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COMM 4351
Competitive Strategy
Module 7 – Final Case Exam Review
1
Faculty of Management
COMM 4351: Competitive Strategy
Strategy Analysis Tools
v External to the Firm
Ø Macro Environment – PESTEL
Ø Competitive Environment – 5 Forces
v Internal to the Firm
Ø Value Chain
Ø Resource-Based View
Ø Financial Performance Analysis
Ø Core Competency / VRIN Analysis
v Integration
Ø SWOT
Module 7 – Final Case Exam Review
2
Source: Adapted from Arthur A. Thompson and Glo-Bus Software, Inc.
Module 7 – Final Case Exam Review
3
Political
Technological
Factors
Factors
Economic
Conditions
PESTEL
Analysis
Environmental
Factors
Sociocultural
Legal/Regulatory
Forces
Conditions
Module 7 – Final Case Exam Review
4
The Five-Forces Model
of Competition:
A Key Analytical tool
Source: Adapted from Arthur A. Thompson and Glo-Bus Software, Inc.
Module 7 – Final Case Exam Review
5
Faculty of Management
COMM 4351: Competitive Strategy
Identifying an Industry’s Driving Forces (KIPs)
v Developments that can affect an industry powerfully enough to drive industry and competitive
change include:
Ø Changes in an industry’s long-term growth rate
Ø Increasing globalization
Ø Emerging new Internet capabilities and applications
Ø Changes in who buys the product and how they use it
Ø Product innovation
Ø Technological change and manufacturing process innovation
Ø Marketing innovation
Ø Entry or exit of major firms
Module 7 – Final Case Exam Review
6
Faculty of Management
COMM 4351: Competitive Strategy
Identifying an Industry’s Driving Forces (KIPs)
v Developments that can affect an industry powerfully enough to drive industry and competitive
change include:
Ø Diffusion of technical know-how across more companies and more countries
Ø Changes in cost and efficiency
Ø Growing buyer preferences for differentiated products instead of a commodity product (or for a more
standardized product instead of strongly differentiated products)
Ø Reductions in uncertainty and business risk
Ø Regulatory influences and government policy changes
Ø Changing societal concerns, attitudes, and lifestyles
Module 7 – Final Case Exam Review
7
Comparative Market
Positions of Selected
Retail Chains:
An Example of a
Strategic Group Map
Note: Circles are
drawn roughly
proportional to the
combined total
revenues of the
retailers shown in
each strategic
group.
Source: Adapted from Arthur A. Thompson and Glo-Bus Software, Inc.
Module 7 – Final Case Exam Review
8
Faculty of Management
COMM 4351: Competitive Strategy
Identifying Industry Key Success Factors (KSFs)
v KSFs are specific to an industry, however they can vary over time within the industry as
driving forces and competitive conditions change.
v An industry rarely has more than five KSFs
v Questions that help identify industry’s KSFs:
Ø On what basis do buyers choose between competing brands of rival sellers? That is, what
product or service attributes are crucial?
Ø Given an industry’s competitive rivalry and its prevailing competitive forces, what resources and
capabilities must a firm have to be competitively successful?
Ø What KSF shortcomings will put a firm at a significant competitive disadvantage in its industry?
Module 7 – Final Case Exam Review
9
Common Types of Industry Key Success Factors
Module 7 – Final Case Exam Review
10
A Representative Company Value Chain
Module 7 – Final Case Exam Review
11
Faculty of Management
COMM 4351: Competitive Strategy
vTangible Resources
vIntangible Resources
ØHuman Resources
ØFinancial
vOrganizational Capabilities
ØProcesses
ØCompetencies
ØSkills
Resource Based Analysis
Module 7 – Final Case Exam Review
12
Key Financial Ratios: How to Calculate Them and What They Mean
Module 7 – Final Case Exam Review
13
Key Financial Ratios: How to Calculate Them and What They Mean
Module 7 – Final Case Exam Review
14
Key Financial Ratios: How to Calculate Them and What They Mean
Module 7 – Final Case Exam Review
15
Faculty of Management
COMM 4351: Competitive Strategy
• Source of Differentiation
• Identify > Cultivate > Exploit
• Characteristics
• Provide potential access to
variety of markets
• Make significant contribution to
perceived customer benefits of
Co
re
C
om
pe
ten
cy
An
aly
end product
• Difficult for competitors to
sis
nV
Valuable
nR
Rare
nI
Hard to Imitate
nN Non-Substitutable
emulate
Module 7 – Final Case Exam Review
16
Core Competency Analysis
Is a resource or capability…
Valuable Difficult
(V)
to Imitate (I)
Rare
(R)
Non Substitutable(N)
No
No
No
No
Competitive disadvantage
Yes
No
No
No
Competitive parity
Yes
No
Yes
No
Temporary competitive
advantage
Yes
Yes
Yes
Yes
Sustainable competitive
advantage
Module 7 – Final Case Exam Review
Implications
for Competitiveness
17
Examples of Core Competencies
v A core competence can relate to any of several aspects of a company’s business and strategy:
Ø Expertise in product innovation
Ø Expertise in developing new and more efficient production technologies
Ø Expertise in marketing
Ø Skills in manufacturing a high-quality product at a low cost
Ø Strong capability to fill customer orders accurately and swiftly
Often, the most valuable core competencies are grounded in cross-department combinations of
knowledge and expertise rather than being the product of a single department or work group
Faculty of Management
COMM 4351: Competitive Strategy
Module 7 – Final Case Exam Review
18
Stages of the Industry Life Cycle
Module 7 – Final Case Exam Review
19
Portfolio Analysis
Module 7 – Final Case Exam Review
20
O
DEVELOPING MARKETS
ACQUISITION CCE
HEALTH CONSCIOUS
CONSUMERS
VOLUME/PRICE/MIX
S
BRAND MANAGEMENT
GLOBAL DISTRIBUTION NETWORK
EXISTING GEOGRAPHIC
PRESENCE
GROWTH THRU ACQUISITION
IMAGE TARNISHING
CUSTOMER PREFERENCES
CHANGING CONSUMER
PREFERENCES
FOREIGN EXCHANGE
FLUCTUATIONS
WATER SCARCITY / QUALITY
T
W
The Five Basic Competitive Strategy Options
Source: Adapted from Arthur A. Thompson and Glo-Bus Software, Inc.
Module 7 – Final Case Exam Review
22
Distinguishing Features of the Five Generic Competitive Strategies
Module 7 – Final Case Exam Review
23
Faculty of Management
COMM 4351: Competitive Strategy
The Three Strategic Options
for Competing Internationally
Module 7 – Final Case Exam Review
24
Faculty of Management
COMM 4351: Competitive Strategy
Extent of Investment Risk
High
Wholly Owned
Subsidiary
Joint Venture
Strategic Alliance
Franchising
Entry Modes of International Expansion
Licensing
Exporting
Low
Low
High
Degree of Ownership and Control
Module 7 – Final Case Exam Review
25
Assignment Breakdown
Module 7 – Final Case Exam Review
26
Faculty of Management
COMM 4351: Competitive Strategy
vReview the case analysis course lecture materials
vDo some outside research about the company and the
global automotive industry
vOrganize the case by larger elements
Study Tips
Module 7 – Final Case Exam Review
27
Faculty of Management
COMM 4351: Competitive Strategy
v Final Case Assignment Folder on Brightspace (Module 7)
Ø Case study in Brightspace
Ø Lecture Notes + Lecture Video
Ø Worksheet Templates
v Other Materials on Brightspace
Ø Module power point slides / materials
Preparation Materials
Module 7 – Final Case Exam Review
28
Faculty of Management
COMM 4351: Competitive Strategy
v Short Answer Questions
Ø Length of ¾ – 1 page per answer = 250-300 words (maximum)
Ø 7 questions in total
v Answer question # 1 and any 4 others
Ø All questions of equal value (10pts each)
v Total Value = 50 pts = 40% of overall course grade
Assignment Breakdown
Module 7 – Final Case Exam Review
29
Faculty of Management
COMM 4351: Competitive Strategy
v Answer the question being asked
Ø Not just the one you know
Ø If asked for an opinion give one & back it up with application of the course concepts &
analysis
v Use real terms you have learned in this course
v Provide some depth to your answer
Ø Example – Five Forces determine industry attractiveness – know them and how they
contribute (know the relevant factors for each force)
Ø Example – there are 5 types of primary activities and 3 secondary activities in the Value
Chain – know them and how they may interact to create value
v Remember to answer all parts of the question.
Answer Tips
Module 7 – Final Case Exam Review
30
Assignment Instructions / Guidelines
Ensure you have Respondus Lockdown Browser downloaded and installed on your computer
Practice Quiz in Module 7 shows the final exam format and ensures the lockdown browser
is working on your computer
Ensure you are taking the exam from a site that has reliable internet
Ensure you have sufficient time to complete the 3-hour exam
There are technical people out there who can get around the Lockdown Browser –
Any attempt to circumvent the Lockdown Browser will send an alert to me – this will be
considered cheating and will result in a failed final exam
Remember this is an individual exam and any discussions or collaboration
with other students on the case or the exam will be considered cheating.
Module 7 – Final Case Exam Review
31
COMM 4351Completed
Module 7 – Final Case Exam Review
32
Final PDF to printer
CASE 4
Ford Motor Company: Will the
Company’s Strategic Moves
Restore its Competitiveness
and Financial Performance?
Marlene M. Reed
Rochelle R. Brunson
Baylor University
Baylor University
A
report by Road Show on CNET, dated June 5,
2019, suggested that the Ford Fusion 2020
model would be the last car Ford would produce. The discontinuation of the Fusion was said to
be a part of Ford’s shifting strategic focus away from
passenger cars toward crossovers and SUVs—many
with electrified powertrains.1 Observers wondered
if Ford could essentially abandon the market for
automobiles as car sales had been its lifeblood since
1908 when Henry Ford revolutionized passenger transportation with production of the Model T. Industry
analysts also wondered if the American love affair
with the SUV and trucks would continue if the price
Copyright ©2021 by Marlene M. Reed, Baylor University and Rochelle
R. Brunson, Baylor University. All rights reserved.
EXHIBIT 1  History of the Ford Motor Company
1896–Henry Ford built the Quadricycle, the forerunner of the automobile.
1899–Henry Ford joins a group that founded the Detroit Automobile Company.
1901–Henry Ford defeats the top racecar driver of the era in his 26. The victory led to Sweepstakes. The victory led to
Ford’s second short-lived attempt at auto manufacture—the Henry Ford Company.
1903–The Ford Motor Company is incorporated with an initial 12 investors and 1,000 shares. The company had spent
almost all of its $28,000 cash investment by the time it sold the first Ford Model A on July 23. By October, the company
had turned a profit of $37,000.
