chapter4,5,8

• SWOT analysis


  A simple but powerful tool for sizing up a firm's internal strengths and competitive deficiencies, its market opportunities, and the external threats to its future well-being
• Potential Internal Strengths and Competitive Capabilities

  • Core competencies
  • Strong financial condition
  • Strong brand name image
  • Economies of scale
  • Proprietary technology
  • Cost advantages over rivals
  • Product innovation capabilities
  • Proven capabilities in improving production processes
  • Good supply chain management capabilities
  • Good customer service capabilities
  • Better product quality relative to rivals
  • Wide geographic coverage
  • Alliances/joint ventures with other firms that provide access to valuable technology competencies
• Potential Internal Weaknesses and Competitive Deficiencies

  • No clear strategic direction
  • No well-developed or proven core competencies
  • A weak balance sheet; burdened with too much debt
  • Higher overall unit costs relative to key competitors
  • A product/service with features and attributes inferior to those of rivals
  • Too narrow a product line relative to rivals
  • Weak brand image or reputation
  • Lack of management depth
  • Short on financial resources
• Potential Market Opportunities


  • Serving additional customer groups or market segments
  • Expanding into new geographic markets
  • Expanding the firm's product line to meet a broader range of customer needs
  • Utilizing existing company skills or technological know-how to enter new product lines or new businesses
  • Falling trade barriers in attractive foreign markets
  • Acquiring rival firms or companies with attractive technological expertise or capabilities
• Potential External Threats to a Company's Future Prospects

  • Increasing intensity of competition among industry rivals—may squeeze profit margins
  • Slowdowns in market growth
  • Likely entry of potent new competitors
  • Growing bargaining power of customers or suppliers
  • Buyer needs and tastes shift away from the industry's product
  • Adverse demographic changes that threaten to curtail demand for the industry's product
  • Vulnerability to unfavorable industry driving forces
  • Restrictive trade policies on the part of foreign governments
  • Costly new regulatory requirements
• Value of a SWOT analysis

  1. Drawing conclusions from SWOT listings about the firm's overall situation

  2. Translating those conclusions into effective strategic actions that better match the firm's strategy to its strengths and market opportunities, correct problematic weaknesses, and defend against worrisome external threats
• Value chain


  Identifies the primary activities that create customer value and related support activities
• Benchmarking


  A potent tool for learning which companies are best at performing particular activities and then using their techniques (or "best practices") to improve the cost and effectiveness of a company's own internal activities
• Competitive strategy


  Concerns the specifics of management's game plan for competing successfully and securing a competitive advantage over rivals in the marketplace
• The Five Generic Competitive Strategies

  • A low-cost provider strategy—striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals

  2. A broad differentiation strategy—seeking to differentiate the firm's product or service from rivals' in ways that will appeal to a broad spectrum of buyers

  3. A focused low-cost strategy—concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs than rivals and thus being able to serve niche members at a lower price

  4. A focused differentiation strategy—concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals' products

  5. A best-cost provider strategy—giving customers more value for the money by satisfying buyers' expectations on key quality/features/performance/service attributes while beating their price expectations
• Low-Cost Provider Strategies


  A powerful competitive approach with price-sensitive buyers when a firm's offering:

  • Has meaningfully lower costs than rivals—but not necessarily the absolutely lowest possible cost
  • Includes features and services that buyers consider essential
  • Is viewed by buyers as offering equivalent or higher value even if priced lower than competing products
• Low-Cost Leader


  A low-cost leader's basis for competitive advantage is lower overall costs than competitors. Success in achieving a low-cost edge over rivals comes from eliminating and/or curbing "nonessential" activities and/or outmanaging rivals in performing essential activities.
• When a Low-Cost Strategy Works Best


  • Price competition among rival sellers is especially vigorous when the majority of industry sales are made to a few, large-volume buyers

  2. The products of rival sellers are essentially identical and are readily available from several sellers

  3. There are few ways to achieve product differentiation that have value to buyers

  4. Buyers incur low costs in switching their purchases from one seller to another and industry newcomers successfully use introductory low prices to attract buyers and build a customer base
• Broad Differentiation Strategies


  Attractive competitive approaches to use whenever buyers' needs and preferences are too diverse to be fully satisfied by a standardized product or service. Successful execution of a differentiation strategy:

