Developing Competitive Advantage and Strategic Focus

6. Internal issues are the firm's strengths and weaknesses, while external issues refer to opportunities and threats in the firm's environment. The key test to differentiate a strength or weakness from an opportunity or threat is to ask,

"Would this issue exist if the firm did not exist?" If the answer is yes, the issue should be classified as external. The failure to understand the difference between internal and external issues is one of the major reasons for a poorly conducted SWOT analysis.

•Distribution advantages

Efficient distribution system; real-time inventory control; extensive supply chain integration; superior information systems; exclusive distribution outlets; convenient locations; strong e-commerce capabilities

•Legal advantages

Patents and trademarks; strong and beneficial contracts; tax advantages; zoning laws; global trade restrictions; government subsidies

1. Operational excellence:

focusing on efficiency of operations and processes, lower costs, and delivering good value to customers.

3. Customer intimacy:

focusing on knowing customers, understanding their needs better than the competition, and developing long-term customer relationships.

2. Product leadership:

focusing on technology, product development, and delivering the most advanced, highest quality goods and services in the industry.

The combination of the SWOT matrix and value curve offers a

useful and powerful means of demonstrating the firm's competitive advantage and strategic focus. In other words, clearly articulating the firm's focus is crucial as the marketing manager moves ahead in developing the marketing plan. In the next phase of the planning process, the manager must identify the firm's marketing goals and objectives in order to connect the strategic focus to the outcomes that are desired and expected. The goals and objectives will also be crucial at the latter stages of planning as the manager identifies standards that will be used to assess the performance of the marketing strategy.

•Potential internal strengths

•Abundant financial resources •Well-known brand name •Economies of scale •Proprietary technology •Better marketing skills

Establishing a Strategic Focus - •Directions for strategic efforts

•Aggressive (many internal strengths/many external opportunities) •Diversification (many internal strengths/many external threats) •Turnaround (many internal weaknesses/many external opportunities) •Defensive (many internal weaknesses/external threats)

Criticisms of SWOT

•Allows firms to create lists without serious consideration of issues Becomes a sterile academic exercise of classifying data and information

Product leadership -•Core competencies

•Basic research/rapid research interpretation •Applied research geared toward product development •Rapid exploitation of market opportunities •Excellent marketing skills

•Competitive advantages

•Can arise from many internal and external sources •Refer to real differences between competing firms •Can be based on perception rather than reality •Should possess a specific benefit for customers to be of value to firms

•Common attributes of Operational excellence

•Deliver compelling value through the use of low prices, standardized product offerings, and convenient buying processes •Target a broad, heterogeneous market of price-sensitive buyers •Invest to achieve scale economies and efficiency-driven systems that translate into lower prices for buyers •Develop information systems geared toward capturing and distributing information on inventories, shipments, customer transactions, and costs in real time •Maintain a system to avoid waste and highly reward efficiency improvement

•Potential external threats

•Entry of foreign competitors •Product life cycle in decline •Changing customer needs/tastes •Economic boom/downturn •New technology

Customer intimacy -•Core competencies

•Exceptional skills in discovering customer needs •Problem-solving proficiency •Flexible product/solution customization •A customer relationship management mind-set •A wide presence of collaborative (win-win) negotiation skills

Product leadership - •Common attributes

•Focus their marketing plans on the rapid introduction of high-quality, technologically sophisticated products in order to create customer loyalty •Constantly scan the environment in search of new opportunities; often making their own products obsolete through continuous innovation •Target narrow, homogeneous market segments •Maintain organizational cultures characterized by decentralization, adaptability, entrepreneurship, creativity, and the expectation of learning from failure.

The SWOT Matrix

•Four-cell array used to visually evaluate elements of SWOT analysis •Should be based on customer perceptions, not perceptions of the manager •Elements with the highest total ratings should have the greatest influence in developing the strategy •Focus on competitive advantages by matching strengths with opportunities

•Value curve

•Identifies the firm's relative performance across its industry's factors of competition

•Potential internal weaknesses

•Lack of strategic direction •Limited financial resources •Weak spending on R & D •Very narrow product line •Internal political problems

Core Competencies Necessary for Competitive Advantage Strategies of Operational excellence•

•Low-cost operations •Totally dependable product supply •Expedient customer service •Effective demand management

SWOT-Driven Strategic Planning

•Marketing information collected via a situation analysis •Identifies the key factors that should be tackled by the firm •Organizes them within a system that will monitor and distribute information on these factors on an ongoing basis

•Potential external opportunities

•Rapid market growth •Mishap of a rival firm •Government deregulation •New technology •Demographic shifts

Common Sources of Competitive Advantage

•Relational advantages •Legal advantages •Organizational advantages •Human resource advantages •Product advantages •Pricing advantages •Promotion advantages •Distribution advantages

•Customer intimacy - Example firms:

Nordstrom and Amazon

To utilize SWOT analysis successfully, the marketing manager must be cognizant of four issues:

(1) The assessment of strengths and weaknesses must look beyond the firm's resources and product offering(s) to examine processes that are key to meeting customers' needs. (2) The achievement of the firm's goals and objectives depends on its ability to create capabilities by matching its strengths with market opportunities. (3) Firms can often convert weaknesses into strengths, or even capabilities, by investing strategically in key areas. (4) Weaknesses that cannot be converted into strengths become the firm's limitations.