1904–Ford Motor Company of Canada is founded. The plant was built in Windsor, Ontario, across the river from Ford’s
existing facilities. The company was created to sell vehicles not just in Canada but also all across the British Empire.
1907–Ford introduces the scripted typeface of its trademark.
1908–Ford introduces the Model T. Ford sold 15 million of this model before ceasing production in May 1927. It
became the most famous car in the world.
1913–Ford introduces the integrative moving assembly line to auto production. This innovation reduced the Model
T’s chassis assembly line from 12.5 to 1.5 hours and brought about a revolution in manufacturing.
1914–Ford institutes the famous “$5 Day.” This wage payment to Ford’s employees was double the existing rate
for factory workers. The company also reduced the workday from 9 to 8 hours. The day after this wage rate was
announced, 10,000 people lined up hoping to be hired by Ford.
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PART 2
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Cases in Crafting and Executing Strategy
1917–Ford produces its first truck. The truck was called the Ford Model TT based on the Model T car but with a
reinforced chassis and rear axle.
1919–Edsel Ford succeeds Henry Ford as president of the company.
1922–Ford acquires the Lincoln Motor Company.
1925–Ford begins production of the Ford Tri-Motor airplanes. The “Tin Goose” was the first airplane used by America’s
early commercial airlines.
1927–Ford begins selling the 1928 Model A. The company closed plants all over the world to spend six months
retooling factories and perfecting the design of the car.
1936–Ford begins selling the Lincoln Zephr line. Lincoln Zephr’s sleek, aerodynamic shapes helped make the brand a
sales success, but when auto production ceased during World War II, the Zephr name was dropped as well.
1941–Ford begins producing Jeeps for the U.S. military.
1942–Ford halts production of automobiles in the United States to produce military equipment.
1948–Ford produces the F-Series line of trucks. The company ceased building trucks on car platforms and used a
purpose-built truck platform instead.
1954–Ford introduces the Thunderbird. This car would become a classic.
1956–Ford becomes a publicly-traded company.
1959–Ford Credit is established. The company offered loans and leases to car buyers.
1964–The Ford Mustang goes on sale. The car was a huge success and has remained one of the fastest-selling
vehicles in history.
1965–Ford-Philco engineers unveil the Mission Control Center used to put a man on the moon.
1976–Ford of Europe introduces the Ford Fiesta.
1986–Ford introduces the modular assembly line at its St. Louis assembly plant. This made use of automated ancillary
assembly lines to produce vehicle subassemblies.
1990–Ford introduces the Explorer. With this model, Ford helped launch the SUV market. This became one of Ford’s
most successful models.
1996–Ford introduces the Ford Ranger Electric Vehicle. This was a forerunner of today’s electric vehicles and hybrid
energy systems.
1998–The Lincoln Navigator is introduced and spurs rapid growth in the luxury SUV segment.
2011–Ford discontinues the Mercury line to concentrate all of its efforts on the Ford and Lincoln brands.
2016–Ford Mobility, LLC is created. This focused on changing the way the world moves. Ford Smart Mobility was
designed to take the company to the next level in connectivity, mobility, autonomous vehicles, the customer experience
and data analytics.
of gasoline began to escalate as the United States,
Russia, and the United Arab Emirates. engaged
in tactics to alter energy prices around the world.
Exhibit 1 below outlines key milestones in the history
of the Ford Motor Company.
Ford’s Strategic Situation in 2020
By 2020, Ford employed over 200,000 people worldwide in 70 plants producing midsize cars, SUVs,
and pickup trucks. Since the recession of 2008, the
tho35176_case04_C43-C50.indd
44
company’s revenues had rebounded due to increased
disposable income levels, falling unemployment, and a
renewed demand for big-ticket purchases. However, the
company reported falling sales in some of its established
markets in 2019 and 2020—partially due to the spread
of the COVID-19 virus in early 2020. Exhibit 2 presents Ford’s stock performance between April 2015 and
April 2020. The company’s consolidated income statements for 2017 through 2019 are presented in Exhibit 3.
Ford Motor Company’s consolidated balance sheets for
2018 and 2019 are presented in Exhibit 4.
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CASE 4
Ford Motor Company
C-45
EXHIBIT 2   Performance of Ford Motor Company’s Stock Price, April 2015 to
April 2020
(a) Trend in the Ford Motor Company’s Common Stock Price
16
Stock Price ($)
14
12
10
8
6
4
2016
2017
2018
Year
2019
2020
Percent Change (April 2015 = 0)
(b) Performance of the Ford Motor Company’s Stock Price Versus the S&P 500 Index
+60%
+45%
+30%
+15%
S&P 500
+0%
-15%
-30%
-45%
-60%
Ford Motor
Company’s Stock
Price
-75%
2016
2017
Ford’s New Product Strategy
William Clay Ford, Jr., Executive Chairman of Ford,
suggests that 115 years ago, when the company began,
the company’s mission was to make people’s lives
better by making mobility accessible and affordable.
By 2020, the company was moving toward manufacturing “smart vehicles for a smart world.” The world
plan focused on four pillars: (1) A winning portfolio;
(2) new propulsion options; (3) a high-level autonomous business built on the most trusted self-driving
tho35176_case04_C43-C50.indd
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2018
Year
2019
2020
systems; and (4) cloud-based mobility experiences
that deliver recurring revenue.
The winning portfolio in 2020 was envisioned to
be the Escape, Expedition, Explorer, Ranger, F-150
Hybrid, Bronco, and the Mustang Shelby GT500.
The Ford Bronco was produced between 1966 and
1996 and was discontinued when the smaller twodoor Bronco II suffered from a tipping problem. The
reintroduced Bronco will be modular with a removable top and doors.
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PART 2
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Cases in Crafting and Executing Strategy
EXHIBIT 3  Consolidated Income Statements for the Ford Motor Company,
2017–2019 ($ in millions except per share amounts)
Revenues
Automotive
Ford Credit
Mobility
Total revenues
Costs and expenses
Cost of sales
Selling, administrative, and other expenses
Ford Credit interest, operating, and other expenses
Total costs and expenses
Operating income
Interest expense on Automotive debt
Interest expense on Other debt
Other income/(loss), net
Equity in net income of affiliated companies
Income/(Loss) before income taxes
Provision for/(Benefit from) income taxes
Net income
Less: Income attributable to noncontrolling interests
Net income attributable to Ford Motor Company
Earnings per share attributable to Ford Motor Company common and class B stock
Basic income
Diluted income
Weighted-average shares used in computation of earnings per share
Basic shares
Diluted shares
2017
2018
2019
$ 145,653
11,113
10
156,776
$ 148,294
12,018
26
160,338
$ 143,599
12,260
41
155,900
131,321
11,527
9,047
151,895
4,881
1,133
57
3,267
1,201
8,159
402
7,757
26
$ 7,731
136,269
11,403
9,463
157,135
3,203
1,171
57
2,247
123
4,345
650
3,695
18
$ 3,677
134,693
11,161
9,472
155,326
574
963
57
(226)
32
(640)
(724)
84
37
$ 47
$1.94
$1.93
$0.93
$0.92
$0.01
$0.01
3,975
3,998
3,974
3,998
3,972
4,004
Source: Ford Motor Company 2019 10-K.
EXHIBIT 4  Ford Motor Company Consolidated Balance Sheets, 2018–2019
($ amounts in millions)
ASSETS
Cash and cash equivalents
Marketable securities
Ford Credit finance receivables, net
Trade and other receivables, less allowances of $94 and $63
Inventories
Assets held for sale
Other assets
Total current assets
tho35176_case04_C43-C50.indd
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December 31,
2018
December 31,
2019
$ 16,718
17,233
54,353
11,195
11,220
—
3,930
114,649
$ 17,504
17,147
53,651
9,237
10,786
2,383
3,339
114,047
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CASE 4
Ford Motor Company
C-47
December 31,
2018
December 31,
2019
Ford Credit finance receivables, net
55,544
53,703
Net investment in operating leases
29,119
29,230
Net property
36,178
36,469
Equity in net assets of affiliated companies
2,709
2,519
Deferred income taxes
Other assets
Total assets
10,412
11,863
7,929
10,706
$ 256,540
$ 258,537
$ 21,520
$ 20,673
20,556
22,987
LIABILITIES
Payables
Other liabilities and deferred revenue
Automotive debt payable within one year
2,314
1,445
Ford Credit debt payable within one year
51,179
52,371
—
130
—
526
95,569
98,132
Other liabilities and deferred revenue
23,588
25,324
Automotive long-term debt
11,233
13,233
Ford Credit long-term debt
88,887
87,658
Other debt payable within one year
Liabilities held for sale
Total current liabilities
Other long-term debt
600
470
Deferred income taxes
597
490
220,474
225,307
100
—
Common Stock, par value $.01 per share (4,011 million shares issued of 6 billion
authorized)
40
40
Class B Stock, par value $.01 per share (71 million shares issued of 530 million
authorized)
1
1
Capital in excess of par value of stock
22,006
22,165
Retained earnings
22,668
20,320
Total liabilities
Redeemable noncontrolling interest
EQUITY
Accumulated other comprehensive income/(loss)
(7,366)
(7,728)
(1,417)
(1,613)
35,932
33,185
Equity attributable to noncontrolling interests
34
45
Total equity
Total liabilities and equity
35,966
$ 256,540
33,230
$ 258,537
Treasury stock
Total equity attributable to Ford Motor Company
Source: Ford Motor Company 2019 10-K.
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PART 2
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Cases in Crafting and Executing Strategy
Two years before the Bronco was discontinued, the automobile gained a great deal of attention when Al Cowlings drove O.J. Simpson down
a Los Angeles freeway after Simpson was charged
with the murders of his ex-wife and her friend. More
than 95 million people across the United States
watched the two-hour pursuit on television while
crowds gathered on overpasses to cheer on the NFL
football legend.2
Ford Credit Company
Although the company experienced profitability difficulties in 2018 and 2019, its financial arm, Ford
Credit Company, posted its best results in 2019 of
the past nine years. Their profits jumped to $3 billion
before taxes. The result was that this arm of the company accounted for 50 percent of Ford’s profits. This
was up from 15 to 20 percent in the past. Ford Motor
Company had, thus, been able to subsidize Ford’s
losses and allowed the company to maintain a high
dividend yield. Unfortunately, data released by the
New York Federal Reserve Bank in late 2019, indicated that the volume of 90+ days delinquent loans
had risen sharply. The value of the overall auto loan
and lease balances had surged to $1.33 trillion that
year. In addition, subprime loans reached $66 billion
in the final quarter of 2019.3
There were several risks for the company in the
2020s regarding the Ford Credit Company. One risk
was that this financial arm of the company could
experience higher-than-expected credit losses, lowerthan-anticipated residual values on higher-thanexpected return volumes for leased vehicles. Another
risk was that Ford Credit could face increased competition from financial institutions or other third parties seeking to increase their share of financing Ford
vehicles. Finally, Ford Credit could be subject to new
or increased credit regulations, consumer or data
protection regulations or other types of regulations.
