BUILDING A CORE COMPETENCE

• A CORE COMPETENCE is something a

company does ESPECIALLY WELL in
comparison to its competitors!
 TYPES OF CORE COMPETENCIES

• Superior skills in producing high quality product

• Superior system for delivering customer orders
accurately & swiftly
• Better after-sale service capability
• More skill in achieving low operating costs
• Unique formula for selecting good retail locations
• Unusual innovativeness in developing new products
• Better merchandising & product display skills
• Superior mastery of an important technology
• Unusually effective sales force
 SIGNIFICANCE OF A
CORE COMPETENCE

• A CORE COMPETENCE is important because

of
– Added capability it gives firm
– Competitive edge it can yield
– Potential for it being a cornerstone of strategy
• COMPETITIVE ADVANTAGE is easier to build
when
– Firm has a CORE COMPETENCE
– Rival firms do not have offsetting competencies
– It’s costly & time-consuming for rivals to match
competency
STRATEGIC MANAGEMENT PRINCIPLE

• CORE COMPETENCIES empower a

company to build competitive
advantage!
 S W O T ANALYSIS

• S W O T represents the first letter in

– S trengths
– W eaknesses
– O pportunities
– T hreats
• SWOT analysis involves sizing-up firm’s
– INTERNAL strengths & weaknesses and
– EXTERNAL opportunities & threats
 IDENTIFYING INTERNAL
STRENGTHS & WEAKNESSES

• A STRENGTH is something firm is good at or

characteristic giving it an important capability
– Useful skill
– Important know-how
– Valuable organizational resource or competitive
capability
– Achievement giving firm a market advantage
• A WEAKNESS is something firm lacks, does
poorly, or condition placing it at a disadvantage
 IDENTIFYING INTERNAL
STRENGTHS & WEAKNESSES

• A company’s internal strengths usually

represent COMPETITIVE ASSETS; its
internal weaknesses usually represent
COMPETITIVE LIABILITIES. The desired
condition is for the assets to
OUTWEIGH the liabilities by a hefty
margin!
SIGNIFICANCE OF A COMPANY’S STRENGTHS
& WEAKNESSES

• STRENGTHS are significant to strategy-making

because they can
– Serve as cornerstones of strategy
– Help build COMPETITIVE ADVANTAGE
• A good strategy aims at correcting firm’s
WEAKNESSES which can
– Make it vulnerable
– Prevent it from pursuing attractive opportunities
– Put it at a competitive disadvantage
STRATEGIC MANAGEMENT PRINCIPLE

• Successful strategists seek to EXPLOIT

what a company does best:
– Expertise
– Strengths
– Core competencies
– Strongest competitive capabilities
• Strategists shun strategies placing
heavy demands on areas where company
is weakest or has unproven ability!
 IDENTIFYING EXTERNAL
OPPORTUNITIES

OPPORTUNITIES most relevant to a firm

are factors in EXTERNAL environment
offering
• Some kind of competitive advantage
• Important avenues for growth
 IDENTIFYING EXTERNAL THREATS

EXTERNAL FACTORS posing a danger to firm

• Emergence of cheaper technologies
• Introduction of new/better products by rivals
• Entry of low-cost foreign competitors
• New regulations
• Vulnerability to rise in interest rates
• Potential of hostile takeover
• Unfavorable demographic shifts
• Adverse shifts in foreign exchange rates
• Political upheaval in a country
 SIGNIFICANCE OF A COMPANY’S
OPPORTUNITIES & THREATS

• Affect attractiveness of firm’s situation

• Point to need for strategic action
STRATEGIC MANAGEMENT PRINCIPLE

• A good strategy is always aimed at

capturing a company’s best growth
opportunities and creating defenses
against threats to its competitive
position and future performance.
Otherwise, it doesn’t fit the company’s
situation!
ROLE OF SWOT ANALYSIS IN CRAFTING A BETTER STRATEGY

SWOT analysis helps answer key questions

• Does firm have internal strengths an attractive
strategy can be built on?
• Which weaknesses does strategy need to
correct?
• Do firm’s weaknesses disqualify it from pursuing
certain opportunities?
• Which opportunities does firm have resources to
pursue with a chance of success?
• What threats should firm worry most about?
 THE VALUE CHAIN CONCEPT

A VALUE CHAIN identifies:

• Activities, functions, & business processes
that have to be performed in Designing,
producing, marketing, delivering, &
supporting a product or service
 Company value chain

Inbound Sales
Operations Outbound
Logistics
logistics
And Service Profit
marketing Margin

R&D, System development

Human Resource Management

General Administration
 WHAT DETERMINES COSTS OF
VALUE CHAIN ACTIVITIES?

