Crafting and executing strategy the quest for competitive advantage concepts 21st edition thompson s

Crafting and Executing Strategy Concepts and Cases The Quest for Competitive Advantage 21st

Edition by Thompson Peteraf Gamble and Strickland

ISBN 1259732789 9781259732782

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Chapter Summary

Chapter 4 discusses the techniques of evaluating a company’s internal circumstances its resource capabilities, relative cost position, and competitive strength versus rivals. The analytical spotlight will be trained on six questions: 1) How well is the company’s present strategy working? 2) What are the company’s most important resourcesand capabilities, and willtheygive thecompanya lasting competitive advantage overrivalcompanies?

3)What are the company’s strengths and weaknesses in relation to the market opportunities and external threats?

4) How do a company’s value chain activities impact its cost structure and customer value proposition? 5) Is the company competitively stronger or weaker than key rivals? 6) What strategic issues and problems merit frontburner managerial attention?

Lecture Outline

I. Question 1: How Well is the Company’s Present Strategy Working?

ACTIVITY

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1. In evaluating how well a company’s present strategy is working, a manager has to start with what the strategy is.

2. Figure 4.1, Identifying the Components of a Single-Business Company’s Strategy, shows the key components of a single-business company’s strategy

3. The firstthing to pin down is the company’s competitive approach.

4. The three best indicators of how well a company’s strategy is working are:

a. Whether the company is achieving its stated financialand strategic objectives

b. Whether its financialperformance is above the industry average

c. Whether it is gaining customers and increasing its market share

5. Other indicators of how well a company’s strategy is working include:

a. Trends in the company’s sales and earnings growth

b. Trends in the company’s stock price

c. The company’s overall financialstrength

d. The company’s customer retention rate

e. The rate at which new customers are acquired.

f. Evidence of improvement in internal processes such as defect rate, orderfulfillment, delivery times, days of inventory, and employee productivity.

6. The stronger a company’s current overall performance, the less likely the need for radical changes in strategy. The weaker a company’s financial performance and market standing, the more its current strategymustbequestioned.Weakperformanceisalmostalwaysasignofweakstrategy,weakexecution, or both.

7. Table 4.1 Key Financial Ratios: How to Calculate Them and What They Mean, provides a detailed list of profitability ratios, liquidity ratios, leverage ratios, activity ratios, and other important measures of financial performance. The stronger a company’s financial performance and market position, the more likely it has a well-conceived, well-executed strategy.

II. Question 2: What are the Company’s Most Important Resources and Capabilities and will they give the Company a Lasting CompetitiveAdvantage?

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CORE CONCEPT

A company’sresources and capabilitiesrepresent its competitive assets and are big determinants of its competitiveness and ability to succeed in the marketplace

ntifying the Company’s Resources and Capabilities

t is essential that managers be able to identify the company’s resources and capabilities in raft strategy Resource and capability analysis is a powerful tool for sizing up a company’s co ssets and determining if they can support a sustainable competitive advantage over market ri

1. order to mpetitive vals.

CORE CONCEPT

Resource and capability analysis is a powerful tool for sizing up a company’s competitiveassets and determining if they can support a sustainable competitive advantage over market rivals

CORE CONCEPT

A resource is a competitiveasset that is owned or controlled by a company; a capability or competence is the capacity of a firmto perform some internal activity competently Capabilities are developed and enabled through the deployment of a company’s resources

2. Table 4.2 Types of Company Resources, provides a detailed list of both tangible and intangible resources found in most firms.

3. Identifying Capabilities Organizational capabilities are more complex than resources and are harder to categorize and search out.

4. Two methods for identifying capabilities are available:

a. Start with a list of resources since capabilities are built from resources and look for clues about the types of capabilities the firmis likely to have accumulated

b. Start with a list of functions within the organization as capabilities are largely derived from key functional components of the organization.

CORE CONCEPT

Aresource bundle is a linked and closely integrated set of competitive assets centered around one or more cross-functional capabilities.

B. Assessing the Competitive Power of a Company’s Resources and Capabilities Determining if a company’s resources and capabilities are potent enough to produce a sustainable competitive advantage is based upon four tests of competitive power. A sustainable competitive advantage is an advantage over market rivals that persists despite effortsof the rivals to overcome it.