Challenges for 2020
The automotive industry is affected by macroeconomic conditions over which the companies have
little control. Vehicles are durable goods, and consumers exert strong choices about when and if they
will buy a new car. This decision is influenced by
such factors as slower economic growth, geopolitical
tho35176_case04_C43-C50.indd
48
events and other factors such as the COVID-19 virus
threat in 2020.
Some of the greatest challenges to Ford in 2020
identified by management included the following:
1. Acceptance of new and existing products by the
market.
2. Sales of more profitable larger vehicles, especially
in the United States.
3. Increased price competition resulting from industry excess capacity.
4. Fluctuations in commodity prices, foreign
exchange rates, and interest rates.
5. Global macroeconomic factors such as protectionist trade policies and other events including
Brexit.
6. The company’s ability to maintain a competitive
cost structure.
7. Pension and other post-retirement liabilities.
8. Defects that result in delays in new model launches.
9. Operational systems could be affected by cyber
incidents.4
Ford and the Coronavirus Pandemic.
In early 2020, a new virus called the coronavirus
or COVID-19 began to cause serious illness and
death around the world. Because of an increasing
incidence of this disease in the United States, many
states declared a “shelter in place” order intended to
prevent the spread of the virus by forcing people to
work from home. Ford, on March 31, stated that it
was delaying the restart of a car plant in Mexico as
well as four truck, SUV and van plants in the United
States “to help protect its workers.”5 This postponement came just two days after President Donald
Trump extended the national social-distancing guidelines through the end of April 2020. The shutting
down of the economy resulted in the loss of more
jobs than had occurred since the Great Depression
and the stoppage of purchasing non-essential goods.
Because of a shortage of ventilators to treat
coronavirus patients, Ford and General Electric’s
Health Care Division announced on March 30 that
they together planned to produce 50,000 ventilators
over the next 100 days. Ford planned to use a plant
in Rawsonville, Michigan, and about 500 workers to
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CASE 4
EXHIBIT 5  Global Automobile
Industry Products and
Services Segmentation,
2018
Ford Motor Company
C-49
EXHIBIT 6  2018 U.S. Retail Sales
Volume Segregated by
Product Type
U.S. Retail Sales
Percentage
Trucks
1,139,079
45.6%
36.6%
SUVs
872,215
34.9%
Cross utility vehicles (CUVs)
32.1%
Cars
486,024
19.4%
Pickup trucks
10.8%
Total
100%
Sports utility vehicles (SUVs)
6.9%
Other
13.6%
Total
100%
Product
Percentage of Market
Cars
Source: Oelkan, Ediz (February 2020). Ibisworld.com, Global Car
& Automobile Mfg.
make 30,000 ventilators a month. GE had licensed
the design of the ventilator from Airon Corporation
of Melbourne, Florida. The device works on air pressure and does not need electricity. Both Ford and GE
announced that Ford would help increase production of another ventilator based on a design from GE
Healthcare.6
Global Automobile Status
A survey of the range of products and services provided by the global automobile manufacturing industry is shown below in Exhibit 5.
Although the production of cars accounts for
36.6 percent of global industry revenue, this was
lower than its production volume because cars
normally sell at a lower price than SUVs and commercial vehicles. Therefore, they contribute less to
revenue on a per-unit basis. The car segment had
been growing as consumers opted for more fuel
efficiency. Ford sales in the United States, however,
showed a lower total sales of cars than trucks or
SUVs—see Exhibit 6.
Generally, Germany, Japan, the United States,
and Canada are expected to be the world’s largest
exporters of cars and automobiles (SUVs, trucks,
etc.). On the other hand, Germany, China, the United
Kingdom, and Belgium are expected to be the largest
tho35176_case04_C43-C50.indd
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Source: Annual Report of the Ford Motor Company, 2018
destinations for automobile products.7 The historic
methodology for manufacturing automotive vehicles
was to assemble cars at a domestic plant and then
export them to their final destinations. However, the
supply chain has become more complex. The shift
has been toward manufacturing cars close to their
final destination to save on logistics costs. Another
part of this strategy is to focus on very specific branding devices to appeal to the customer. An example of
this is the logo “Made in America.”
A Future Strategy
By 2020, the Ford Motor Company Board had some
difficult decisions to make. Although the developing
economies of the world primarily demanded smaller
automobiles, the developed economies preferred
the larger crossovers, SUVs, and trucks. The company had already made a decision to discontinue the
Ford Fusion, its largest automobile, and the public
wondered if they would drop selling all of their cars
except for the Mustang in the United States.
Another question that arose was: What would
happen to large vehicle sales if the price of petroleum
rose to alarming rates again? That had seemed to be
a remote possibility until the United States, Russia,
and the United Arab Emirates decided in the spring
of 2020 to limit the daily production of petroleum.
There was also the question of what would happen if
people began financing their vehicles at some place
other than Ford Credit, and what could they do
about that? The Board had much to think about as
they put their strategic plan together.
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PART 2
C-50
Cases in Crafting and Executing Strategy
ENDNOTES
1
Ewing, Steve (June 5, 2019). All Ford Fusion
models will go out of production in 2020. Road
Show by CNET.
2
Noble, Breanna (March 5, 2020). Ford Bronco
poised to return: It’s like a cult vehicle,” The
Detroit News.
3
Singh, Ayush (March 2, 2020). Here’s
why Ford Motor Company still can’t avoid
bankruptcy, Business News. https://www.ccn.
tho35176_case04_C43-C50.indd
50
com/heres-why-ford-motor-company-stillcant-avoid-bankruptcy/.
4
Annual Report of the Ford Motor Company,
2018.
5
Wayland, Michael (March 31, 2020). Ford
postpones reopening “key” plants due to
coronavirus pandemic. https://www.cnbc.
com/2020/03/31/ford-postpones-reopeningkey-plants-due-to-coronavirus-pandemic.html.
6
The New York Times (March 30, 2020).
Ford joins effort to make ventilators. https://
www.nytimes.com/2020/03/30/business/
stock-market-today-coronavirus-html#link310e3984/.
7
Ozelkan, Ediz (February 2020). Global
car and manufacturing, Ibisworld.com,
1999–2020.
10/09/20 05:07 PM
CAGE Distance Framework
Countries
Home
Country
Country A
Country B
Country C
Conclusions
___ Low
Cultural
Distance
___ Moderate
___ High
___ Low
Administrative
Distance
___ Moderate
___ High
___ Low
Geographic
Distance
___ Moderate
___ High
___ Low
Economic
Distance
___ Moderate
___ High
Competitive Strategy Assessment
Discussion / Rationale
Distinguishing Features
Strategic Target
Basis of Competitive
Advantage
Product Line
Production Emphasis
Marketing Emphasis
Keys to Sustaining Strategy
Competitive Strategy
Implications for Competitiveness
☐V
☐ R
☐ I
☐ N
☐ V
☐ R
☐ I
☐ N
☐ V
☐ R
☐ I
☐ N
☐ V
☐ R
☐ I
☐ N
☐ V
☐ R
☐ I
☐ N
☐ Competitive Disadvantage
☐ Competitive Parity
☐ Temporary Competitive Advantage
☐ Sustainable Competitive Advantage
☐ Competitive Disadvantage
☐ Competitive Parity
☐ Temporary Competitive Advantage
☐ Sustainable Competitive Advantage
☐ Competitive Disadvantage
☐ Competitive Parity
☐ Temporary Competitive Advantage
☐ Sustainable Competitive Advantage
☐ Competitive Disadvantage
☐ Competitive Parity
☐ Temporary Competitive Advantage
☐ Sustainable Competitive Advantage
☐ Competitive Disadvantage
☐ Competitive Parity
☐ Temporary Competitive Advantage
☐ Sustainable Competitive Advantage
* Check marks by V, R, I or N indicate the Value, Rarity, Inimitability and Non-Substitutability of an advantage in the market place.
Core
Competency?
VRIN*
Why nonsubstitutable?
Why Inimitable?
Using what
value chain
activities or
resources
Why Rare?
Organizational
Capability
How is Value
Created?
Core Competency Assessment
☐ Yes
☐ No
☐ Yes
☐ No
☐ Yes
☐ No
☐ Yes
☐ No
☐ Yes
☐ No
Ratio Table
Performance Measure
20__
Liquidity
Current Ratio
Cash Ratio
Asset Management
Raw Materials Turnover in Days
WIP Turnover in Days
Finished Goods Turnover in
Days
A/R Turnover in Days
A/P Turnover in Days
Cash Conversion Cycle
Fixed Assets Turnover
Total Asset Turnover
Long-term Debt Paying Ability
LT Debt to Total Capitalization
Cash Flow Coverage Ratio
Profitability
Gross Margin
Operating Profit Margin
Net Profit Margin
ROA
ROE
20__
20__
Industry
Average
PESTEL Analysis
Segment
Macro-environmental Factor
Opportunity
or Threat?
Political






Economic






Sociocultural/
Demographic







Technological 





Environmental 










Legal
** Also referred to as PEST / STEEP / STEEPLE analysis
Revised: Spring 2022
Portfolio Analysis
STARS
QUESTION MARKS
?
CASH COWS $$
$
DOGS
SWOT Analysis
STRENGTHS
WEAKNESSES














OPPORTUNITIES
THREATS














Value Chain
General Administration
Human Resource Management
Service
Sales &
Marketing
Distribution
Operations
Supply Chain
Management
Product R&D. Technology and Systems Development
COMM 4351
Competitive Strategy
Module 5 – Corporate Strategy
1
Faculty of Management
COMM 4351: Competitive Strategy
Learning Objectives
• Learn the strategic difference between related and unrelated
diversification strategies.
• Gain an understanding of the pros and cons of related
diversification strategies.
• Gain an understanding of the pros and cons of unrelated
diversification strategies.
• Gain command of the analytical approaches to evaluating a
company’s diversification strategy.
• Become familiar with a diversified company’s principal
strategic options after it has diversified.
