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Implementing Competitive Strategies with SWOT and Value Chain Analysis

Learn how to implement competitive strategies using SWOT analysis, focusing on goal execution, value chain analysis, and the balanced scorecard. Expand your strategy to include sustainability.

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Implementing Competitive Strategies with SWOT and Value Chain Analysis

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  1. Chapter 2 Implementing Strategy: The Balance Scorecard and the Value Chain

  2. Learning Objectives • Explain how to implement a competitive strategy by using Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis • Explain how to implement a competitive strategy by focusing on the execution of goals • Explain how to implement a competitive strategy by using value chain analysis

  3. Learning Objectives • Explain how to implement a competitive strategy using the balanced scorecard • Explain how to expand the balanced scorecard by integrating sustainability

  4. Implementing Competitive Strategies • There are various means for implementing competitive strategies: • SWOT Analysis • Focus on Execution • Value Chain Analysis • Balanced Scorecard • The firm might also choose to expand its competitive strategy to the broader social and environmental settings in which the firm operates

  5. Learning Objective One Explain how to implement a competitive strategy by using Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis

  6. SWOT Analysis • SWOT analysis is a systematic procedure for identifying a firm’s critical success factors (its internal strengths and weaknesses and its external opportunities and threats) • Skills or competencies that the firm employs especially well are called “core competencies” • “core competencies” can be used as the building blocks of the firm’s overall strategy

  7. SWOT Analysis • Strengths and weaknesses are most easily identified by looking inside the firm at its specific resources: • Product lines • Research and development • Management • Manufacturing • Marketing • Strategy

  8. SWOT Analysis • Opportunities and threats are identified by looking outside the firm • Opportunities are important favorable situation in the firm’s environment • For example, the gradual aging of the u.s. population represents an advantage for firms that specialize in products and services for the elderly • Threats are major unfavorable situations in the firm’s environment • For example, threats could include the entrance of new competitors or competing products

  9. SWOT Analysis • Opportunities and threats can be identified most easily by analyzing the industry and the firm’s competitors: • Barriers to entry • Intensity of rivalry among competitors • Pressure from substitute products • Bargaining power of customers • Bargaining power of suppliers

  10. SWOT Analysis • A final step in SWOT analysis is to identify quantitative measures for the Critical Success Factors (CSFs) • For example, at this step the firm converts the CSF of customer service to a quantitative measure (such as the number of customers complaints or a customer satisfaction score)

  11. SWOT Analysis • Developing measures for the CSFs involves a careful study of the firm’s business processes • Various functions, such as the following, are investigated to determine in which specific ways these functions contribute to the firm’s success: • Product development • Manufacturing • Marketing • Management • Financial

  12. Measuring Critical Success Factors Insert Exhibit 2.1

  13. Learning Objective Two Explain how to implement a competitive strategy by focusing on the execution of goals

  14. Competitive Strategy • For cost leadership firms, the CSFs are likely to relate to operational performance and quality, while differentiated firms are more likely to focus on the customer or innovation • For differential firms, the key CSFs and execution issues are in marketing and product development: • Developing customer loyalty and brand recognition • Emphasizing superior and unique products • Developing and using detailed and timely information about customer needs and behavior

  15. Effects of Competitive Strategy on Required Skills and Execution Insert Exhibit 2.2

  16. Benchmarking and Total Quality Improvement • Both cost leadership and differentiation firms also can improve on execution through benchmarking and total quality improvement • The Malcolm Baldrige National Quality Program sets forth improvement criteria and awards firms that excel on these criteria • Another resource for benchmarking is the International Organization for Standardization (a network of national standards institutes from 145 countries)

  17. Learning Objective Three Explain how to implement a competitive strategy by using value chain analysis

  18. Value Chain Analysis • Value chain analysis is a strategic analysis tool used to: • better understand the firm’s competitive advantage • identify where value to customers can be increased or costs reduced • better understand the firm’s linkages with suppliers, customers, and other firms in the industry

  19. Value Chain Analysis • The value-chain analysis focuses on the product’s total value chain, from its design to its manufacture to its service after the sale • The underlying concept of the analysis is that each individual firm occupies a selected part of parts of this entire value chain • The determination of which part or parts of the value chain to occupy is a strategic analysis based on the consideration of comparative advantage for the individual firm