CORE CONCEPT

The VRIN tests for sustainable competitive advantage ask if a resource is Valuable, Rare, Inimitable, and Non-substitutable

1. The Four Tests of a Resource’s Competitive Power:

a. Is the resource or capability competitively valuable Is it directly relevant to the company’s strategy.

b. Is the resource or capability rare Is it something rivals lack.

c. Is the resource or capability hard to copy Inimitable

d. Is the resource invulnerable to the threat of substitution from different types of resources and capabilities Non-substitutable

CORE CONCEPT

Social complexity and casual ambiguity are two factors that inhibit the ability of rivals to imitate a firm’s most valuable resources and capabilities Casual ambiguity makes it very hard to figure out how a complex resource or capability contributes to competitive advantage and therefore exactly what to imitate

6. A company’s resources and capabilities must be managed dynamically. This requires a constantly evolving portfolio to sustain its competitiveness and help drive improvements in its performance.

CORE CONCEPT

Adynamic capability is the capacity of a company to modify its existing resources and capabilities to create new ones

7. TheRoleofDynamicCapabilities Companiesthatknowtheimportanceofrecalibratingandupgrading their most valuable resources and capabilities ensure that these activities are done on a continual basis. At that point, their ability to freshen and renew their competitive assets becomes a capability in itself a dynamic capability.

III. Question 3: What are the Company’s Strengths and Weaknesses in Relation to the Market Opportunities and Nullify External Threats?

ACTIVITY

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1. Appraising a company’s resource strengths and weaknesses and its external opportunities and threats, commonly known as SWOT analysis, provides a good overview of whether its overall situation is fundamentally healthy or unhealthy. A first-rate SWOT analysis provides the basis for crafting a strategy that capitalizes on the company’s resources, aims squarely at a capturing the company’s best opportunities, and defends against competitive and macro-environmental threats.

CORE CONCEPT

SWOT analysis is a simple but powerful tool for sizing up a company’s resource capabilities and deficiencies, its market opportunities, and the external threats to its future well-being .

2. Identifying a Company’s Internal Strengths A strength is something a company is good at doing or an attribute that enhances its competitiveness in the marketplace. One of the most important aspects of appraising a company’s resource strengths has to do with its competence level in performing key pieces of its business. Company competencies can range from merely a competence in performing an activity to a core competence to a distinctive competence.

3. Assessing a Company’s Competencies WhatActivities Does It Perform Well?

a. A competence is something an organization is good at doing. It is nearly always the product of experience, representing an accumulation of learning and the buildup of proficiencyin performing an internal activity

b. A core competence is a proficiently performed internal activity that is central to a company’s strategy and competitiveness.

c. Adistinctive competence is a competitively importantactivity thata company performs betterthan its rivals.

CORE CONCEPT

A competence is an activity that a company has learned to perform with proficiency a capability, in other words

CORE CONCEPT

A core competence is a competitively important activity that a company performs better than other internal activities .

d. Theconceptualdifferencesbetweenacompetence,acorecompetence,andadistinctivecompetence draw attention to the fact that competitive capabilities are not all equal.

4. Identifying a Company’s Weaknesses and Competitive Deficiencies A weakness or competitive deficiency is something a company lacks or does poorly in comparison to others or a condition that puts it at a disadvantage in the marketplace.

CORE CONCEPT

A company’sstrengths represent its competitiveassets; its weaknesses are shortcomings that constitute competitive liabilities.

5. Identifying a Company’s Market Opportunities Seeking out attractive opportunities is a critical management function.

a. A company is well advised to pass on a particular market opportunity unless it has or can acquire the resources to capture it.

b. The market opportunities most relevant to a company are those that match up well with the company’s competitive assets, offer the best prospects for growth and profitability,and present the most potential for competitive advantage.

6. Identifying the External Threats to a Company’s Future Profitability Certain factors in a company’s external environment pose threats to its profitabilityand competitive well-being.

7. Table 4.3 What to Look for in Identifying a Company’s Strengths, Weaknesses, Opportunities, and Threats, provides a detailed list of potential strengths and competitive assets, potential weaknesses and competitive deficiencies, potential market opportunities, and potential external threats to a company’s future profitability.

