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CHAPTER 4
EVALUATING A COMPANYS
RESOURCES, CAPABILITIES,
AND COMPETITIVENESS
1. Learn how to assess how well a companys strategy is

working.
2. Understand why a companys resources and capabilities are
central to its strategic approach and how to evaluate their
potential for giving the company a competitive edge over rivals.
3. Discover how to assess the companys strengths and
weaknesses in light of market opportunities and external
threats.
4. Grasp how a companys value chain activities can affect the
companys cost structure and customer value proposition.
5. Understand how a comprehensive evaluation of a companys
competitive situation can assist managers in making critical
decisions about their next strategic moves.
42
EVALUATING A FIRMS
INTERNAL SITUATION
1. How well is the firms present strategy working?
2. What are the firms competitively important resources and

capabilities?
3. Is the firm able to take advantage of market opportunities and
overcome external threats to its external well-being?
4. Are the firms prices and costs competitive with those of key
rivals, and does it have an appealing customer value
proposition?
5. Is the firm competitively stronger or weaker than key rivals?
6. What strategic issues and problems merit front-burner
managerial attention?
43
QUESTION 1: HOW WELL IS THE FIRMS

PRESENT STRATEGY WORKING?
Best indicators of a well-conceived,

well-executed strategy:
The firm is achieving its stated financial and

strategic objectives.
The firm is an above-average industry performer.
44
FIGURE 4.1 Identifying the Components of a Single-Business Companys Strategy
p. 56
45
SPECIFIC INDICATORS OF
STRATEGIC SUCCESS
Growth in firms sales and market share
Acquisition and retention of customers
Strengthening image and reputation with customers
Increasing profit margins, net profits and ROI
Growing financial strength and credit rating
Leadership in factors relevant to market\industry

success
Continuing improvement in key measures of operating

performance
46
TABLE 4.1
Key Financial
Ratios
Read Carefully Text pp. 57 to 60 - For Quiz
47

TABLE 4.1
Key Financial
Ratios
48
TABLE 4.1
Key Financial
Ratios

49
TABLE 4.1
Key Financial
Ratios

410
QUESTION 2: WHAT ARE THE FIRMS

COMPETITIVELY IMPORTANT
RESOURCES AND CAPABILITIES?
Competitive Assets
Are the firms resources and capabilities.
Are the determinants of its competitiveness and

ability to succeed in the marketplace.
Are what a firms strategy depends on to develop

sustainable competitive advantage over its rivals.
411
IDENTIFYING THE COMPANYS

RESOURCES AND CAPABILITIES
A Resource
Is a productive input or competitive asset that is

owned or controlled by a firm (e.g., a fleet of oil
tankers).
A Capability
Is the capacity of a firm to perform some activity

proficiently (e.g., superior skills in marketing).
412
TABLE 4.2
Types of Company Resources
Tangible Resources
Physical resources
Financial resources
Technological assets
Organizational resources
Intangible Resources
Human assets and intellectual capital
Brands, company image, and reputational assets
Relationships: alliances, joint ventures, or partnerships
Company culture and incentive system
413
QUESTION 3: IS THE COMPANY ABLE

TO SEIZE MARKET OPPORTUNITIES
AND NULLIFY EXTERNAL THREATS?
SWOT Analysis
Is a powerful tool for sizing up a firms:
Internal strengths (the basis for strategy)
Internal weaknesses (deficient capabilities)
Market opportunities (strategic objectives)
External threats (strategic defenses)
414
IDENTIFYING A COMPANYS
INTERNAL STRENGTHS
A Competence
A Core Competence
Is an activity that a firm has learned to perform with

proficiencya capability.
Is a proficiently performed internal activity that is
central to a firms strategy and competitiveness.
A Distinctive Competence
Is a competitively valuable activity that a firm

performs better than its rivals.
415
IDENTIFYING A FIRMS WEAKNESSES

AND COMPETITIVE DEFICIENCIES
A Weakness (Competitive Deficiency)
Is something a firm lacks or does poorly (in

comparison to others) or a condition that puts it
at a competitive disadvantage in the marketplace.
Types of Weaknesses:
Inferior skills, expertise, or intellectual capital
Deficiencies in physical, organizational, or

intangible assets
Missing or competitively inferior capabilities

in key areas
416
IDENTIFYING A COMPANYS
MARKET OPPORTUNITIES
Characteristics of Market Opportunities:
An absolute must pursue market
A marginally interesting market
Represents much potential but is hidden

in fog of the future.
Presents high risk and questionable profit
potential.
An unsuitable\mismatched market
Is best avoided as the firms strengths are

not matched to market factors.
417
IDENTIFYING THE THREATS TO A

FIRMS FUTURE PROFITABILITY
Types of Threats:
Normal course-of-business threats
Sudden-death (survival) threats
Considering Threats:
Identify the threats to the firms future prospects.
Evaluate what strategic actions can be taken to

neutralize or lessen their impact.
418
TABLE 4.3
What to Look for in Identifying a Firms Strengths,

Weaknesses, Opportunities, and Threats
419
TABLE 4.3
What to Look for in Identifying a Firms Strengths,

Weaknesses, Opportunities, and Threats (contd)
420
THE CONCEPT OF A COMPANY

VALUE CHAIN
The Value Chain
Identifies the primary internal activities that create

and deliver customer value and the requisite related
support activities.
Permits a deep look at the firms cost structure and

ability to offer low prices.
Reveals the emphasis that a firm places on activities

that enhance differentiation and support higher prices.
421
FIGURE 4.3
A Representative Company Value Chain
422
FIGURE 4.4
A Representative Value Chain System
423
ILLUSTRATION CAPSULE 4.1
The Value Chain for KP