  20. Steps in Value Chain Analysis • Value chain analysis has two steps: • Identify the value-chain activities • The firm identifies the specific value activities that firms in the industry must perform in the processes of designing, manufacturing, and providing customer service • Develop a competitive advantage by reducing cost or adding value • The firm determines the nature of its current and potential competitive advantage by studying the value activities and cost drivers identified earlier

  21. Value-Chain for the Computer-Manufacturing Industry Insert Exhibit 2.4

  22. Develop a Competitive Advantage • In this step, the firm must consider the following: • Identify competitive advantage (cost leadership or differentiation) • Identify opportunities for added value • Identify opportunities for reduced cost • Exploit linkages among activities in the value chain

  23. Value-Chain Analysis for CIC Manufacturing Company Insert Exhibit 2.5 (Value-Chain Analysis) Here

  24. Learning Objective Four Explain how to implement a competitive strategy using the balanced scorecard

  25. The Balanced Scorecard • The Balanced Scorecard (BCS) is a performance report based on a broad set of both financial and nonfinancial measures • The BSC provides a comprehensive performance measurement tool that reflects all the measures critical for the success of the firm’s strategy • BSC enables the firm to employ a strategy-centered performance measurement system that focuses managers’ attention on critical success factors and rewards them for achieving these critical factors

  26. The Balanced Scorecard • The Balanced Scorecard consists of four perspectives (groupings of critical success factors): • financial perspective • customer perspective • internal process perspective • learning and innovation

  27. The Balanced Scorecard • The Balanced Scorecard provides four key benefits: • a means for implementing strategy • a framework firms can use to achieve a desired organizational change in strategy • a fair and objective basis for firms to use in determining each manager’s compensation and advancement • a framework that coordinates efforts within the firm to achieve critical success factors

  28. The Balanced Scorecard • The Balanced Scorecard must be designed and used to: • Provide accurate measures for each of the elements of the scorecard • Assure that the information is handled confidentially where appropriate • Require timely, appropriate reporting of some elements of the scorecard

  29. The Balanced Scorecard for an Electronics Firm Insert Exhibit 2.6 (Balanced Scorecard) Here

  30. The Strategy Map • It is also possible to create a strategy map by linking the perspectives in the order they contribute to the overall success of the firm • A strategy map is a cause-and-effect diagram of the relationships among the BSC perspectives • For many firms, the learning and innovation perspective is the base upon which the firm’s success is built • For most firms, the ultimate goal is stated in financial performance (for public firms, in shareholder value)

  31. A Strategy Map for Dell Computer Insert Exhibit 2.7 (Strategy Map) Here

  32. Learning Objective Five Explain how to expand the balanced scorecard by integrating sustainability

  33. Sustainability Sustainability is the balancing of short-term and long-term goals in all three dimensions of the company’s performance (economic, social and environmental)

  34. Environmental Performance Indicators (EPIs) • Environmental Performance Indicators are the CSFs in a sustainability perspective • EPIs are defined in the following three categories by the World Resources Institute: • Operational indicators • Management indicators • Environmental condition indicators

  35. Operational Indicators • Firms sometimes give the operational indicators the greatest attention, since they often deal with regulatory compliance issues • The operation indicators include four areas: • Material used in manufacturing and other operations • Energy used (including different fuel types) • Waste, nontoxic waste of materials and energy • Pollutants released to the air water, or earth (including toxic waste and greenhouse gasses)

  36. Summary • SWOT analysis helps to implement strategy by providing a system and structure in which to identify the firm’s critical success factors • Value-chain analysis builds on the CSF’s developed in the first step by breaking them down in to detailed activities • The balanced scorecard provides a way to implement the detailed strategy developed through SWOT analysis and value-chain analysis by providing the processes for evaluating the firm’s achievement of the CSFs needed for success

  37. Linking Strategic Resources for Strategy Implementation Insert Exhibit 2.8

  38. Not-For-Profit Organizations • Competitive strategy is somewhat different in not-for-profit or governmental organizations than in for-profit organizations • However, the balanced scorecard can still be used to monitor and evaluate the organization’s performance on the key internal processes, customer satisfaction, human resources, and key financial measures

  39. Not-For-Profit Organizations • The value-chain analysis involves four steps: • Develop a statement of the organization’s broad social mission • Develop resources for the organization • Operate the organization • Deliver its service to the public

  40. End of Chapter Two

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