8. What do the SWOT listings Reveal SWOT analysis involves more than making four lists. The two most important parts of SWOT analysis are:

a. The final piece of SWOTanalysis is to translate the diagnosis of the company’s situation into actions for improving the company’s strategy and business prospects.Acompany’s internal strengths should always serve as the basis of its strategy placing heavy reliance on a company’s best competitive assets is the soundest route to attracting customers and competing successfully against rivals.

b. As a rule, strategies that place heavy demands on areas where the company is weakest or has unproven competencies should be avoided.

c. Figure 4.2 The Steps Involved in SWOT Analysis, details the process and results of a comprehensive SWOT analysis.

IV. Question 4: How do a Company’s Value Chain Activities Impact its Cost Structure and Customer Value Proposition?

ACTIVITY

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1. One of the most telling signs of whether a company’s business position is strong or precarious is whether its prices and costs are competitive with industry rivals.

2. Regardless of where on the quality spectrum a company competes, it must remain competitive in terms of its customer value proposition in order to stay in the game.

3. Two analytical tools are particularly useful in determining whether a company’s costs and customer valuepropositionarecompetitiveandthusconducivetowinninginthemarketplace:valuechainanalysis and benchmarking.

A. The Concept of a Company’s Value Chain

CORE CONCEPT

Acompany’s value chain identifies the primary activities that create customer value and the related support activities

1. Figure4.3,ARepresentativeCompanyValueChain,depictsthelinkedsetofvaluecreatingactivities. A company’s cost competitiveness depends not only on the costs of internally performed activities (its own value chain) but also on costs in the value chain of its suppliers and forward channel allies.

2. The value chain consists of two broad categories of activities:

a. Primary activities: foremost in creating value for customers

b. Support activities: facilitate and enhance the performance of primary activities

3. Illustration Capsule 4.1, American Giant: Using the Value Chain to Compare Costs of Producing a Hoodie intheU.S.andAsia,showsrepresentativecosts for variousactivities performedbytheproducers and marketers of apparel.

ILLUSTRATION CAPSULE 4.1

The Value Chain for Boll & Branch

Discussion Question: What are the total costs associated with producing and shipping a king size set of sheets to the end customer? How their ‘direct to customer’ market strategy translate into competitiveadvantage Boll & Branch? In what way can the company utilize this advantage?

Answer: According to the information provided in the table, the total cost to the company for a king size set of sheets is $154.38, resulting in a profit of $95 62 given a retail price of $25000 Byselling direct to the consumer, the company can cut out additional margins required for a traditional distribution channel.

The company can use this advantage to a)provide extra operating profit, b) provide extra funding for competitive activities such as R&D or Marketing, or c)provide reduced pricing to gain market share

4. Comparing the Value Chains of Rival Companies The primary purpose of value chain analysis is to facilitate a comparison, activity-by-activity, of how effectively and efficiently a company delivers value to its customers, relative to its competitors.

5. A Company’s Primary and Secondary Activities Identify the Major Components of Its Internal Cost Structure The combined costs of all the various primary and support activities comprising a company’s value chain defineits internal cost structure.

B. The Value Chain System

1. A company’s value chain is embedded in a larger system of activities that includes the value chains of its suppliers and the value chains of whatever wholesale distributors and retailers it utilizes in getting its product or service to end users.

2. The value chains of the distribution channel partners are also relevant because they impact the final retail price the consumer sees and impact sales volume and customer satisfaction.

3. Accurately assessing a company’s competitiveness in end-use markets requires that company managers understand the entire value chain system for delivering a product or service to end-users, not just the company’s own value chain.

4. Figure 4.4, A Representative Value Chain for an Entire Industry, explores a value chain for an entire industry

C. Benchmarking:AToolforAssessingWhethertheCosts and Effectiveness of a Company’sValueChain ActivitiesAre in Line

1. Benchmarking entails comparing how differentcompanies perform various value chain activities.

CORE CONCEPT

Benchmarking is a potent tool for improving a company’s own internal activities that is based on learning how other companies perform them and borrowing their “best practices.”