Costs of performing each value chain

activity can be DRIVEN UP or DOWN by
two types of factors
• STRUCTURAL COST DRIVERS
• EXECUTIONAL COST DRIVERS
 STRUCTURAL COST DRIVERS

• Scale economies
• Experience curve effects
• Technology requirements
• Capital intensity
• Complexity of product line
 EXECUTIONAL COST DRIVERS

• Commitment of work force to continuous

improvement
• Attitudes & capabilities regarding quality
• Cycle time in getting new products to market
• Utilization of existing capacity
• Whether internal business processes are
efficiently designed & executed
• How efficiently firm works with suppliers and/or
customers to reduce costs
 KEYS TO UNDERSTANDING A
COMPANY’S COST STRUCTURE

• Whether firm is trying to achieve a

competitive advantage based on
– Lower costs or
– Differentiation
• How costs in one value chain activity spill
over to affect costs of others
• Whether linkages among activities in value
chain present opportunities for cost
reduction
 THE VALUE CHAIN SYSTEM

• COST COMPETITIVENESS depends on

– Costs of internally performed activities
– Costs in value chains of suppliers & forward
channel allies
• Assessing firm’s COMPETITIVENESS
requires knowledge of value chain system
– Firm’s own value chain
– Value chains of suppliers
– Value chains of forward channel allies
 THE VALUE CHAIN SYSTEM

• SUPPLIERS’ value chains matter

– Suppliers incur costs in creating & delivering inputs
used in firm’s value chain
– Cost & quality of inputs influence firm’s cost and/or
differentiation capabilities
• FORWARD CHANNEL value chains matter
– Costs & margins of downstream firms are part of price
paid by ultimate end-user
– Activities channel allies perform affect satisfaction of
end-user
 EXAMPLE: KEY VALUE
CHAIN ACTIVITIES

PULP & PAPER INDUSTRY

• Timber farming
• Logging
• Pulp mills
• Papermaking
• Printing & publishing
 STRATEGIC COST ANALYSIS

• Data requirements are formidable

• Requires breaking department cost
accounting data into cost of performing
SPECIFIC ACTIVITIES
• ACTIVITY-BASED COSTING
– New cost accounting methodology aimed at
assigning costs to
• Specific tasks and
• Value chain activities
 BENCHMARKING COSTS
OF KEY ACTIVITIES

• Benchmarking performance of a firm’s activities

against rivals & best practice firms provides
evidence of firm’s cost competitiveness
• Benchmarking is an excellent tool to determine
– If costs are in line with competitors
– Which business processes need to be scrutinized for
improvement
– Which firms perform a given activity best
 BENCHMARKING COSTS
OF KEY ACTIVITIES

• Focuses on CROSS-COMPANY comparisons of

how well activities are performed
• Purchase of materials
• Payment of suppliers
• Management of inventories
• Training of employees
• Getting new products to market
• Performance of quality control
• Filling & shipping of customer orders
 BENCHMARKING & ETHICS

• BENCHMARKING involves discussions of

competitively sensitive data
• ETHICAL guidelines
– Don’t ask rivals for sensitive data
– Have impartial third party assemble & present
competitive data without names attached
– Don’t disclose a rival’s business to outsiders
based on data obtained
 ACHIEVING COST COMPETITIVENESS

• Three areas in firm’s value chain

contributes to cost differences compared
to rivals
1. SUPPLIERS’ activities
2. Firm’s INTERNAL activities
3. FORWARD channel activities
• Strategic actions to eliminate a cost
disadvantage need to be linked to
where cost differences originate!
 VALUE CHAIN ANALYSIS &
COMPETITIVE ADVANTAGE

Diagnosing competitive capabilities involves

• Construct a value chain of firm’s activities
• Examine linkages among internally performed
activities & linkages with suppliers’ & customers’
chains
• Identify activities & competencies critical to
customer satisfaction & market success
• Make appropriate internal & external
benchmarking comparisons to determine
– How well firm performs activities
– How cost structure compares with rivals
 VALUE CHAIN ANALYSIS &
COMPETITIVE ADVANTAGE

The strategy-making lesson of

value chain analysis is that
increased company competitiveness
entails concentrating resources on
those activities where the company
can gain dominating expertise
to serve its target customers!
 Discussion
• Opportunities and threats a firm faces in
doing business in China.
• PEST Analysis