Lecture 3 - Internal Company Analysis Fall 2024 PDF

Lecture # 3 JRE410 | MARKETS AND COMPETITIVE STRATEGY FALL 2024 2 Today’s focus: the company itself Today’s class: internal analysis 1. How well is the company’s strategy working? 2. What are the company’s competitively important resources and capabilities? (SWOT analysis) 3. Are the com...

Lecture # 3 JRE410 | MARKETS AND COMPETITIVE STRATEGY FALL 2024 2 Today’s focus: the company itself Today’s class: internal analysis 1. How well is the company’s strategy working? 2. What are the company’s competitively important resources and capabilities? (SWOT analysis) 3. Are the company’s prices and costs competitive? 4. Is the company competitively stronger or weaker than key rivals? 4 1. How well is the co’s strategy working? ▪Is the company achieving its strategic and financial goals? ▪Is it an above-average industry performer? ▪Performance indicators can include: ◦ Trends in sales, earnings, stock price ◦ The company’s overall financial strength ◦ Growth in customer base ◦ Image and reputation with customers and analysts ◦ Operational indicators such as defect rate and time to fulfill orders If YES → the status quo may be OK (if the environment is stable) If NO → major change in strategy may be needed 5 Today’s class: internal analysis 1. How well is the company’s strategy working? 2. What are the company’s competitively important resources and capabilities? (SWOT analysis) 3. Are the company’s prices and costs competitive? 4. Is the company competitively stronger or weaker than key rivals? 6  2. What are the company’s competitively important resources and capabilities (R&Cs)? Remember KSF from last lecture? The handful of factors that have the biggest impact on success. The manager has to have proper Rs&Cs to bring value to clients Exploit your R & Cs in a manner that offers value to customers in ways rivals are unable to match. Rather than trying to match the R&Cs of a rival, a firm may develop entirely different R&Cs that substitute for the strength of the rival.  Competitively Important Resources These are assets that a company has. ◦ Eg are: a brand, expertise, patents, alliances with other co’s Competitively relevant resources are VRIN: ◦ Valuable ◦ Rare ◦ In-imitable (hard to copy) ◦ Non-substitutable (hard to trump) Example:  Competitively Important Resources Sometimes a bundle of resources can be leveraged to support business model and strategy ◦ Even if don’t possess a resource that passes all four tests Vs. 9  Company’s Competitively Important Capabilities (aka Competencies) These are proficiencies – things that a company does well ◦ e.g. R&D, social media engagement, inventory management Core competence – the one or two things it does best Distinctive competence – the things it does better than its competitors 10 Company capabilities Core competency = Satisfy customer needs Product Visioning = amazing at figuring out what products people will want Designing the Product/Experience well applied to Target markets, products etc.  Common Types of R&Cs Specialized expertise or competitively important capability. Eg: getting new products to market quickly, consistent good customer service Valuable physical assets Eg: attractive real estate locations, owning natural resource deposits Valuable human resources Capable workforce, talented employees in key areas Steve Jobs Valuable organizational assets Key patents, strong network of distributors Valuable intangible assets Brand name, buyer loyalty Alliances or cooperative ventures Joint ventures that provide access to valuable technology or geographical markets 12  Understanding a company’s R&Cs is central to assessing its strategy SWOT Analysis A strategy should: ◦ Capitalize on the company’s Strengths ◦ Bypass – or improve – the company’s Weaknesses ◦ Enable the company to capture the best Opportunities ◦ Enable the company to defend against Threats 13  SWOT Analysis Strengths Weaknesses VRIN resources Missing or inferior Distinctive competences capabilities in key areas Internal analysis Deficiencies in key resources Opportunities Threats Offer prospects for growth, Threaten comp adv External analysis profitability, sustained Involve changes in the comp adv environment A SWOT analysis helps companies size up their: Resource strengths Competitive deficiencies Market opportunities External threats 14 Some factors to consider in a SWOT  Examples of factors when doing a