2. ompared

Abestpracticeisamethodofperforminganactivitythatconsistentlydeliverssuperiorresultsc o other approaches.

CORE CONCEPT

A best practice is a method of performing an activity that consistently delivers superior results compared to other approaches.

3. The tough part of benchmarking is not whether to do it but rather how to gain access to information about other companies’practices and costs.

4. The explosive interest of companies in benchmarking costs and identifying best practices has prompted consulting organizations and several associations to gather benchmarking data, distribute information about best practices, and provide comparative cost data without identifying the names of particular companies.

5. Illustration Capsule 4.2, Benchmarking and Ethical Conduct, lists some guidelines with regard to benchmarking and ethical conduct.

Delivered-Cost Benchmarking in the Cement Industry

Discussion Question: Delivered-Cost Benchmarking in the Cement Industry can be broken down into five elements: fixed-bin, variable-bin, freight-to-terminal, terminal operating, and freight-to-customer costs. Where can Cement Companies find opportunities for improvement or competitiveadvantage within these five elements of cost?

Answer: The firsttwo categories of cost are company internal and consequently difficult to estimate while the logistics costs are relatively easy to estimate when based upon common carrier data. Companies can find opportunities to improve in any area where their costs are higher than Industry Leaders or Industry Averages, and can build competitive advantage in areas where they lead the Industry. The company’s abilityto develop accurate cost estimates for fixed-bin and variable-bin costs can in itself be a competitive advantage in that itallows an accurate comparative analysis.

ACTIVITY

Consider adding a File Attachment assignment requiringthe student to develop a graphic showing the elements of Delivered Cost in the Cement Industry and CEMEX in particular Have the student include details on the costs of each element relative to industry averages as well as a discussion of how the analysis informs competitiveadvantage You can post instructions for the student within the assignment and collect their attachments for grading.

D. Strategic Options for Remedying a Cost Disadvantage

1. Value chain analysis and benchmarking can reveal a great deal about a firm’scost competitiveness.

2. There are three main areas in a company’s overall value chain where important differencesin the costs of competing firms can occur: a company’s own activity segments, suppliers’ part of the industry value chain, and the forward channel portion of the industry chain.

3. Improving Internally Performed Value Chain Activities - Managers can pursue any of several strategic approaches to reduce the costs of internally performed value chain activities and improve a company’s cost competitiveness:

a. They can implement best practices throughout the company, particularly for high-cost activities

b. They can redesign the product and/or some of its components to eliminate high-cost components or facilitate speedier and more economical manufacture or assembly

c. They can relocate high-cost activities (such as manufacturing) to geographic areas where they can be performed more cheaply or outsource activities to lower-cost vendors or contractors

4. To improve the effectiveness of the company’s customer value proposition and enhance differentiation, managers can take several approaches:

a. They can adopt best practices for quality, marketing, and customer service

b. They can reallocate resources to activities that address buyers’ most important purchase criteria, which will have the biggest impact on the value delivered to the customer

c. They can adopt new technologies that spur innovation, improve design, and enhance creativity

5. Improving Supplier-Related Value ChainActivities can be approached in three ways:

a. Pressuring suppliers for lower prices

b. Switching to lower-priced substitute inputs

c. Collaborating closely with suppliers to identify mutual cost-saving opportunities

6. Improving Value Chain Activities of Distribution Partners: There are three main ways to combat a cost disadvantage in the forward portion of the industry value chain:

a. Pressure dealer-distributors and other forward channel allies to reduce their costs and markups.

b. Collaborate with forward channel allies to identify win-win opportunities to reduce costs.

c. Change to a more economical distribution strategy, including switching to cheaper distribution channels or perhaps integrating forward into company-owned retail outlets.

F. Translating ProficientPerformance of Value ChainActivities into CompetitiveAdvantage

1. Acompany’s value-creating activities can offera competitive advantage in one of two ways:

a. They can contribute to greater efficiency and lower costs relative to competitors

b. They can provide a basis for differentiation, so customers are willing to pay relatively more for the company’s goods and services.

2. How Value ChainActivities Relate to Resources and Capabilities:

a. An organizational capability or competence implies a capacity for action; in contrast, a valuecreating activity initiates the action.

b. There is a dynamic relationship between a company’s activities and its resources and capabilities; they contribute to the formation and development of capabilities.

