Evaluating company resources and competitive capabilities
In the previous chapter we descrbed how to use the tools of industry and competitive analysis to assess a company’s external situation. In this chapter we discuss the techniques of evaluating a company’s resource capabilities, relative cost position, and competitive strength versus rivals. Company situation analy’external market circumstances and to its internal resources and competitive capabilities. The sopotlight of company situation analysis in trained on five questions:
1. How well is the company’s present strategy working?
2. What are the company’s resource strengths and weaknesses and its external opportunities and ...view middle of the document...
David j. Collis and Cynthia A. Montgomery
Only firms who are able to continually build new strategic assets faster and cheaper than their compertitor will earn superior returns over the long term.
C.C. Markindes and P.J. Williamson
Question 1: how well is the present strategy working?
In evaluating how well a company’s present strategy is working, a manager has to start with what the strategy is (see Figure 2.3 in Chapter 2 to refersh your recollection of the key companents of business strategy). The first thing to pin down is the company’s competitive approach – whether it is striving to be a low- cost leader or stressing ways to differentiate its product offering and concentrating its efforts on serving a broad spectrum of customers or a narrow market niche. Another strategy – defining consideration is the firm’s competitive scope within the industry – how many stages of the industry’s production – distribution chain it operates in (One, several, or all), what its company’s functional strategies in production, marketing, finance, human resources, information technology, new product innovation , and so on further characterize company strategy. In addition, the company may have initiated some recent strategic moves( for instance, a price cut, newly designed styles and models, stepped- up advertising, entry into a new geographic area, or merger with a competitor) that are intergral to its stratand that aim at securing an improved competitive position and, optimally, a competitive advantage. The strategy being pursued can be further mailed down by probing the logic behind each competitive move and functional approach.
While there’s merit in evaluating the strategy from a qualitative standpoint (its completeness, internal consistency, rationale, and suitability to the situation), the best quantitative evidence of how well a company’s strategy ins working comes from study-quantitative evidence of how well a company’s strategy is working comes from study-ing the company’s recent strategic and financial performance and seeing what story the mumbers tell about the results the strategy is producing . The two best empirieal indicatera of whether a company’s strategy is working well are wherther the company is achieving its stated financial and strategic objectives and whether it is an above average industry performer. Persistent relative to rivals are reliable waring signs that the company suffers from etither a malfunctioning strategy or less than competent strategy execution (or both). Sometimes company objectives are not wxplicit enough (espectially to company outsiders) to benchmark actual performance against, but it is nearly always feasible to evaluate the perormance of a company’s strategy by looking at:
* Whether the firm’s market share ranking in the industry is rising, stable , or declining.
* Whether the firm’s profit margins are increasing or decreasing and how large they are relative to rival firms’ margins
* Trends in...