SWOT analysis S: Core competency in making a product/service Cost advantage over rivals W: Product inferior to those of rivals HP Touchpad Weak brand image or reputation Kia vs. Mercedes O: Acquiring firms with attractive technology Expanding into new geographic markets T: Likely entry of potent new entrants Emergence of cheaper / better technologies Unfavourable demographic shifts 16  Opportunity for FB population Population GDP captured by FB rank rank rank Country FB users Population FB 1 3 1 USA 157,348,340 313,000,000 50.3% 2 5 6 Brazil 47,011,060 192,000,000 24.5% 3 2 11 India 45,825,620 1,210,000,000 3.8% 4 4 16 Indonesia 42,272,040 237,000,000 17.8% 5 11 14 Mexico 33,173,840 112,000,000 29.6% 23 10 3 Japan 8,700,080 127,000,000 6.9% 28 6 47 Pakistan 6,423,800 180,000,000 3.6% 29 8 9 Russia 5,629,400 143,000,000 3.9% 38 7 41 Nigeria 4,133,900 162,000,000 2.6% 55 9 59 Bangladesh 2,411,180 142,000,000 1.7% 17 Leading countries based on Facebook audience size as of July 2021(in millions) Source: https://www.statista.com/statistic s/268136/top-15-countries- based-on-number-of-facebook- users/ 18  Why do a SWOT analysis? ▪Can help you select appropriate strategic actions: ◦ Want to match the company’s strategy to its resource strengths and market opportunities ◦ Bombardier: Cseries jet targeting smaller jet market, fuel effic. ◦ Want to correct problematic weaknesses (especially if these are key success factors in the industry) ◦ RIM: build products that can run apps built for Android ◦ Want to defend against external threats to the company’s competitive advantage ◦ FB: Purchase of Instagram. FB considers photo sharing to be a major part of the FB experience. Instagram was getting very popular for photo sharing on mobile devices. 19 Today’s class: internal analysis 1. How well is the company’s strategy working? 2. What are the company’s competitively important resources and capabilities? (SWOT analysis) 3. Are the company’s prices and costs competitive? 4. Is the co competitively stronger/weaker than key rivals? 20 3. Are the company’s activities (prices and costs) competitive? Two analytical tools: Value Chain Analysis Benchmarking 21 What is a value chain? Developed by Michael Porter Value-chain analysis examines every step that a business goes through (from raw resources to end user purchase). The difference between value chain and the supply chain is that for all primary and supporting activities, the goal is to reduce costs and add value for the end user. 22  Value Chain Analysis – Internal (some other value chain models simplify the steps, but still retain relevant primary and secondary functions, to suit the industry of study) Primary Supply Sales Profit activities chain Ops Distr’n & Service margin and costs mgmt Mktg R&D, Technology, System development Support activities Human resource management and costs General Admin 23  Value Chain Analysis Identifies the primary activities (& costs) that create customer value and the related support activities (& costs) Takes the view that the company’s profit (margin) depends on the activities it performs Also considers firm’s value chain within the whole chain Supplier Your Firm Buyer End User 24 Companies are affected by the value chain of their suppliers and distribution channels Costs relevant to end product Supplier Your Firm Buyer End User Electronics RIM Carriers Consumers manufacturers Accounts for 1/3 of RIM’s costs (& RIM is 20% of Elcoteq’s sales) “RIM Co-CEO Jim Balsillie said the BlackBerry maker is reducing supply costs as surging growth provides him with leverage to press for bargains during the recession... RIM’s five biggest suppliers account for almost 90% of production costs.” Source: Bloomberg, April 2009 25 Horizontal vs. Vertical Integration 26 Horizontal vs. Vertical Integration 27 Benchmarking Compares the company’s costs with the other firms in the industry 28  Benchmarking to analyze the competitiveness of key value chain activities ▪Compare a company’s costs with the other firms in the industry 90 Relative costs in the snack food industry Profit 80 Marketing: 70 Promotions Cents per unit 60 Marketing: 50 Advertising Outbound 40 logistics 30 Operations: Manufacturing 20 Operations: 10 Packaging 0 Operations: Ingredients Hostess Little Debbie Ontario Savory cost Baking Pastries higher operations advantage higher marketing costs costs Source: Ghemawat & Rivkin, “Creating Competitive Advantage,” HBS Note 798-062, 2006 29 Costs are only half the analysis – Also compare value to buyer (willingness to pay) Relative success in satisfying customer needs 4.5 low price 4 Hostess reflects 3.5 cost adv 3 Little high brand Rating 2.5 Debbie image 2 reflects high 1.5 Ontario marketing Baking costs 1 freshness 0.5 Savory reflects 0 Pastries high Price Brand image Freshness Variety Size operations costs 30 Source: Ghemawat & Rivkin, “Creating Competitive Advantage,” HBS Note 798-062, 2006 Today’s class: internal analysis 1. How well is the company’s strategy working? 