Module 5 – Corporate Strategy
2
Faculty of Management
COMM 4351: Competitive Strategy
What Is Meant By ‘Diversification’
v A firm is diversified when it operates in two or more lines of business that are in
distinctly different industries
v Diversification complicates the strategy-making task because it requires:
Ø Assessing the multiple industry environments of a collection of individual businesses
Ø Developing a separate business strategy for each industry arena (or line of business) in
which the diversified firm operates
Ø Devising a firmwide (or corporate) strategy for improving the attractiveness and
performance of the company’s overall business lineup and for making a rational whole
out of its diversified collection of individual businesses and individual business
strategies
Module 5 – Corporate Strategy
3
Crafting a Diversified Firm’s Overall Or Corporate Strategy
Step 1
Picking new industries to enter and deciding on the best mode
of entry.
Step 2
Pursuing opportunities to leverage cross-business value chain
relationships and strategic fit into competitive advantage.
Step 3
Establishing investment priorities and steering corporate
resources into the most attractive business units.
Step 4
Initiating actions to boost the combined performance
of the cooperation’s collection of businesses.
Module 5 – Corporate Strategy
4
Identifying a Diversified Company’s Strategy
Module 5 – Corporate Strategy
5
When to Consider Diversifying
vThere’s no urgency for a single-business firm to diversify into other businesses so long as it has ample opportunities for
growth and profitability in its present industry
Ø But it is risky for a single-business firm to continue to remain in one industry when, for whatever reason, its long-term prospects for
continued good performance start to dim
vA single-business firm becomes a prime candidate for diversifying when:
Ø Conditions in its present industry turn sour and are expected to be long-lasting
Ø There are opportunities to expand into industries whose technologies and products complement its present business
Ø Its current competencies and capabilities are key success factors and valuable competitive assets for competing in another business
Ø Diversifying into closely related businesses will reduce its costs
Ø It has a powerful and well-known brand name that can be transferred to the products of other businesses and help drive the sales and
profits of such businesses to higher levels
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
6
Diversification Possibilities
v A firm can diversify:
Ø Into closely-related or totally-unrelated businesses
Ø Its present revenue and earning base to a small extent or to a major
extent
Ø Into a one or two large new businesses or a greater number of small ones
Ø By acquiring an existing firm in a business/industry it wants to enter
Ø By forming a subsidiary in promising industry
Ø By forming joint ventures with other firms to enter new businesses
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
7
Will Diversification Produce Added LongTerm Value for Shareholders?
The Industry
Attractiveness Test
The Cost-of-Entry
Test
Diversifying in Ways
That Build Long-Term Value
for Shareholders
The Better-Off
Test
Source: Adapted from Arthur A. Thompson and Glo-Bus Software, Inc.
Module 5 – Corporate Strategy
8
Moves to Diversify into a New Business
Should Pass three Tests
v To produce added long-term economic value for shareholders,
diversifying must pass three tests:
1. Industry Attractiveness Test
Industry conditions must be conducive to good profitability
2. Cost-of-Entry Test
High cost of entering cannot spoil the profit opportunities
3. Better-Off Test
Diversifying must offer potential for the firm’s businesses to perform better together under a single
corporate umbrella than they would perform as independent stand-alone businesses
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
9
Better Performance through Synergy
Evaluating the
Potential for
Synergy
through
Diversification
Firm A purchases Firm B in
another industry. A and B’s
profits are no greater than
what each firm could have
earned on its own.
No
Synergy
(1+1=2)
Firm A purchases Firm C in
another industry. A and C’s
profits are greater than what
each firm could have earned
on its own.
Synergy
(1+1=3)
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
10
Why the “Better-Off” Test is so Important
vCreating added long-term value for shareholders via diversification requires building a multibusiness firm where the whole is greater than the sum of its parts.
vSuppose Firm A diversifies by purchasing Firm B in another industry.
Ø If A and B’s consolidated future profits are no greater than what each could have earned on its own, then
A’s diversification produces a 1 + 1 = 2 result that does not create added value because A’s shareholders
could have achieved the same 1 + 1 = 2 result by merely purchasing stock in B.
Rule
Diversification does not produce added long-term value
for shareholders unless it produces a 1 + 1 = 3 effect
where the firm’s different businesses perform better together
than they would as independent enterprises.
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
11
Choosing the Diversification Path:
Related versus Unrelated Businesses
Related Diversification
Unrelated Diversification
Involves diversifying into
businesses whose value
chains possess
competitively valuable
“strategic fits” with the
value chain(s) of the firm’s
present business(es)
Involves diversifying into
businesses having no
competitively valuable
value chain match-ups or
strategic fits with the value
chain(s) of the firm’s
present business(es)
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
12
The Three Fundamental Strategy Alternatives
for Pursuing Diversification
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
13
Faculty of Management
COMM 4351: Competitive Strategy
vWhat makes related diversification an attractive strategy is the opportunity to convert crossbusiness strategic fits into a competitive advantage over business rivals whose operations do not
offer comparable strategic fit benefits
vThe greater the relatedness among a diversified firm’s sister businesses, the bigger a firm’s
window for converting strategic fits into competitive advantage via:
ØTransfer of competitively valuable expertise, technological know-how, or other resources from one business to
another
ØCombining the related value chain activities of separate businesses into a single operation to achieve lower
costs.
ØCross-business use of a well-respected brand name
ØCross-business collaboration to create altogether new competitively valuable resources and capabilities
The Case for Diversifying into Related Businesses
Module 5 – Corporate Strategy
14
Related Businesses Possess Related Value Chain Activities and
Competitively Valuable Cross-Business Strategic Fits
Module 5 – Corporate Strategy
15
Faculty of Management
COMM 4351: Competitive Strategy
vEconomies of scope are achieved by capturing cost-saving strategic fits along the value chains of related
businesses; examples of such cost-saving efficiencies include:
Ø
Production-related strategic fits that enable two or more related businesses to use the same manufacturing facility to perform
their production activities (using a single plant is likely to be more cost-effective than having multiple plants) and/or
Ø
Distribution-related strategic fits that enable two or more related businesses to share use of the same distribution centers
(utilizing a single distribution center is cheaper than having multiple distribution centers) and/or
Ø
Sales- and customer-related strategic fits that enable two or more related businesses to use a common sales force to sell their
products to customers (a single sales force is more cost-efficient than having separate sales forces) and/or
Ø
The ability of two or more related businesses to share use of the same administrative infrastructure and thus spread admin costs
over a bigger sales volume
vEconomies of scale are cost savings that occur because a large-scale operation is more cost-efficient
than a small-scale operation
Economies of Scope Are Different
from Economies of Scale
Module 5 – Corporate Strategy
16
Faculty of Management
COMM 4351: Competitive Strategy
vThe greater the cost-savings associated with cost-related
strategic fits among the value chains of sister businesses, the
greater the potential for a related diversification strategy to yield
a low-cost competitive advantage over
ØUndiversified competitors
ØCompetitors whose own diversification efforts do not offer equivalent
cost-saving benefits
Why Achieving Economies of Scope in
Related Businesses Is Competitively Valuable
Module 5 – Corporate Strategy
17
Faculty of Management
COMM 4351: Competitive Strategy
vDiversified firms having related businesses with multiple strategic fits among their value chain
activities have a larger opportunity for cross-business resource transfer, cost reduction, crossbusiness use of a respected and potent brand name, and/or cross-business collaboration to:
ØEnhance the overall competitive strength of the various sister firms
ØBoost the profitability and performance of the firm’s collection of related businesses
ØAchieve a competitive advantage over rivals whose own operations
do not offer equivalent strategic fit benefits
vSuch strategic-fit benefits can be substantial and capturing them are what enables a firm
pursuing related diversification to achieve 1 + 1 = 3 or better financial performance and to
enhance shareholder value.
Strategic Fit and Competitive Advantage: The Keys to
Added Profitability and Gains in Shareholder Value
Module 5 – Corporate Strategy
18
The Case for Diversifying into Unrelated Businesses
vUnrelated diversification strategies involve
Ø Entering any industry and operating any business where there is opportunity for consistently
good financial results
Ø No deliberate effort to diversify into businesses with strategic fits
Ø Acquiring an established company rather than forming a start-up subsidiary or collaborating
in a joint venture to get into a new business
Ø An acquisition passing both the industry attractiveness and cost-of-entry tests and having
good prospects for financial performance
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
19
Unrelated Businesses Have Unrelated Value Chains
and No Cross-Business Strategic Fits
Module 5 – Corporate Strategy
20
What Is Appealing about Unrelated Diversification?
vBusiness risk is scattered over a set of truly diverse industries.
vThe firm’s financial resources are employed to maximum advantage by:
ØInvesting in whatever industries offer the best profit prospects (as opposed to considering only opportunities in
industries with related value chain activities)
ØDiverting cash flows from company businesses with low growth and profit prospects to acquiring and expanding
businesses with higher growth and profit potentials
vWhen managers are exceptionally astute at spotting bargain-priced firms with big upside profit potential, shareholder wealth is
enhanced by:
ØBuying distressed businesses at low prices, turning their operations around quickly with cash infusions and managerial
know-how from the parent firm
ØThen either riding the crest of the profit increases generated by newly-turned around businesses or else enjoying the
capital gains of selling a once-distressed business for an amount far above its purchase price
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
21
The Path to Enhancing Shareholder Value
via Unrelated Diversification
vAcquiring firms in any industry with growth and earnings prospects that can satisfy the industry attractiveness test
vAcquiring undervalued or underperforming firms that can be overhauled in ways that will result in big gains in profitability
vAcquiring firms at prices sufficiently low to pass the cost of entry test.
vDeveloping and nurturing parenting capabilities for enhancing business unit performance to yield 1 + 1 = 3 results that
pass the better-off test
vProvide company businesses with administrative expertise and other corporate resources that lower companywide
administrative and overhead costs and enhance the operating effectiveness of these businesses
vBecome skilled in discerning when a business must be sold for a gain to buyers willing to pay a price higher than the
firm’s net investment in the business.
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
22
The Two Big Drawbacks of Unrelated Diversification
Unrelated
Diversification Strategy
Demanding Managerial
Requirements
Limited Competitive
Advantage Potential
Likely outcome is 1 + 1 = 2,
rather than desired 1 + 1 = 3!
