GBA 490 Chapter 4
Why do a company's core competencies matter in crafting strategy?
A core competence is a proficiently performed internal activity that is central to a company's strategy and competitiveness. A core competence is a more competitively valuable strength than a competence because of the activity's key role in the company's strategy and the contribution it makes to the company's market success and profitability. Often, core competencies can be leveraged to create new markets or new product demand, as the engine behind a company's growth.
What is meant by the term "best practices"? Why does it matter whether a company utilizes "best practices" in performing the activities comprising its value chain?
A best practice is a method of performing an activity that consistently delivers superior results compared to other approaches. Benchmarking is a potent tool for improving a company's own internal activities that is based on learning how other companies perform them and borrowing their "best practices." Best practices thus lead the path to operating excellence with respect to value chain activities.
Draw a typical company value chain and briefly explain why the proficiency with which a firm performs the activities comprising its value chain matters.
A representative company value chain has the following primary activities:• Supply Chain Management• Operations• Distribution• Sales and Marketing• ServiceSupport Activities comprise of:• Product R and D, Technology, and Systems Development• Human Resource Management• General AdministrationA company's value chain identifies the primary activities and related support activities that create customer value. With its focus on value-creating activities, the value chain is an ideal tool for examining the workings of a company's customer value proposition and business model. Value chain analysis facilitates a comparison of how rivals, activity by activity, deliver value to customers. Accurately assessing a company's competitiveness entails scrutinizing the nature and costs of value chain activities throughout the entire value chain system for delivering its products or services to end-use customers.
Why is it important for company managers to develop a "worry list" of strategic issues and problems that they need to address and resolve? What should they consider to develop this list?
Compiling a "worry list" of problems creates an agenda of strategic issues that merit prompt managerial attention. Pinpointing the precise things that management needs to worry about sets the agenda for identifying the specific issues and problems that the management needs to address to improve the company's performance and business outlook. The "worry list" of issues and problems that have to be wrestled with can include such things as how to stave off market challenges from new foreign competitors, how to combat the price discounting of rivals, how to reduce the company's high costs, how to sustain the company's present rate of growth in light of slowing buyer demand, whether to correct the company's competitive deficiencies by acquiring a rival company with the missing strengths, whether to expand into foreign markets, whether to reposition the company and move to a different strategic group, what to do about growing buyer interest in substitute products, and what to do to combat the aging demographics of the company's customer base.
Identify at least three indicators of whether a company's present strategy is working well.
The three best indicators of how well a company's strategy is working are (1) whether the company is achieving its stated financial and strategic objectives, (2) whether its financial performance is above the industry average, and (3) whether it is gaining customers and increasing its market share.
Explain why a weighted competitive strength assessment is important.
Industry and competitive analyses reveal the key success factors and competitive forces that separate industry winners from losers. Benchmarking data and scouting key competitors provide a basis for judging rivals' competitive strength on several factors such as cost, key product attributes, customer service, image and reputation, financial strength, technological skills, distribution capability, and other factors. Resource and capability analysis reveals which of these are competitively important, given the external situation, and whether the company's competitive advantages are sustainable. Weights are assigned to each of the measures of competitive strength based on their perceived importance. High-weighted competitive strength ratings signal a strong competitive position and possession of competitive advantage; low ratings signal a weak position and competitive disadvantage. In addition to showing how competitively strong or weak a company is relative to rivals, the strength ratings provide guidelines for designing wise offensive and defensive strategies. Based on these ratings, a clear picture emerges on exactly what strategic and competitive challenges confront the company, which of the company's competitive shortcomings need fixing, and what specific problems merit company managers' front-burner attention.
In conducting a SWOT analysis, is it enough to simply compile lists of the company's strengths, weaknesses, opportunities, and threats? Why or why not?
Simply making lists of a company's strengths, weaknesses, opportunities, and threats is not enough; the payoff from SWOT analysis comes from the conclusions about a company's situation and the implications for strategy improvement that flow from the four lists. The objective of SWOT analysis is to translate the diagnosis of the company's situation into actions for improving the company's strategy and business prospects.
Assume a firm is at a cost disadvantage with rivals because of higher supplier-related costs than key rivals. Identify three strategic moves that it can make to restore cost parity.
Supplier-related cost disadvantages can be attacked by pressuring suppliers for lower prices, switching to lower-priced substitute inputs, and collaborating closely with suppliers to identify mutual cost-saving opportunities.
What are the four tests that should be used to measure the competitive power of a company's resource strengths?
The VRIN tests for sustainable competitive advantage ask whether a resource is Valuable, Rare, Inimitable, and Nonsubstitutable as follows:· Is the resource or capability competitively Valuable?· Is the resource or capability Rare—is it something rivals lack?· Is the resource or capability Inimitable—is it hard to copy?· Is the resource or capability Nonsubstitutable—is it invulnerable to the threat of substitution from different types of resources and capabilities?
Assume a firm is at a cost disadvantage with rivals because of higher distributor/dealer costs than rivals. Identify three strategic moves that it can make to restore cost parity.
The three moves to achieve better cost competitiveness in the forward portion of the industry value chain are as follows:1. Pressure distributors, dealers, and other forward-channel allies to reduce their costs and markups.2. Collaborate with them to identify win-win opportunities to reduce costs.3. Change to a more economical distribution strategy, including switching to cheaper distribution channels (selling direct via the Internet) or integrating forward into company-owned retail outlets.
Assume a firm is at a cost disadvantage with rivals because its internal costs are higher than rivals. Identify three strategic moves that it can make to restore cost parity.
To improve a company's cost competitiveness, managers can implement best practices throughout the company, particularly for high-cost activities. They can redesign the product and/or some of its components to eliminate high-cost components or facilitate speedier and more economical manufacture or assembly. They can relocate high-cost activities (such as manufacturing) to geographic areas where they can be performed more cheaply or outsource activities to lower-cost vendors or contractors.
A distinctive competence represents competitively superior resource strength. True or false? Explain your answer.
True. A distinctive competence is a competitively important activity that a company performs better than its rivals—it thus represents a competitively superior internal strength. It can enable a company to deliver standout value to customers(in the form of lower prices, better product performance, or superior service).
A company lacking stand-alone resource strength should focus on bundling several resource strengths into a core competence. True or false? Explain and support your answer.
True. Cross-functional capabilities draw on a number of different kinds of resources and are multidimensional in nature—they spring from the effective collaboration among people with different types of expertise working in different organizational units. A resource bundle is a linked and closely integrated set of competitive assets centered around one or more cross functional capabilities. Resource bundles can sometimes pass the VRIN tests of a resource's competitive power even when the individual components of the resource bundle cannot. They fulfill an important strategic objective as it imparts a potential for attractive and long-lived profitability.
In determining the various strategic issues that a company needs to address, managers need to consider BOTH the results of its analysis of the company's external environment and the results of its evaluation of the company's resources and competitive position. True or false? Explain and defend your answer.
True. Managers need to draw on the results of both industry analysis and the evaluations of the company's internal situation. The task here is to get a clear fix on exactly what strategic and competitive challenges confront the company, which of the company's competitive shortcomings need fixing, and what specific problems merit company managers' front-burner attention. Pinpointing the precise things that management needs to worry about sets the agenda for deciding what actions to take next to improve the company's performance and business outlook.