  • Involves offering differentiating features that clearly set the firm's products or services apart from rivals, allowing the firm to command a premium price
  • Enhances profitability whenever the extra price the product commands outweighs the added costs of achieving differentiation that is not easily copied or matched by rivals
  • Gains buyer loyalty to its brand (because some buyers are strongly attracted to the differentiating features and bond with the company and its products)
• Broad Differentiation Strategy


  The essence of a broad differentiation strategy is to offer unique product or service attributes that a wide range of buyers find appealing and worth paying for.
• Focused (or Market Niche) Strategies


  Focused strategies are developed especially for competing in a narrow piece of the total market as defined by geographic uniqueness or special product attributes. Focused strategies are appealing to smaller and medium-sized firms that may lack the breadth and depth of resources to tackle going after a whole market customer base.
• Focused Low-Cost Strategy


  A strategy that aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and a lower price than rival competitors. A strategy that achieves its cost advantage in the same way as for low-cost leadership—by outmanaging rivals in keeping costs low and bypassing or reducing nonessential activities.
• Focused Differentiation Strategy


  Focused differentiation strategy is keyed to offering carefully designed products or services to appeal to the unique preferences and needs of a narrow, well-defined group of buyers (as opposed to a broad differentiation strategy aimed at many buyer groups and market segments).
• When a Focused Low-Cost or Focused Differentiation Strategy Is Viable


  • The target market niche is big enough to be profitable and offers good growth potential

  2. Industry leaders have chosen not to compete in the niche—focusers can avoid battling head-to-head against the biggest and strongest competitors
• Best-Cost Provider Strategies


  A hybrid of low-cost provider and differentiation strategies that:

  • Involves giving customers more value for money by satisfying buyer expectations on key quality/features/ performance/service attributes while exceeding customer expectations on price
  • Creates a powerful competitive approach with value-conscious buyers looking for a good-to-very-good product or service at an economical price
  • Creates a "best-cost" status as the low-cost provider of a product or service with upscale attributes
• Best-Cost Provider Strategies


  Best-cost provider strategies are a hybrid of low-cost provider and differentiation strategies that aim at satisfying buyer expectations on key quality, features, performance, and service attributes while beating customer expectations on price.
• Successful Competitive Strategies Are Resource Based 1

  • Low-Cost Providers:
  • Must have the resources and capabilities to keep their costs below those of their competitors
  • Must have expertise to cost-effectively manage value chain activities better than rivals

  Differentiators:

  • Must have the resources and capabilities to incorporate unique attributes that a broad range of buyers will find appealing and are will paying for
• Successful Competitive Strategies Are Resource Based 2

  • Narrow Segment Focusers:
  • Must have the capability to do an outstanding job of satisfying the needs and expectations of niche buyers

  Best-Cost Providers:

  • Must have the resources and capabilities to incorporate upscale product or service attributes at a lower cost than rivals
• Strategic fit


  Exists when the value chains of different businesses present opportunities for cross-business skills transfer, cost sharing, or brand sharing
• Economies of scope


  Cost reductions stemming from strategic fit along the value chains of related businesses (thereby, a larger scope of operations), whereas economies of scale accrue from a larger operation
• Evaluating the Strategy of a Diversified Company

  • Step 1: Assess the attractiveness of the industries the company has diversified into

  Step 2: Assess the competitive strength of the company's business units
• Industry attractiveness measures


  • Market size and projected growth rate

  Intensity of competition

  Emerging opportunities and threats
• Competitive strength factors


  • Relative market share

  Costs relative to competitors' costs

  Products or services that satisfy buyer expectations

  Benefits from its strategic fit with sibling businesses

  Strategic alliances and collaborative partnerships

  Brand image and reputation

  Competitively valuable capabilities

  Profitability relative to competitors
• Strategy Implications of the Attractiveness/Strength Matrix

  Businesses in the upper-left corner:

  • Receive top investment priority
  • Strategic prescription: grow and build

  Businesses in the three diagonal cells:

  • Given medium investment priority
  • Brighter or dimmer prospects than others

  Businesses in the lower-right corner:

  • Candidates for divestiture or to be harvested to take cash out of the business