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
23
The Demanding Managerial Requirements
Are a Serious Issue
vGreat diversity in a business makes it harder for top executives to:
Ø Discern good acquisitions from bad ones
Ø Have in-depth knowledge about each of the businesses
ü Hard to judge soundness of strategic proposals of business-unit managers
ü Hard to select capable managers to manage the diverse requirements of each business
ü Hard to know what to do if a business stumbles
Ø Avoid big mistakes
ü Misjudging competitive forces, impacts of driving forces or key success factors
ü Discovering that problems of an acquired business will require more time and resources to correct than expected
ü Being too optimistic about a newly acquired firm’s future prospects
vIt is wise to avoid casting a wide net—experience shows diversifying into a few unrelated businesses often results in better
overall firm performance than diversifying into many unrelated businesses
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
24
Limited Competitive Advantage Potential
Is a Major Shortcoming
vUnrelated diversification’s lack of cross-business strategic fits reduces its competitive advantage
potential to what each separate business can generate on its own
vWith no ability to capture cross-business strategic fits, it takes very astute management for the
consolidated performance of an unrelated group of businesses to reach 1 + 1 = 3 levels
vGiven the demanding requirements it takes to successfully manage a collection of unrelated
businesses, pursuing a strategy of unrelated diversification is chancy and unreliable—it is far tougher
than it might seem for corporate-level executives to achieve 1 + 1 = 3 results.
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
25
Unrelated Diversification Strategies Often
Result in “Ho-Hum” Performance
vWithout the added competitive advantage potential that cross-business strategic fit (and perhaps
superior parenting) provides, it is hard for the consolidated performance of an unrelated group of
businesses to be any better than the sum of what the individual business units could achieve if
they were independent.
Strategy
Lesson
There are significant challenges in building longterm shareholder value via a strategy of unrelated
diversification—1 + 1 = 2 outcomes (or worse) are
far more likely than 1 + 1 = 3 outcomes.
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
26
Related versus Unrelated Diversification Strategies
CONCLUSION: Relying solely on the expertise of corporate executives to astutely manage a
set of unrelated businesses is a much weaker foundation for enhancing shareholder value than
is a strategy of related diversification (where successful capture of strategic fits enhances
competitive strength, boosts profitability, and offers potential competitive advantage—outcomes that
raise the chances of 1 + 1 = 3 results for shareholders).
A strategy of unrelated diversification is a riskier and more problematic
approach to diversifying than is a strategy of related diversification.
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
27
COMBINATION RELATED-UNRELATED
DIVERSIFICATION STRATEGIES
Related-Unrelated Business
Portfolio Combinations
DominantBusiness
Enterprises
Narrowly
Diversified
Firms
Broadly
Diversified
Firms
Multibusiness
Enterprises
Faculty of Management
COMM 4351: Competitive Strategy
Module 5 – Corporate Strategy
28
Faculty of Management
COMM 4351: Competitive Strategy
vThe business make-up of diversified firms varies considerably:
ØDominant-business firms: Have one major core business accounting for 50-80 percent of total
revenues, with several small related or unrelated businesses accounting for the remainder of total
revenues
ØNarrowly diversified firms: Have a few (2-5) related or unrelated businesses
ØBroadly diversified firms: Have a wide-ranging collection of either related or unrelated businesses or
a mixture of both
ØDiversified firms that have diversified into unrelated areas but have a collection of related
businesses within each area – thus giving them a portfolio of several unrelated groups of related
businesses
Combination Related-Unrelated
Diversification Strategies
Module 5 – Corporate Strategy
29
Faculty of Management
COMM 4351: Competitive Strategy
vTo remain financially healthy, a diversified firm must generate internal cash flows sufficient to
fund its capital requirements, pay dividends, and meet its debt and financial obligations.
vA cash hog business generates insufficient cash flows to fully fund its current needs for working
capital and new capital investment.
vA cash cow business generates surplus cash flows for use in investing in cash hog businesses,
financing new acquisitions, or paying dividends
A diversified firm’s businesses exhibit good financial resource fit when the excess cash generated by its cash cow
businesses is sufficient to fund the investment requirements of promising cash hog businesses, pay down its debt,
pay dividends, and help pay for new acquisitions.
Financial Resource Fits:
Cash Cows versus Cash Hogs
Module 5 – Corporate Strategy
30
Faculty of Management
COMM 4351: Competitive Strategy
vDoes it make good financial and strategic sense to keep pouring new money into a business that
continually needs cash infusions?
vStrategic Options:
vInvest in promising cash hogs to grow them into star businesses (strong, profitable market contenders)
vDivest cash hogs with questionable promise (either because of low industry attractiveness or a weak
competitive position)
Redeploy resources from divested cash hogs to better advantage elsewhere
What To Do with Cash Hog Businesses
Module 5 – Corporate Strategy
31
Faculty of Management
COMM 4351: Competitive Strategy
vThe surplus cash flows that cash cow businesses generate can be used to:
ØProvide funds for investing in the firm’s promising cash hogs
ØHelp finance acquisitions
ØPay down debt and perhaps repurchase shares of stock
ØPay corporate dividends and help fund other corporate activities
vIt makes good financial and strategic sense to keep cash cows in healthy condition so that they
are able to:
ØFortify and defend their market position
ØPreserve their cash-generating capabilities over the long term to provide an ongoing source of financial
resources to deploy elsewhere
Why Cash Cow Businesses Are Valuable
Module 5 – Corporate Strategy
32
Faculty of Management
COMM 4351: Competitive Strategy
vA diversified firm must have a sufficiently large and talented pool of managerial, administrative, and resource
capabilities to support all of its businesses.
vChecking for an inadequacy of nonfinancial resources:
1. Is there any evidence indicating that any of the firm’s business units are resource deficient—either because
needed resources and/or capabilities cannot be transferred in or shared with sister businesses or missing
resources and/or capabilities cannot be supplied by the corporate parent?
2. Are the corporate parent’s resources and parenting capabilities poorly matched to the resource requirements of
one or more businesses it has diversified into?
3. Are the firm’s nonfinancial resources and capabilities being stretched too thinly by the managerial, administrative,
or resource requirements of one or more of its businesses?
Nonfinancial Resource Fits
Module 5 – Corporate Strategy
33
Faculty of Management
COMM 4351: Competitive Strategy
vFor a firm to make the best use of its limited pool of resources, both financial and nonfinancial, top
executives must be diligent in:
ØSteering resources to those businesses with the best opportunities and performance prospects
ØAllocating few, if any, additional resources to businesses with weak prospects
vWhen a corporate parent has nonfinancial resources that particular business units will find uniquely
valuable in strengthening their performance and/or accelerating their growth, allocating such
resources to these business units should be automatic – they usually represent 1 + 1 = 3
opportunities that should not be missed.
The Importance of Resource Allocation
Module 5 – Corporate Strategy
34
The Chief Strategic and Financial Options for Allocating a
Diversified Company’s Financial Resources
Module 5 – Corporate Strategy
35
A Company’s Main
Strategic
Alternatives After It
Diversifies
Module 5 – Corporate Strategy
36
Faculty of Management
COMM 4351: Competitive Strategy
vThis option is sensible when present businesses:
ØOffer attractive growth opportunities
ØCan be counted on to generate good earnings and cash flows
vIf existing businesses have good fits, then major changes in the business lineup is usually
unnecessary
vExecutives can concentrate their attention on
ØGetting the best performance from each of its businesses
ØSteering corporate resources into those areas of greatest potential and profitability
ØSeeking good acquisition prospects
Sticking with the Existing Business Lineup
Module 5 – Corporate Strategy
37
Faculty of Management
COMM 4351: Competitive Strategy
vFactors motivating firms to build positions in new related or unrelated industries:
ØThe current business lineup has sluggish growth prospects and/or offers only meager
improvements in financial performance
ØAttractive growth and profit opportunities to transfer resources and capabilities from existing
business to newly-acquired related or complementary businesses
ØRapidly changing conditions (either favorable or unfavorable) in one or more of a firm’s core
businesses that make it desirable to expand into other industries
ØTo complement and strengthen the market position and competitive capabilities of one or more
present businesses
Broadening the Firm’s Business Scope
Module 5 – Corporate Strategy
38
Faculty of Management
COMM 4351: Competitive Strategy
vRetrenching to a narrower diversification base merits consideration when:
Ø Resources are stretched too thin and overall performance can be improved by concentrating on building stronger positions in fewer
core businesses and industries
Ø Market conditions in a once attractive industry have badly deteriorated
Ø One or more businesses lack strategic or resource fit or are cash hogs with questionable long-term potential or have weaknesses
that are too expensive to correct given the likely gains in profitability
Ø One or more acquired businesses have not proved as profitable as expected, despite managerial efforts to improve their
performance
Ø Subpar performance in some business units raises questions of whether to divest them or keep them and attempt a turnaround
Ø Certain businesses, despite adequate financial performance, have a culture that does not mesh well with the rest of the firm’s
businesses
vA useful guide to deciding whether or when to divest a business is to ask, “If we were not in this
business today, would we want to get into it now?” When the answer is “no” or “probably not”,
divesting it makes sense.
Retrenching to a Narrower Diversification Base
Module 5 – Corporate Strategy
39
Faculty of Management
COMM 4351: Competitive Strategy
vRestructuring involves divesting businesses and acquiring others to put a whole new face on the
company’s business lineup. Restructuring is appealing when a company’s financial performance is being
weakened by:
Ø Mismatches between the businesses it has diversified into and the parent firm’s resources and parenting
capabilities
Ø Having too many businesses in slow-growth, declining, low-margin, or otherwise unattractive industries
Ø Having too many competitively weak businesses
Ø The emergence of new technologies that threaten the survival of one or more important businesses
Ø Ongoing declines in the market shares of one or more major business units that are falling prey to more
market-savvy competitors
Ø Excessive debt with interest costs that eat deeply into profitability
Ø Ill-chosen acquisitions that have not lived up to expectations
Restructuring a Firm’s Business Lineup
Module 5 – Corporate Strategy
40
Faculty of Management
COMM 4351: Competitive Strategy
vOffers two major avenues for growing revenues and profits:
vGrowth by entering additional businesses
vGrowth by extending the operations of existing businesses into additional country
markets
vPursuing both growth avenues at the same time can provide a diversified firm
with potentially very attractive gains in growth and profitability and possibly
added competitive advantages
Pursuing Multinational Diversification
Module 5 – Corporate Strategy
41
Faculty of Management
COMM 4351: Competitive Strategy
A strategy of multinational diversification has five different paths to achieving greater competitive advantage:
1. Full capture of economies of scale and learning/experience curve effects as sales of one or more businesses are
expanded to additional country markets – added competitive advantage is gained as each given business’s costs
per unit are driven down by its rising sales volumes worldwide
2. Leveraging use of a well-known and competitively powerful brand name
3. Capture of economies of scope arising from cost-saving strategic fits among the value chains of related
businesses
4. Transfer of competitively valuable resources/capabilities both from one business unit to another and from one
country to another
5. Developing and leveraging competitively valuable resources and capabilities via cross-business unit collaboration
The first two paths are open to companies pursuing unrelated diversification but all five paths can be
pursued simultaneously by companies employing related diversification strategies!