All marketing goals should have these characteristics.

1. Attainability: goals should be realistic and capable of being achieved 2. Consistency: goals must be consistent with each other and with the goals of other functional areas 3. Comprehensiveness: marketing goals should relate to the organization's goals and help to clarify the roles of all parties in the organization 4. Intangibility: marketing goals should be somewhat ambiguous and open-ended to motivate employees by promoting comparisons with rival firms

All marketing objectives should have these characteristics.

1. Attainability: marketing objectives should be realistic given the internal and external environments of the firm 2. Continuity: objectives should be consistent with those set in previous periods (continuous objectives), or should be set to elevate the level of performance significantly (discontinuous objectives) 3. Time frame: objectives should have an appropriate time frame to allow for accomplishment with reasonable levels of effort 4. Assignment of responsibility: an objective must identify the person, team, or unit responsible for achieving it

Developing and Leveraging Competitive Advantages •Based on one of the following strategies:

1. Operational excellence 2. Product leadership 3. Customer intimacy

Directives for a Productive SWOT Analysis

1. Stay focused 2. Search extensively for competitors 3. Collaborate with other functional areas 4. Examine issues from the customers' perspective 5. Look for causes not characteristics 6. Separate internal issues from external issues

•Product leadership - Example firms:

3M, Pfizer, Intel

SWOT Matrix

A SWOT matrix is a four-cell array that can be used to visually evaluate each element of a SWOT analysis. To begin the analysis, the manager must evaluate the issues within each cell of the matrix in terms of their magnitude and importance. This evaluation should be based on customers' perceptions. It can be informative to quantitatively assess each cell of the SWOT matrix. Elements with the highest total ratings (positive or negative) should have the greatest influence in developing the marketing strategy.

•Organizational advantages

Abundant financial resources; modern plant and equipment; effective competitor and customer intelligence systems; culture, vision, and shared goals; strong organizational goodwill

•Product advantages

Brand equity and brand name; exclusive products; superior quality or features; production expertise; guarantees and warranties; outstanding customer service; research and development; superior product image

•Relational advantages

Brand-loyal customers; high customer-switching costs; long-term relationships with supply chain partners; strategic alliance agreements; comarketing or cobranding agreements; tight coordination and integration with supply chain partners; strong bargaining power

•Promotion advantages

Campany image; large promotion budget; superior sales force; creativity; extensive marketing expertise

•Aggressive (many internal strengths/many external opportunities)

Firms in this position can develop marketing strategies to aggressively take on multiple opportunities. Expansion and growth, with new products and new markets, are the keys to an aggressive approach. These firms are often so dominant that they can actually reshape the industry or the competitive landscape to fit their agenda.

•Diversification (many internal strengths/many external threats)

Firms in this position have a great deal to offer, but external factors weaken their ability to pursue aggressive strategies. To help offset these threats, firms can use marketing strategy to diversify their portfolio of products, markets, or even business units.

•Turnaround (many internal weaknesses/many external opportunities)

Firms in this position pursue turnaround strategies because they find themselves in the situation of having too many internal problems to consider strategies that will take advantage of external opportunities. In theses cases, firms typically have to put their own house back in order before looking beyond their current products or markets.

•Defensive (many internal weaknesses/external threats)

Firms in this position take a defensive posture when they become overwhelmed by internal and external problems simultaneously.

••Pricing advantages

Lower production costs; economies of scale; large-volume buying; low-cost distribution; bargaining power with vendors

The synthesis of information gathered from the situation analysis is critical in developing competitive advantages and the strategic focus of the marketing plan.

SWOT (strengths, weaknesses, opportunities, and threats) analysis is a widely used tool for organizing and using the information gathered from the situation analysis. A SWOT analysis encompasses both the internal and external environments of the firm.