V. Question 5: Is the Company Competitively Stronger or Weaker Than Key Rivals? ACTIVITY

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1. Competitive Strength Assessment Using value chain analysis and benchmarking to determine a company’s competitiveness on price and cost is necessary but not sufficient.

2. The answers to two questions are of particular interest:

a. How does the company rank relative to competitors on each of the important factors that determine market success?

b. Does the company have a net competitive advantage or disadvantage to major competitors?

3. An easy method for answering the questions posed above involves developing quantitative strength ratings for the company and its key competitors on each industry key success factor and each competitively decisive resource capability

4. The followings are steps for compiling a competitive strength assessment:

a. Step 1: make a list of the industry’s key success factors and most telling measures of competitive strength or weakness

b. Step 2: assign weights to each of the measures based upon perceived importance

c. Step 3: rate the firm and its rivals on each factor and multiply the rating by the weight to obtain the score for each measure

d. Step 4: sum the weighted scores for measure to get an overall measure of competitive strength for each company being rated

e. Step 5: use the overall strength ratings to draw conclusions about the size and extent of the company’s net competitive advantage or disadvantage and to take specificnote of areas of strengths and weaknesses

5. Table 4.4, A Representative Weighted Competitive Strength Assessment, provides an example of a weighted competitive strength assessment.

6. Using a weighted rating system is more effective because the different measures of competitive strength are unlikely to be equally important.

7. Summing a company’s weighted strength ratings for all the measures yields an overall strength rating. Comparisons of the weighted overall strength scores indicate which competitors are in the strongest and weakest competitive positions and who has how big a net competitive advantage over whom.

8. Strategic Implications of Competitive StrengthAssessments:

a. The strength ratings provide guidelines for designing wise offensiveand defensive strategies

b. When a company has important competitive strengths in areas where one or more rivals are weak, it makes sense to consider offensivemoves to exploit rivals’competitive weaknesses.

c. When a company has important competitive weaknesses in areas where one or more rivals are strong, it makes sense to consider defensive moves to curtail its vulnerability

VI. Question 6: What Strategic Issues and Problems Merit Front-Burner ManagerialAttention?

ACTIVITY

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1. The finaland most important analytical step is to zero in on exactly what strategic issues that company managers need to address and resolve for the company to be more financially and competitively successful in the years ahead.

2. This step involves drawing on the results of both industry and competitive analysis and the evaluations of the company’s own competitiveness.

3. Zeroing in on the strategic issues a company faces and compiling a “worry list” of problems and roadblocks creates a strategic agenda of problems that merit prompt managerial attention.

4. A good strategy must contain ways to deal with all the strategic issues and obstacles that stand in the way of the company’s financialand competitive success in the years ahead.

ACTIVITY

Use the Question Bank to build a quiz for the chapter to measure and reinforce learning. Consider using the questions you select to build a comprehensive mid-term and final exam for the course. The assignment can be graded and posted automatically

ASSURANCEOF LEARNING EXERCISES

1. Using the financial ratios provided in Table 4.1 and the financial statement information presented below for Costco Wholesale Corporation, calculate the following ratios for Costco for both 2013 and 2014:

a. Gross profitmargin

b. Operating profitmargin

c. Net profitmargin.

d. Times interest earned coverage

e. Return on shareholders’equity

f. Return on assets

g. Debt-to-equity ratio

h. Days of inventory

i. Inventory turnover ratio

j. Average collection period

Based on these ratios, did Costco’s financial performance improve, weaken, or remain about the same from 2013 to 2014?