Building Competitive Advantage through
Multinational Diversification
Module 5 – Corporate Strategy
42
Complete Module 5 Activities
Module 5 – Corporate Strategy
43
COMM 4351
Competitive Strategy
Module 3 – Internal Analysis
1
Faculty of Management
COMM 4351: Competitive Strategy
Learning Objectives
vDescribe the meaning and significance of
organization and industry value chains
vDemonstrate proficiency in the use of the
Value Chain analysis tool
vExamine and organization’s ability to create
value
Module 3 – Internal Analysis
2
Faculty of Management
COMM 4351: Competitive Strategy
Learning Objectives
vDescribe what the organization’s important
resources are and how they contribute
toward competitive advantage
vExplain the value of intellectual assets,
technology, and human and social capital to
an organization
vDemonstrate proficiency in the use of
financial ratio analysis to determine
organizational profitability and liquidity
Module 3 – Internal Analysis
3
Faculty of Management
COMM 4351: Competitive Strategy
Learning Objectives
vDescribe what the organization’s capabilities
are and how they contribute toward
competitive advantage
vDemonstrate proficiency in the use of core
competency analysis to determine the
organization’s ability for sustainable
competitive advantage
Module 3 – Internal Analysis
4
Identifying the Components of a Single-Business Company’s Strategy
Module 3 – Internal Analysis
5
The Concept of a Company Value Chain
v A firm’s value chain
Ø Concerns the functions, tasks, and activities that a firm performs internally to create value for
customers
Ø Consists of two broad categories of activities
ü Primary activities that are foremost in the firm’s scheme for creating and delivering value to
customers
ü Support activities that facilitate and enhance the performance of primary activities.
v A firm has no sound business justification for performing an activity that does not result in greater value
for customers
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
6
Value Chain Analysis
vSequential process of value-creating activities
vThe amount that buyers are willing to pay for what a firm provides them
vValue is measured by total revenue
vFirm is profitable to the extent the value it receives exceeds the total costs
involved in creating its product or service
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
7
A Representative Company Value Chain
Module 3 – Internal Analysis
8
Illustrative Primary Activities
• Supply Chain Management – Activities, costs, and assets associated with
purchasing fuel, energy, raw materials, parts and components, merchandise, and
consumable items from vendors; receiving, storing and disseminating inputs from
suppliers; inspection; and inventory management.
• Operations – Activities, costs, and assets associated with converting inputs into
final product (producing, assembly, packaging, equipment maintenance, facilities,
operations, quality assurance, environmental protection).
• Distribution – Activities, costs, and assets dealing with physically distributing the
product to buyers (finished goods warehousing, order processing, order picking and
packing, shipping, delivery vehicle operations, establishing and maintaining a
network of dealers and distributors).
• Sales and Marketing – Activities, costs, and assets related to sales force efforts,
advertising and promotion, market research and planning, and dealer/distributor
support.
• Service – Activities, costs, and assets associated with providing assistance to
buyers, such as installations, spare parts delivery, maintenance and repair,
technical assistance, buyer inquiries, and complaints.
Module 3 – Internal Analysis
9
Illustrative Support Activities
• Product R&D, Technology, and Systems Development – Activities, costs, and
assets relating to product R&D, process R&D, process design improvement,
equipment design, computer software development, telecommunications systems,
computer-assisted design and engineering, database capabilities, and development
of computerized support systems.
• Human Resource Management – Activities, costs, and assets associated with the
recruitment, hiring, training, development, and compensation of all types of
personnel; labor relations activities; and development of knowledge-based skills
and core competencies.
• General Administration – Activities, costs, and assets relating to general
management, accounting and finance, legal regulatory affairs, safety and security,
management information systems, forming strategic alliances and collaborating with
strategic partners, and other overhead functions.
Module 3 – Internal Analysis
10
Faculty of Management
COMM 4351: Competitive Strategy
vPrimary Activities
ØSupply chain management
ØRecipe development and
testing
ØMixing and baking
vSupport Activities
ØQuality control
ØHuman resource
management
ØPackaging
ØAdministration
ØSales and marketing
ØDistribution
Example: Value Chain Activities
for a Bakery Goods Maker
Module 3 – Internal Analysis
11
Faculty of Management
COMM 4351: Competitive Strategy
vPrimary Activities
ØMerchandise selection and
purchasing
vSupport Activities
ØSite selection
ØStore layout and product
display
ØHiring and training
ØAdvertising
ØStore maintenance
ØCustomer service
ØAdministrative activities
Example: Value Chain Activities
for a Department Store Retailer
Module 3 – Internal Analysis
12
Rivals’ Value Chains Are Often Different
vSeveral factors cause the value chains of rival firms to be different:
Ø Different strategies
Ø Different operating practices
Ø Different technologies
Ø Different degrees of vertical integration
Ø Some firms perform certain activities internally while others outsource them
Differences in the value chains of competing companies
complicate assessment of their relative cost positions
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
13
Comparing the Value Chains of Rival Firms
v Differences in the value chains of competing firms raise two important questions:
1. Whose value chain delivers the best customer value relative to the prices being charged?
When a competitor’s value chain approach delivers greater value to customers relative to its
prices, it gains competitive advantage even if its costs are equivalent to (or higher than) its
close rivals.
2. Which firm has the lowest cost value chain?
When close competitors deliver much the same value, charge comparable prices, and have
very similar value chains, then competitive advantage accrues to the firm with the most costefficient value chain operations.
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
14
Value Chain System for an Entire Industry
v A firm’s value chain is embedded in a larger system of activities that includes value chains of its
suppliers and value chains of wholesale distributors and retailers it utilizes in getting its product
or service to end users
Ø Supplier value chains are relevant because suppliers perform activities and incur costs in creating and
delivering the purchased inputs for a firm’s own value-creating activities
Ø The value chains of distribution channel partners are relevant because the costs and margins of
distributors and retail dealers represent “value added” and are part of the price the ultimate consumer
pays for the company’s good or service
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
15
A Representative Value Chain for an Entire Industry
Module 3 – Internal Analysis
16
Faculty of Management
COMM 4351: Competitive Strategy
Timber farming
Logging
Pulp mills
Papermaking
Distribution
Example: Components of the Industry Value Chain System
in the Pulp and Paper Industry
Module 3 – Internal Analysis
17
Faculty of Management
COMM 4351: Competitive Strategy
Parts and
components
manufacture
Assembly
Wholesale
distribution
Retail
sales
Example: Components of the Industry Value Chain System
in the Home Appliance Industry
Module 3 – Internal Analysis
18
Faculty of Management
COMM 4351: Competitive Strategy
Processing
of basic
ingredients
Syrup
manufacturing
Bottling and
can filling
Wholesale
distribution
Today’s Special
15% Off
All Diet Colas
Retailing
Advertising
Example: Components of the Industry Value Chain System
in the Soft Drink Industry
Module 3 – Internal Analysis
19
Why the Values Chains of Suppliers
and Distribution Allies Matter
v Whether a company’s costs are competitive with the costs of close rivals is a
function of
Ø Whether the costs and profit margins embedded in its own value chain system (its own value chain plus
the value chains of its suppliers and distribution allies) are lower than OR roughly equal to OR higher
than the costs and profit margins embedded in the value chain systems of its close rivals (their
respective value chains plus the respective value chains of their suppliers and distribution allies)
Knowledge of a firm’s own internal costs is insufficient to assess whether its product offerings and
customer value proposition are competitive with those of rivals—the value chains of suppliers and
distribution allies also matter.
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
20
Benchmarking: A Tool for Assessing Whether
a Firm’s Value Chain Costs Are in Line
v Benchmarking entails
Ø Comparing how well different firms perform key value chain activities. Examples include:
ü How inventories are managed
ü How products are assembled
ü How fast it takes to get new products to market
ü How customer orders are filled and shipped
Ø Making cross-company comparisons of the costs of these activities
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
21
Options for Improving the Performance of
Internally Performed Activities
v Implement the use of best practices throughout firm
v Redesign the product to eliminate costs or enable faster and more economical
manufacture or assembly
v Relocate high-cost activities to lower-cost locations
v Outsource high-cost activities to outside vendors/ suppliers who can perform these
activities cheaper
v Shift to lower-cost technologies and/or invest in productivity-enhancing, cost-saving
technological improvements
v Cease performing any activities that add little or no customer value
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
22
Options for Improving the Performance of
Supplier-Related Value Chain Activities
v Pressure suppliers for lower prices
v Switch to lower-priced substitute inputs
v Collaborate closely with suppliers to identify mutual cost-saving
opportunities
Ø Just-in-time supplier deliveries can lower both the firm’s and the supplier’s inventory and
internal logistics costs
v Integrate backward into the businesses of suppliers responsible for cost
disadvantages and make the items in-house instead of buying them from
outside suppliers
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
23
Options for Improving the Performance of
Distribution-Related Value Chain Activities
v Pressure dealers, distributors and channel allies to reduce costs to make
final prices to buyers more competitive with the prices of rivals
v Collaborate with forward channel allies to identify win-win opportunities to
reduce costs
v Change to a lower-cost distribution strategy or switch to cheaper
distribution channels
v Integrate forward by opening company-owned retail outlets
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
24
Translating Proficient Performance of
Value Chain Activities into Competitive Advantage
v Doing a first-rate job of managing value chain activities can often
translate into competitive advantage.
v Competitive advantage can be achieved by out-managing rivals in
either of two ways:
1.
By performing value chain activities more efficiently and cost effectively,
thereby gaining a low-cost advantage over rivals
2.
By performing certain value chain activities in ways that drive value-creating
improvements in quality, features, performance, and other aspects, thereby
gaining a differentiation-based competitive advantage keyed to what
customers perceive as a superior product offering
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
25
Translating Company Performance of Value Chain Activities
into Competitive Advantage
Module 3 – Internal Analysis
26
Identifying the Components of a Single-Business Company’s Strategy
Module 3 – Internal Analysis
27
Key Indicators of How Well
a Company’s Strategy Is Working
v The three best indicators:
Ø Whether the firm is meeting or beating its financial and strategic performance targets
Ø Whether the firm is an above-average industry performer
Ø Whether the firm is gaining customers and outcompeting one or more of its close rivals
Persistent shortfalls in meeting performance targets
and weak performance relative to rivals are warning
signs that the firm has a weak strategy or suffers
from poor strategy execution or both.
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
28
Other Good Indicators of How Well a
Company’s Strategy Is Working
v Whether the firm’s sales are growing faster, slower, or at about the same pace as the market as a whole, thus resulting in a rising,
eroding, or stable market share.
v How well the firm stacks up against rivals on product innovation, customer service, product quality, delivery time, price, getting newly
developed products to market quickly, and other relevant factors affecting buyers’ choice of brands.
v Whether the firm’s image and reputation with its customers is growing stronger or weaker.
v Whether the firm’s profit margins are increasing or decreasing.
v Trends in the firm’s net profits and return on investment and how these compare to the same trends for rival companies.
v Whether the firm’s overall financial strength, credit rating, key financial and operating ratios, and cash flows from operations are
improving, holding steady, or deteriorating.