Potential Issues to Consider in a SWOT Analysis

Strengths and weaknesses exist either because of resources possessed (or not possessed) by the firm, or in the nature of the relationships between the firm and its customers, its employees, or outside organizations. A strength is meaningful only when it serves to satisfy a customer need. When this is the case, that strength becomes a capability. The marketing manager must also develop strategies to overcome the firm's weaknesses, or find ways to minimize their negative effects. Opportunities and threats exist outside the firm, independently of internal strengths, weaknesses, or marketing options. Opportunities and threats typically occur within the firm's customer or external environments. The marketing manager must develop strategies to take advantage of opportunities and minimize or overcome the firm's threats.

•Human resource advantages

Superior management talent; strong organizational culture; access to skilled labor; committed employes; world-class employee training

•Operational excellence - Example Firms

Walmart, Southwest Airlines, Dell

2. Information on competitors and their activities is an important aspect of a well-focused SWOT analysis. The key is not to overlook

any competitor, whether a current rival or one on the horizon. The firm will focus most of its efforts on brand competition. However, the firm must watch for any current or potential direct product substitutes.

3. The final outcome of a properly conducted SWOT analysis should be a fusion of information from many areas. While combining the SWOT analyses from individual areas, the marketing manager

can identify opportunities for joint projects and cross selling of the firm's products.

Establishing goals and objectives sets into motion a

chain of decisions and serves as a catalyst for the subsequent stages in the planning process.

A marketing manager must identify a value curve with two major characteristics to establish successful marketing strategies. First the value curve should

clearly depict the firm's strategic focus.

The conversion of strengths into capabilities gives the firm a

competitive advantage and allows it to serve customers' needs better than the competition. While competitive advantages most often stem from real strengths possessed by the firm or in real weaknesses possessed by rival firms, competitive advantages can also be based more on perception than reality.

•Firms develop strategic focus by

developing a strategy that stands apart from the competition

Second, the value curve should be

distinctively different from competitors.

The role of SWOT analysis is to help the marketing manager

make the transition from a broad understanding of the marketing environment to the development of a strategic focus for the firm's marketing efforts.

The firm's strategic focus is the

overall concept or model that guides the firm as it weaves various marketing elements together into a coherent strategy. A firm's strategic focus is typically tied to its competitive advantages, or it can be geared toward compensating for the firm's weaknesses or defending against its vulnerabilities.

•Four Actions Framework used to

reorient firm's strategic focus away from the competition. Reduce: Which factors should be reduced well below the industry's standard? Eliminate: Which of the factors that the industry takes for granted should be eliminated? Raise: Which factors should be raised well above the industry's standard? Create: Which factors should be created that the industry has never offered?

4. Every issue in a SWOT analysis should be examined from the customers' perspective. Marketing planners must also gauge

the perceptions of each customer segment that the firm attempts to target. Examining issues from the customers' perspective also includes the firm's internal customers: its employees. For example, employees are a valuable source of information on strengths, weaknesses, opportunities, and threats that management may never have considered. Taking the customers' perspective can help the firm interpret the clichés they might develop, and then break them down into meaningful customer-oriented strengths and weaknesses.

5. Many analysts simply list strengths, weaknesses, opportunities, and threats as descriptions or characteristics of the firm's internal and external environments without going deeper to consider the causes for these characteristics. More often than not, the causes for each issue in a SWOT analysis can be found in

the resources possessed by the firm and/or its competitors: financial resources, intellectual resources, legal resources, human resources, organizational resources, informational resources, relational resources, and reputational resources.

1. A mistake planners often make in conducting SWOT analysis is to complete one generic analysis for the entire organization or business unit. In most firms,

there should be a series of analyses, each focusing on a specific product/market combination. The only time a single SWOT analysis would be appropriate is when an organization has only one product/market combination.

Customer intimacy -•Common attributes

•See customer loyalty as their greatest asset as they focus their efforts on developing and maintaining an intimate knowledge of customer requirements •Consistently exceed customer expectations by offering high-quality products and solutions without an apology for charging higher prices •Decentralize most decision-making authority to the customer-contact level •Regularly form strategic alliances with other companies to address customers' need in a comprehensive fashion

Marketing Objectives

•Specific, quantitative benchmarks •Measures progress toward the achievement of marketing goals •High degree of specificity and differentiates marketing goals from objectives •Characteristics •Attainability, continuity, time frame, and assignment of responsibility

Marketing Goals

•Statements of broad, desired accomplishments •Expressed in general terms and do not contain specifics •Gives direction to a firm's growth and priorities to be used for evaluating and making decisions •Should be attainable, consistent, comprehensive, and intangible

SWOT Analysis

•Strengths and weaknesses, opportunities and threats •Widely used framework for organizing and utilizing pieces of data and information gained from situation analysis •Includes both internal and external environments •Effective in the analysis of marketing data and information •Helps uncover competitive advantages that can be leveraged

SWOT-Driven Strategic Planning - Role of SWOT analysis

•Synthesize wide array of information and aid in transition of the firm's strategic focus