ACTIVITY

This Assurance of Learning exercise is available as a Connect Assignment. The assignment can be graded and posted automatically

Response:

The student should prepare the following analysis:

a. Gross profit margin Gross profit margin equals (sales cost of goods sold) divided by (sales). For Costco, this is represented in the following equations:

2014 ($112,640M $98,458M) / ($112,640M) = 0.1259 or 12.59%

2013 ($105,156M $91,948M) / ($105,156M) = 0.1256 or 12.56 % [largely flat,increase but slight]

b. Operating profit margin Operating profit margin equals (operating income) divided by (sales). For Costco, this is represented in the following equations:

2014 ($3,220M) / ($112,640M) = 0.0286 or 2.86%

2013 ($3,053M) / ($105,156M) = 0.0290 or 2.90% [largely flat,decrease but slight]

c. Net profit margin Net profit margin equals (profits after taxes) divided by (sales). For Costco, this is represented in the following equations:

2014 ($2,058M) / ($112,640M) = 0.0183 or 1.83 %

2013 ($2,039M) / ($105,156M) = 0.0194 or 1.94 % [unfavorable, decrease but slight]

d. Times-interest-earned (coverage) ratio Times-interest-earned equals (operating income) divided by (interest expense). For Costco, this is represented in the following equations:

2014 ($3,220M) / ($113M) = 28.50

2013 ($3,053M) / ($99M) = 30.83 [downward trend is unfavorable]

e. Return on shareholders’ equity ROE or return on stockholders’ equity equals (profits after taxes) divided by (total stockholders’equity). For Costco, this is represented in the following equations:

2014 ($2,058M) / ($12,303M) = 0.1673 or 16.73%

2013 ($2,039M)/($11,012M)= 0.1852 or 18.52% [unfavorable decrease, however both above average]

f. Return on assets ROAor net return on total assets equals (profits after taxes) divided by (total assets). For Costco, this is represented in the following equations:

2014 ($2,058M) / ($33,024M) = 0.0657 or 6.51%

2013 ($2,039M) / ($30,283M) = 0.0706 or 7.06% [unfavorable decrease]

g. Debt-to-equity ratio Debt-to-equity equals (total debt) divided by (total stockholders’ equity). For Costco, this is represented in the following equations:

2014 ($20,509M) / ($12,303M) = 1.67

2013 ($19,271M) / ($111,012M) = 1.75 [favorable decrease]

h. Days of inventory Days of inventory equals (inventory) divided by (Cost of goods sold divided by 365). For Costco, this is represented in the following equations:

2014 ($8,456M) / ($98,458M/365 days) = 31.35 days

2013 ($7,894M) / ($91,948M/365 days) = 31.34 days [flat;trend of fewer days of inventory is better]

i. Inventory turnover ratio Inventory turnover ratio equals (Cost of goods sold) divided by (inventory). For Costco, this is represented in the following equations:

2014 ($98,458M) / ($8,456M) = 11.64 turns per year

2013 ($91,948M) / ($7,894M) = 11.65 turns per year [largely flat, slight decrease; trend of higher turns of inventory is better]

j. Average collection period Average collection period equals (accounts receivable) divided by (total sales divided by 365). For Costco, this is represented in the following equations:

2014 ($1,148M) / ($112,640M /365 days) = 3.72 days

2013 ($1,201M) / ($105,156M /365 days) = 4.17 days [favorable decrease; very short turn time is favorable]

Performance Analysis The student should identify that overall, Costco’s financial performance is flat from 2013. The most significant change is in net profit number Despite the small changes in measures the student must keep in mind the significant increase/decrease in performance reflected given the size of the firm’s revenue. Another highlight the student might discuss is the very short Average Collection Period of 3.72 days which continues to shrink year over year Taken together with the large revenue of the firm, this represents a significantamount of cash flowwithin the company

2. Panera Bread operates more than 1,900 bakery-cafés in more than 45 states and Canada. How many of the four tests of the competitive power of a resource does the store network pass? Using your general knowledge of this industry, perform a SWOT analysis. Explain your answers.

Response:

The student might identify the following items in their analysis of competitive power:

1. Is the resource or capability competitively valuable Is it directly relevant to the company’s strategy The combination of product and the experience provided by the store are the most essential components of Panera Bread’s value proposition.

2. Is the resource or capability rare Is it something rivals lack. Other companies are able to copy many features of the store but few have the quantity of stores or are able to provide the same high quality product and service to include the production ofArtisan Bread as a distinctive competency

3. Is the resource or capability hard to copy Is it built over time or unique As stated, the product and the experience provided by Panera Bread copied. It is however cost prohibitive and therefore ‘hard to copy.’

4. Can the resource or capability be trumped by different types of resources or capabilities. Are good substitutes available for the resource or capability. For someone looking for a predictable ‘specialty food’experience few substitutes exist.