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
29
Identifying a Company’s Valuable Resources
v Any asset or productive input that a firm owns’ or controls qualifies as a resource.
Ø Firms typically have many kinds and types of resources
Ø More importantly, a company’s resources tend to vary widely in quality, competitive relevance, and
competitive value
v Our interest here is not in cataloging every resource a company has but rather in identifying
those resources that are competitively relevant, assessing their competitive value, and
evaluating the degree to which they can underpin its strategy.
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
30
Types of Competitively Relevant and
Valuable Company Resources
v Competitively relevant and potentially valuable resources can relate to:
Ø Physical assets – natural-resource deposits, real estate, store locations, plants, equipment, and distribution
facilities
Ø Human assets and intellectual capital – the education, training and experience of company’s workforce, special
expertise and skills, managerial skills, the work ethic and motivational drive of the company’s workforce
Ø Organizational resources – quality control systems, proprietary technology, state-of-the-art information systems,
patents, just-in-time inventory systems
Ø Financial resources – cash on hand, balance sheet strength, credit rating, and strength of access to additional
financial capital
Ø Intangible assets – brand names, buyer loyalty and goodwill, trademarks, company image and reputation
Ø Relationships – alliances or partnerships with suppliers, distributors, dealers, and others that reduce costs and/or
provide access to valuable technologies, specialized know-how, or attractive geographic markets
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
31
Faculty of Management
COMM 4351: Competitive Strategy
vTangible Resources
ØFinancial
ØPeople
ØPhysical
ØTechnological
vOrganizational Capabilities
ØProcesses
ØCompetencies
vIntangible Resources
ØHuman Resources
ØInnovation
ØReputation
ØIntellectual Property
ØSkills
Resource Based Analysis
Module 3 – Internal Analysis
32
Faculty of Management
COMM 4351: Competitive Strategy
vFinancial Resources
ØExisting
«Cash
«Capital (Equity / Assets)
Tangible Resources – Financial
ØPotential
«Relationships
ü Investors
ü Lenders
«Market attractiveness
«Share value
ØGood Will
Module 3 – Internal Analysis
33
Faculty of Management
COMM 4351: Competitive Strategy
vPhysical Resources
ØProduction
«Processes
Tangible Resources – Physical
«Capital Equipment
ØInfrastructure
vHuman Resources
Ø# of staff & Locations
ØExperience & qualifications
ØTurnover rate
ØTraining & education
Module 3 – Internal Analysis
34
Faculty of Management
COMM 4351: Competitive Strategy
vTechnological Resources
ØIT Systems
ØHardware
ØSoftware
ØManufacturing Technology
ØProprietary Systems
Tangible Resources – Technological
Module 3 – Internal Analysis
35
Faculty of Management
COMM 4351: Competitive Strategy
v Human Resources
Ø HR Intangibles
ü Morale
ü Motivation
ü Culture
Int
a
ng
ibl
e
Re
so
u
v Intangibles
rce
s
Ø Reputation
Ø Intellectual Property
ü Patents
ü Brands
Module 3 – Internal Analysis
36
Faculty of Management
COMM 4351: Competitive Strategy
vWhat has worked or not
vHistorical
ØFinancial – ratio analysis
ØResource deployment
vIndustry Comparison
ØResources & capabilities
v“Best in Class”
ØBenchmarking
Evaluating a Company’s Financial Performance
Module 3 – Internal Analysis
37
Key Financial Ratios: How to Calculate Them and What They Mean
Module 3 – Internal Analysis
38
Key Financial Ratios: How to Calculate Them and What They Mean
Module 3 – Internal Analysis
39
Key Financial Ratios: How to Calculate Them and What They Mean
Module 3 – Internal Analysis
40
Identifying the Components of a Single-Business Company’s Strategy
Module 3 – Internal Analysis
41
Identifying Valuable Company Capabilities
v A capability concerns the proficiency with which a company can perform an activity
v In general, the competitive value of a company’s capability to perform an activity
depends on two factors:
Ø The proficiency a company has achieved in performing the activity
Ø The role of the activity in the company’s strategy and its importance to the company’s
competitive success and performance
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
42
Identifying Valuable Company Capabilities
v There are four competitively relevant levels of capability:
Ø Minimal capability – achieved when a company has performed an activity one or more times but
still lacks the proficiency needed to perform the activity consistently well and at acceptable cost
Ø A demonstrated competence in performing an activity
Ø A core competence – a demonstrated competence in performing a competitively relevant activity
that is central to the company’s strategy
Ø A distinctive competence – the capability to perform a competitively valuable activity better than
any other company in the industry
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
43
Examples of Company Capabilities
v Specific skills and expertise (like proficiencies in low-cost manufacturing, picking locations for new stores, or
designing an unusually appealing and functional social media website)
v Proficiency in a single discipline or function that is performed in a single department or organizational unit
v Inherently multidisciplinary and cross-functional activities that are the result of effective collaboration among
people with different expertise working in different organizational units
Ø
A capability in continuous product innovation, for example, comes from teaming the efforts of people and groups with
expertise in market research, new product R&D, design and engineering, cost-effective manufacturing, and market
testing
Virtually all organizational capabilities are knowledge based,
residing in people and in a company’s intellectual capital
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
44
A Core Competence –
A Competitively Valuable Capability
v A proven capability takes on a higher level of competitive value and becomes a core
competence when a company achieves a high level of proficiency in performing an
activity that is central to its strategy and competitiveness.
v A core competence is a more competitively valuable capability because
Ø It adds power to a company’s strategy
Ø This added power, in turn, positively impacts
ü The company’s efforts to compete successfully against rivals
ü The company’s ability to achieve its financial and strategic objectives
ü The company’s overall performance
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
45
Examples of Core Competencies
v A core competence can relate to any of several aspects of a company’s business and strategy:
Ø Expertise in product innovation
Ø Expertise in developing new and more efficient production technologies
Ø Expertise in marketing
Ø Skills in manufacturing a high-quality product at a low cost
Ø Strong capability to fill customer orders accurately and swiftly
Often, the most valuable core competencies are grounded in cross-department combinations of
knowledge and expertise rather than being the product of a single department or work group
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
46
A Distinctive Competence –
A Very Competitively Valuable Capability
v A core competence rises to an even higher level of competitive importance and becomes a
distinctive competence when a company is able to achieve sufficiently high proficiency to
perform a competitively important activity better than its rivals
v A distinctive competence thus represents a greater proficiency (and a stronger capability) than
a core competence
v Because a distinctive competence represents a level of proficiency that rivals do not have, it
qualifies as a competitively superior capability with competitive advantage potential
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
47
Why a Distinctive Competence Matters
vA distinctive competence adds real power to a firm’s strategy and
provides a pathway to competitive advantage when:
Ø It relates to an activity important to competitive success
Ø Rival companies do not have offsetting competencies or capabilities
Ø It is costly and time-consuming for rivals to imitate the competence
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
48
Faculty of Management
COMM 4351: Competitive Strategy
v A particular resource or capability which may not seem to have much
competitive value by itself can be much more valuable when bundled
with certain other company resources and/or capabilities (that also,
taken singly, appear to lack “high” competitive value).
Ø For example, Nike’s resource bundle of styling expertise, professional endorsements, well-regarded
brand name and image, marketing and brand-building skills, network of distributors/retailers, and
managerial know-how has provided sufficient competitive power for Nike to remain the dominant
global leader in athletic footwear and sports apparel for over 20 years
Astute Bundling of a Company’s Resources and Capabilities
Can Result in Added Competitive Power
Module 3 – Internal Analysis
49
Faculty of Management
COMM 4351: Competitive Strategy
vThe competitive power of a resource or capability is measured by
how many of the following four tests it can pass:
1.
Does the resource or capability have competitive value? Valuable
2.
Do many or most rivals have much the same resource or capability? Rare
3.
Is the resource or capability hard to copy? Inimitable
4.
Can the value of a resource or capability be trumped by substitute resources and
capabilities of rivals? Non-substitutable
Ways to Test the Competitive Power of a Resource or Capability
Module 3 – Internal Analysis
50
Faculty of Management
COMM 4351: Competitive Strategy
• Source of Differentiation
• Identify > Cultivate > Exploit
• Characteristics
• Provide potential access to
variety of markets
• Make significant contribution to
Co
re
C
om
pe
ten
cy
perceived customer benefits of
end product
• Difficult for competitors to
An
aly
sis
nV
Valuable
nR
Rare
nI
Hard to Imitate
nN Non-Substitutable
emulate
Module 3 – Internal Analysis
51
Core Competency Analysis
Is a resource or capability…
Valuable Difficult
(V)
to Imitate (I)
Rare
(R)
Non Substitutable(N)
No
No
No
No
Competitive disadvantage
Yes
No
No
No
Competitive parity
Yes
No
Yes
No
Temporary competitive
advantage
Yes
Yes
Yes
Yes
Sustainable competitive
advantage
Module 3 – Internal Analysis
Implications
for Competitiveness
52
A Company’s Important Resources and Capabilities Must Be Dynamic and
Freshly-Honed to Sustain Its Competitiveness
v Why is it important for a company to keep competencies updated and on the cutting-edge?
v It often takes freshly-honed and sometimes totally refurbished or altogether new
resources/capabilities
Ø To effectively respond to ongoing changes in customer needs and expectations
Ø To protect a company’s long-term competitiveness against the improving resources/capabilities and strategic
maneuvering of rivals to steal away customers
Ø To help maintain or improve its performance over the long-term
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
53
Dynamic Capabilities – What to Do?
v Management’s challenge in developing dynamic capabilities has two
elements:
1.
Attending to ongoing recalibration of existing competencies and capabilities
2.
Casting a watchful eye for opportunities to develop totally new capabilities for
delivering better customer value and/or outcompeting rivals
Keeping company competencies freshly honed and on the
cutting edge is a strategically important top management task.
