantage to take specific note of areas of strength and weakness