Thestudentshouldidentifythatwhentakentogether,thesefactorsshowPaneraBreadhasstrongcompetitive power in the Fast Casual sector

The student might identify the following in their SWOT analysis:

Strengths:

• Strong brand image

• Financially strong with strong annual revenue

• Distinctive competency in providingArtisan Bread

• High quality food from reputable suppliers

• Tight control on food ingredients

Weaknesses:

• Exclusive NorthAmerican focus

• Declining same store sales

• Store layout not conducive to high volume

Opportunities:

• Growing fast-casual dining markets in the US and in Europe

• Customer awareness of healthy food options

• Growing demand for on-line ordering and store pickup

Threats:

• Fast casual sector is growing, providing increased competition

• Fast casual competitor Chipotle has international presence

• Potential increase in minimum wage laws will increase costs

The student might highlight the threat provided by increased competitive pressure in the Fast Casual sector combined with the weakness of only focusing in the North American markets could be overcome by leveraging the opportunity of engaging in Market Development in Europe. The company could use its combined strengths to successfully pursue this opportunity and make the transition.

3. Review the information in Illustration Capsule 4.1 concerning Boll & Branch’s average costs of producing and selling a king-size sheet set, and compare this with the representative value chain depicted in Figure 4.3. Then answer the following questions:

• Which of the company’s costs correspond to the primary value chain activities depicted in Figure 4.3?

• Which of the company’s costs correspond to the support activities described in Figure 4.3?

• What value chain activities might be important in securing or maintaining Boll & Branch’s competitive advantage? Explain your answer.

ACTIVITY

This Assurance of Learning exercise is available as a Connect Assignment. The assignment can be graded and posted automatically

Response:

The student should identify that the primary activities are those that create value for customers while support activities facilitate and enhance the performance of the primary activities. The cost information provided in Figure 4.3 highlights costs associated with Supply Chain Management, Operations, Distribution, and Marketing and therefore all are primary value chain costs. Costs associated with Product R&D, Human Resource Management, and General Administrative activities are not disclosed so the student cannot gain insight into the support activities. From Table 4.3, the student should be able to identify that offshore production at very attractive costs and direct shipment to end customers are key in securing competitive advantage and a high gross margin.

4. Using the methodology illustrated in Table 4.3 and your knowledge as an automobile owner, prepare a competitive strength assessment for General Motors and its rivals Ford, Chrysler, Toyota, and Honda. Each of the five automobile manufacturers should be evaluated on the key success factors/strength measures of: cost competitiveness, product line breadth, product quality and reliability, financial resources and profitability, andcustomerservice.Whatdoesyourcompetitivestrengthassessmentdiscloseabouttheoverall competitiveness of each automobile manufacturer? What factors account most for Toyota’s competitive success? Does Toyota have competitive weaknesses that were disclosed by your analysis? Explain.

Response:

1. The student should identify Key Success Factors in the automotive industry sector being evaluated, which include:

• Quality / Product Performance

• Reputation / Image

• Product Portfolio

• Manufacturing Capability

• Technological Skills

• Dealer Network / Distribution Capability

• New Product Innovation Capability

• Financial Resources

• Relative Cost Position

2. The Key Success Factors should be assigned weights based on how important they feel the factor is relative to other factors. The total of all weights should equal 1 (100%).

3. Each company should be graded from 0-10 for each factor and that grade should be multiplied by the weight for the factor score.

4. The total of all weighted scores will be the relative Competitive Strength of the company

5. The student should use published data included annual reports and industry watchdog reports to develop their grades in each factor The grading must be consistent for each company in order for the results to have validity. The student should be provided with latitude in determining factors and weights that they feel are relevant to success in the industry. The condition should be that they can substantiate their selections.

6. Table 4.3 provides an example of what an automotive industry Competitive StrengthAssessment should look like.

7. The student should be able to determine numerically any specific areas where Toyota has competitive weaknesseswhencomparedtotheothercompetitors.Further,thestudentshouldbeabletoidentifywhich competitors have an advantage over Toyota as related to specific Key Success Factors. In this way, the student can determine the basis of competition between specificcompetitors and Toyota.