Faculty of Management
COMM 4351: Competitive Strategy
Module 3 – Internal Analysis
54
Complete Module 3 Activities
Module 3 – Internal Analysis
55
COMM 4351
Competitive Strategy
Module 2 – External Analysis
1
Faculty of Management
COMM 4351: Competitive Strategy
Learning Objectives
v Describe the elements that constitute an
organization’s general environment and their impact
on strategy and performance
v Recognize why environmental scanning, monitoring
and competitive intelligence are critical inputs
v Demonstrate proficiency in the use of the PESTEL
analysis tool
Module 2 – External Analysis
2
Faculty of Management
COMM 4351: Competitive Strategy
Learning Objectives
• Identify the competitive environment and delineate
industry boundaries
• Demonstrate how forces in the competitive
environment can affect performance and how
position is improved by increasing power vis-à-vis
those forces
• Interpret whether an industry’s outlook presents
sufficiently attractive opportunities
• Demonstrate proficiency in the use of the Five Forces
analysis tool
Module 2 – External Analysis
3
Faculty of Management
COMM 4351: Competitive Strategy
Understanding the Factors that Determine a Company’s Situation
§ Diagnosing a company’s situation has two facets
v Assessing the company’s external or macro-environment
☆ Industry and competitive conditions
☆ Forces acting to reshape this environment
v Assessing the company’s internal or micro-environment
⭐ Market position and competitiveness
⭐ Competencies, capabilities, resource strengths and
weaknesses, and competitiveness
Module 2 – External Analysis
4
Source: Adapted from Arthur A. Thompson and Glo-Bus Software, Inc.
Module 2 – External Analysis
5
Faculty of Management
COMM 4351: Competitive Strategy
Thinking Strategically About a Company’s Macro-environment
v A company’s macro-environment includes all relevant factors and influences outside its
boundaries
v Diagnosing a company’s external situation involves assessing strategically important
factors that have a bearing on the decisions a company’s makes about its
Ø Direction
Ø Objectives
Ø Strategy
Ø Business model
v Requires that company managers scan the external environment to
Ø Identify potentially important external developments
Ø Assess their impact and influence
Ø Adapt a company’s direction and strategy as needed
Module 2 – External Analysis
6
Creating the Environmentally Aware Organization
Module 2 – External Analysis
7
Faculty of Management
COMM 4351: Competitive Strategy
Environmental Scanning
Surveillance of a firm’s external environment
v Predict environmental changes to come
v Detect changes already under way
v Proactive mode
Module 2 – External Analysis
8
Faculty of Management
COMM 4351: Competitive Strategy
Environmental Monitoring
Track Evolution of
v Environmental Trends
v Sequences of Events
v Streams of Activities
Module 2 – External Analysis
9
Faculty of Management
COMM 4351: Competitive Strategy
Competitive Intelligence
vDefine and understand a firm’s industry
vIdentify rivals’ strengths and weaknesses
Ø Intelligence gathering (data)
Ø Interpretation of intelligence data
vHelps a firm avoid surprises
Module 2 – External Analysis
10
Faculty of Management
COMM 4351: Competitive Strategy
What Competitive Intelligence Is and Is Not
Competitive Intelligence Is …
Competitive Intelligence Is Not …
1. Information that has been
1.
Spying. Spying implies illegal or
analyzed to the point where
unethical activities. It is a rare
you can make a decision.
activity.
2. A tool to alert management to
2.
A crystal ball. CI is good
early recognition of both threats
approximation of reality; it does
and opportunities.
not predict the future.
3. A means to deliver
3.
reasonable assessments.
4. A way of life, a process.
Module 2 – External Analysis
Database search. Data by itself is
not good intelligence.
4.
A job for one smart person.
11
Faculty of Management
COMM 4351: Competitive Strategy
Environmental Forecasting
vPlausible projections about
ØDirection of environmental change
ØScope of environmental change
ØSpeed of environmental change
ØIntensity of environmental change
vScenario analysis
Module 2 – External Analysis
12
Creating the Environmentally Aware Organization
Module 2 – External Analysis
13
Source: Adapted from Arthur A. Thompson and Glo-Bus Software, Inc.
Module 2 – External Analysis
14
Module 2 – External Analysis
15
Political
Technological
Factors
Factors
Economic
Conditions
PESTEL
Analysis
Environmental
Factors
Sociocultural
Legal/Regulatory
Forces
Conditions
Module 2 – External Analysis
16
Faculty of Management
COMM 4351: Competitive Strategy
Political Factors
Macro
Environment
vPolicy Decisions
ØDeregulation of utility and other industries
vIncreases in minimum wages
vTaxation rates / changes
vGoverning Party
vPolitical / social unrest

Module 2 – External Analysis
17
Faculty of Management
COMM 4351: Competitive Strategy
Economic Conditions
(local to worldwide)
vInterest rates
Macro
Environment
vUnemployment
vConsumer Price index
vTrends in GDP
vChanges in stock market valuations
vCurrency exchange rates
vEmergence of the Indian and Chinese economies
vTrade agreements among regional blocs (NAFTA, EU, ASEAN)
vCreation of WTO (decreasing tariffs/free trade in services)
Module 2 – External Analysis
18
Faculty of Management
COMM 4351: Competitive Strategy
Sociocultural Forces
vMore women in the workforce
vIncrease in temporary workers
Macro
Environment
vGreater concern for fitness
vGreater concern for environment
vPostponement of family formation
vAging population
vChanges in ethnic composition
vGeographic distribution of population
vRising Affluence / Greater disparities in income levels
Module 2 – External Analysis
19
Faculty of Management
COMM 4351: Competitive Strategy
Technological Factors
vGenetic engineering
Macro
Environment
vEmergence of Internet technology
vComputer-aided design/computer-aided manufacturing
systems (CAD/CAM)
vResearch in synthetic and exotic materials
vMiniaturization of computing technologies
vWireless technology
Module 2 – External Analysis
20
Faculty of Management
COMM 4351: Competitive Strategy
Environmental Factors
(the natural environment)
Macro
Environment
vPollution
vGlobal warming / climate change
vIncreasing landfills
vDepletion of Ozone layer
vCO2 emissions
vDecreasing polar ice cap
Module 2 – External Analysis
21
Faculty of Management
COMM 4351: Competitive Strategy
Legal / Regulatory Conditions
Macro
Environment
vHuman Rights Legislation
vRepeal of Glass-Steagall Act in 1999
vDeregulation of utility and other industries
vLegislation on corporate governance reforms
(Sarbanes-Oxley Act)
Module 2 – External Analysis
22
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23
Source: Adapted from Arthur A. Thompson and Glo-Bus Software, Inc.
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Key Questions Regarding the
Industry and Competitive Environment
What competitive
forces do industry
members face, and
how strong are
they?
What forces are
driving change in
the industry?
What strategic
moves are rivals
likely to make
next?
What market
positions do
rivals occupy?
What are the key
factors for future
competitive
success?
Module 2 – External Analysis
Is the industry
outlook conducive
to good
profitability?
25
Question 1: What Competitive Forces Do Industry Members Face?
The state of competition in an industry is a composite of five competitive forces:
1. The market maneuvering and jockeying for buyer patronage among rival
sellers in the industry
2. The threat of new entrants into the market
3. The attempts of companies in other industries to win buyers over to their own
substitute products
4. The exercise of supplier bargaining power
5. The exercise of buyer (or customer) bargaining power
Faculty of Management
COMM 4351: Competitive Strategy
Module 2 – External Analysis
26
The Five-Forces Model
of Competition:
A Key Analytical tool
Source: Adapted from Arthur A. Thompson and Glo-Bus Software, Inc.
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27
How to Analyze the Five Competitive Forces
Step 1
Identify the specific competitive pressures
associated with each of the five forces.
Step 2
Evaluate how strong the pressures comprising
each of the five forces are (fierce, strong,
moderate to normal, or weak).
Step 3
Determine whether the collective strength of
the five competitive forces is conducive to
earning attractive profits.
Faculty of Management
COMM 4351: Competitive Strategy
Module 2 – External Analysis
28
The “Weapons” That Can Be Used to Battle Rivals
• Reducing prices; granting
special discounts to win the
business of particular buyers
• Introducing more or different
features
• Building a bigger/better dealer
network
• Offering low interest rate
financing
• Offering coupons
• Innovating to improve product
performance or quality
• Improving customer service
• Running ads to inform buyers of
new or special features and/or to
strengthen brand awareness or
brand image
• Improving warranties
• Having periodic sales
promotions, holding clearance
sales, advertising items on sale
• Improving selection of models
and styles
Module 2 – External Analysis
• Allowing buyers to customize
what they buy
• Providing quicker or cheaper
delivery
• Developing competitively
valuable capabilities rivals
don’t have
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Characterizing Industry Rivalry
Cutthroat
or Brutal
When competitors engage in protracted price wars or
habitually undertake other aggressive strategic moves
that prove mutually destructive to profitability, causing
many/most industry members to lose money
Fierce to
Strong
When the battle for market share is so vigorous that the
profit margins of most industry members are squeezed to
sub-par or even bare-bones levels
Moderate
or Normal
When the maneuvering among industry members, while
lively and healthy, still allows most industry members to
earn acceptable profits
Weak
When most industry firms are relatively well satisfied with
their sales growth and market shares, rarely undertake
offensives to steal customers away from one another, and because of weak competitive forces – earn consistently
good profits and returns on investment
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Faculty of Management
COMM 4351: Competitive Strategy
v Industry Growth Rate
v Switching Costs
v Strong brand preferences and high degrees of customer loyalty to the brands they are
currently purchasing
v High Fixed Costs / Capacity / Inventory
v Numerous or Equally Balanced Competitors
v Diversity of Firms
v Exit Barriers
Factors That Affect Rivalry
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Faculty of Management
COMM 4351: Competitive Strategy
The Factors Affecting the Strength of Rivalry
Module 2 – External Analysis
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Faculty of Management
COMM 4351: Competitive Strategy
v The size of the pool of entry candidates and the resources at
their command to hurdle the entry barriers
v The expected reaction of existing industry members to the
entry of newcomers
v How attractive the industry’s growth and profit prospects
are to potential entrants
Competitive Pressures Associated with the
Threat of Potential Entry
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Faculty of Management
COMM 4351: Competitive Strategy
v Cost advantages held by industry incumbents
v Strong brand preferences and high degrees of customer loyalty to the brands they are
currently purchasing
v High capital requirements
v The difficulties of building a network of distributors or retailers and securing space on
retailers’ shelves
v Restrictive or costly regulatory policies that limit/bar new entrants
v Tariffs and international trade restrictions
v The likelihood that industry incumbents will strongly resist entrants’ efforts to secure a
profitable volume of sales
Common Barriers to Entry
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Faculty of Management
COMM 4351: Competitive Strategy
Factors Affecting the Threat of Entry
Module 2 – External Analysis
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Faculty of Management
COMM 4351: Competitive Strategy
v Companies in one industry come under competitive pressure from the actions of
companies in a closely adjoining industry whenever buyers view the products of the two
industries as good substitutes
v Examples of substitutes
Ø Attending movies at theaters versus subscribing to Netflix
Ø Cell …
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