MacLane,
a producer of Polo Shirts
424
iPhone Produces $360 profit for Apple
Foxconn
http://en.wikipedia.org/wiki/Foxconn
Inside Your iPhone. New York Times July 5, 2010

http://www.nytimes.com/imagepages/2010/07/05/technology
20100706-iphone-graphic.html?ref=technology
Labor Cost Comparison Auto Worker
US autoworker with benefits

South Korean worker
Mexican worker
Some Chinese workers
Source: Washington Post 5/11/09
$54/hr
$22/hr
$10/hr
$3/hr
QUESTION 5: IS THE FIRM

COMPETITIVELY STRONGER OR
WEAKER THAN KEY RIVALS?
Assessing the firms overall competitive

strength:
How does the firm rank relative to competitors

on each of the important factors that determine
market success?
Does the firm have a net competitive advantage

or disadvantage versus major competitors?
427
From Chapter 3:
Key Success Factors
Are the strategy elements, product and service

attributes, operational approaches, resources, and
competitive capabilities that are necessary for
competitive success by any and all firms in an
industry.
Vary from industry to industry, and over time within
the same industry, as drivers of change and
competitive conditions change.
From Chapter 3:
Identification of Key Success Factors

1. What product attributes and service features
strongly affect buyers when choosing between
the competing brands of sellers?
2. What resources and competitive capabilities
are required for a firm to execute a successful
strategy in the marketplace?
3. What shortcomings will put a firm at a
significant competitive disadvantage?
Examples of KEY SUCCESS FACTORS - KSFs
THE COMPETITIVE STRENGTH

ASSESSMENT PROCESS
Step 1
Make a list of the industrys key success factors

and measures of competitive strength or
weakness (6 to 10 measures usually suffice).
Step 2
Assign a weight to each competitive strength

measure based on its perceived importance.
Step 3
Rate the firm and its rivals on each competitive

strength measure and multiply by each measure
by its corresponding weight.
431
TABLE 4.4
A Representative Weighted Competitive Strength Assessment
432
FORD CEOs 1993 to present

Alan Mulally: September 5, 2006 to present.
Executive Chairman William Clay Ford, Jr.: September 5, 2006 to
present.
William Clay Ford, Jr.: October 30, 2001 to September 5, 2006
Jacques Nasser: January 1, 1999 - 2001
Alex Trotman: November 1993 - December 31, 1998
Ford acquired the British sports car maker Aston Martin in 1989, later selling
it on March 12, 2007, and bought Volvo Cars of Sweden in 1999, selling it to
Zhejiang Geely Holding Group in 2010.
In November 2008 it reduced its 33.4% controlling interest in Mazda of
Japan, to a 13.4% non-controlling interest. Ford reduced their stake further
to just 3%, citing the reduction of ownership would allow greater flexibility to
pursue growth in emerging markets. Ford and Mazda remain strategic
partners through joint ventures and exchanges of technological information.
It shares an American joint venture plant in Flat Rock, Michigan called Auto
Alliance with Mazda.
Ford sold the United Kingdom-based Jaguar and Land Rover companies
and brands to Tata Motors of India in March 2008.
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CHAPTER 4

1. Learn how to assess how well a companys strategy is

1. How well is the firms present strategy working?

2. What are the firms competitively important resources and

QUESTION 1: HOW WELL IS THE FIRMS

Best indicators of a well-conceived,

The firm is achieving its stated financial and

The firm is an above-average industry performer.

FIGURE 4.1 Identifying the Components of a Single-Business Companys Strategy

Growth in firms sales and market share

Acquisition and retention of customers

Strengthening image and reputation with customers

Increasing profit margins, net profits and ROI

Growing financial strength and credit rating

Leadership in factors relevant to market\industry

Continuing improvement in key measures of operating

Read Carefully Text pp. 57 to 60 - For Quiz

Read Carefully Text pp. 57 to 60 - For Quiz

Read Carefully Text pp. 57 to 60 - For Quiz

Read Carefully Text pp. 57 to 60 - For Quiz

QUESTION 2: WHAT ARE THE FIRMS

Are the firms resources and capabilities.

Are the determinants of its competitiveness and

Are what a firms strategy depends on to develop

IDENTIFYING THE COMPANYS

Is a productive input or competitive asset that is

Is the capacity of a firm to perform some activity

Types of Company Resources

QUESTION 3: IS THE COMPANY ABLE

Is a powerful tool for sizing up a firms:

Internal strengths (the basis for strategy)

Internal weaknesses (deficient capabilities)

Market opportunities (strategic objectives)

External threats (strategic defenses)

Is an activity that a firm has learned to perform with

Is a competitively valuable activity that a firm

IDENTIFYING A FIRMS WEAKNESSES

A Weakness (Competitive Deficiency)

Is something a firm lacks or does poorly (in

Inferior skills, expertise, or intellectual capital

Deficiencies in physical, organizational, or

Missing or competitively inferior capabilities

Characteristics of Market Opportunities:

An absolute must pursue market

A marginally interesting market

Represents much potential but is hidden

Is best avoided as the firms strengths are

IDENTIFYING THE THREATS TO A

Normal course-of-business threats

Sudden-death (survival) threats

Identify the threats to the firms future prospects.

Evaluate what strategic actions can be taken to

What to Look for in Identifying a Firms Strengths,

What to Look for in Identifying a Firms Strengths,

THE CONCEPT OF A COMPANY

The Value Chain

Identifies the primary internal activities that create

Permits a deep look at the firms cost structure and

Reveals the emphasis that a firm places on activities