2. What are the company’s competitively important resources and capabilities? (SWOT analysis) 3. Are the company’s prices and costs competitive? 4. Is the company competitively stronger or weaker than key rivals? 31  4. Is the company competitively stronger or weaker than key rivals? To assess company’s overall competitive strength, try to answer the following questions, using Key Success Factors analysis: How does the company rank relative to competitors on each of the important factors that determine market success? Does the company have a net competitive advantage or disadvantage compared to major rivals? 32 Assessing Competitive Strength: KSF Analysis 1. Identify the industry’s key success factors 2. Weigh the importance of each (sum to 1) 3. Score each firm on each KSF Can be used to identity possible offensive & defensive strategies 33 Identify the industry’s key success factors 34 Weigh the importance of each (sum to 1) 35 Score each firm on each KSF good candidate for an offensive strategy 36  Takeaways from Today ▪Firms generate profits when they create value. Their suppliers and customers are better off because of the firm. ▪The amount of value created by a firm is the difference between the price the buyer pays for the product and the costs associated with making and selling it. ▪Firms are characterized by resources and capabilities (R&Cs). VRIN resources and distinctive competences provide a comp adv. ▪The ways in which firms conduct their activities affects their competitiveness, through their costs & their buyers’ willingness to pay ▪Company strengths allow opportunities to be realized and threats to be reduced. ▪The relative strength with which companies perform the industry’s KSFs suggest possible areas of strategic focus. 37 RECAP – Why do an internal analysis? 1. Where are we? Adds to the external analysis in describing the current situation Identifies possibilities ▪ What can we do? (R&C, activity analysis) ▪ What should we do? (SWOT, targets of offensive/defensive strategies) 2. Where do we want to go? 3. How will we get there? 38 How can a firm gain a sustainable competitive advantage? Do something better than others, and that others can’t replicate ◦ Same activities, but better → often easy for others to replicate ◦ Different set of activities → often difficult for others to replicate, and it can become a mutually reinforcing system Therefore, firms must have R&Cs that other firms don’t have and can’t easily obtain ◦ Key resource such as patented technology ◦ But can others invent around it? Create a new innovation that serves the same purpose? ◦ Key capability ◦ But can others develop similar knowhow? Your tools for external and internal analysis ▪External ◦ Five Forces ◦ Strategic Group Map ◦ KSFs Utilize these tools for your Marketing Plan ▪Internal Proposal. ◦ SWOT ◦ Value Chain Analysis ◦ Benchmarking ◦ KSF Analysis 40  Coming up For Next Week’s Lecture ▪Read Chapter 5: Competitive Strategies Wednesday Tutorial (Sep 25) ▪Case: Nike Inc. ▪Prep questions already posted ▪We will aim to post discussion questions by Fri/Sat of every week 41 Questions about the Mktg Plan? Can you work individually? ✓ You should work in groups of 3-4 people. If you are solo and cannot find a group partner, please speak with your TA for assistance. Business idea should be feasible; assume that your “new” technology will work as this is a marketing plan and NOT a technology development plan. You should look for ideas on crowdfunding platforms. ✓ Check idea with your TA Usage of External and Internal Analysis Tools ✓ Justify your choice of the tool (briefly). Wrong usage of a tool can affect your analysis / grade. Define your Industry ✓ Be specific and scope your industry ✓ Think carefully about where you position along the value chain? ✓ Check with NAICS (North American Industry Classification System) 42 43