CHAPTER 4

EVALUATING COMPANY
RESOURCES AND
COMPETITIVE
CAPABILITIES
Screen graphics created by:
Jana F. Kuzmicki, PhD, Mississippi University for Women

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 What is the Strategy?
 Identify competitive approach
 Low-cost leadership
 Differentiation
 Focus on a particular market niche
 Determine competitive scope
 Stages of industry’s production/distribution
chain
 Geographic coverage
 Customer base
 Identify functional strategies
 Examine recent strategic moves
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 Question 2: What Are the Firm’s Strengths,
Weaknesses, Opportunities and Threats ?
 S W O T represents the first letter in
 S trengths S W
 W eaknesses
 O pportunities
 T hreats O T
 For a company’s strategy to be well-
conceived, it must be matched to both
 Resource strengths and
weaknesses
 Best market opportunities and
external threats to its well-being
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 Identifying Resource Strengths
and Competitive Capabilities
 A strength is something a firm does well or a characteristic
that enhances its competitiveness
 Valuable competencies or know-how
 Valuable physical assets
 Valuable human assets
 Valuable organizational assets
 Valuable intangible assets
 Important competitive capabilities
 An attribute that places a company in
a position of market advantage
 Alliances or cooperative ventures with capable partners

Resource strengths and competitive capabilities are

competitive assets !
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 Identifying Resource Weaknesses
and Competitive Deficiencies
 A weakness is something a firm lacks,
does poorly, or a condition placing it at a
disadvantage
 Resource weaknesses relate to
 Deficiencies in know-how or
expertise or competencies
 Lack of important physical,
organizational, or intangible assets
 Missing capabilities in key areas
Resource weaknesses and deficiencies
are competitive liabilities !
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 Table 4.1: SWOT Analysis -
What to Look For
Potential Resource Potential Resource Potential Company Potential External
Strengths Weaknesses Opportunities Threats

• Powerful strategy • No clear strategic • Serving additional • Entry of potent new

• Strong financial direction customer groups competitors
condition • Obsolete facilities • Expanding to new • Loss of sales to
geographic areas substitutes
• Strong brand name • Weak balance
image/reputation sheet; excess debt • Expanding product • Slowing market
line growth
• Widely recognized • Higher overall
market leader costs than rivals • Transferring skills • Adverse shifts in
to new products exchange rates &
• Proprietary • Missing some key trade policies
technology skills/competencies • Vertical integration
• Costly new
• Cost advantages • Subpar profits • Take market share regulations
• Strong advertising • Internal operating
from rivals • Vulnerability to
• Product innovation problems . . . • Acquisition of business cycle
rivals • Growing leverage of
skills • Falling behind in
• Good customer R&D • Alliances or JVs to customers or
expand coverage suppliers
service • Too narrow
product line • Openings to exploit • Reduced buyer
• Better product
new technologies needs for product
quality • Weak marketing
skills • Openings to extend • Demographic
• Alliances or JVs changes
brand name/image

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 Competencies vs. Core Competencies
vs. Distinctive Competencies
 A company competence is the product of
organizational learning and experience and
represents real proficiency in performing an internal
activity

 A core competence is a well-performed internal

activity that is central (not peripheral or incidental) to a
company’s competitiveness and profitability

 A distinctive competence is a competitively

valuable activity that a company performs better
than its rivals

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 Company Competencies and Capabilities
 Stem from skills, expertise, and experience
usually representing an
 Accumulation of learning over time and
 Gradual buildup of real proficiency in
performing an activity
 Involve deliberate efforts to develop the ability to do
something, often entailing
 Selection of people with requisite knowledge and
expertise
 Upgrading or expanding individual abilities
 Molding work products of individuals into a cooperative
effort to create organizational ability
 A conscious effort to create intellectual capital

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 Core Competencies: A
Valuable Company Resource
 A competence becomes a core competence when
the well-performed activity is central to the company’s
competitiveness and profitability
 Often, a core competence results from
collaboration among different parts of an
organization
 Typically, core competencies reside
in a company’s people, not in assets
on the balance sheet
 A core competence gives a company a potentially
valuable competitive capability and represents a
definite competitive asset
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 Distinctive Competence -- A
Competitively Superior Resource
 A distinctive competence is a competitively
significant activity that a company performs better
than its competitors
 A distinctive competence
 Represents a competitively
capability rivals do not have #1
valuable

 Presents attractive potential for

being a cornerstone of strategy
 Can provide a competitive edge in the
marketplace—because it represents a
competitively superior resource strength
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 Examples: Distinctive Competencies
 Sharp Corporation
 Expertise in flat-panel display technology
 Toyota, Honda, Nissan
 Low-cost, high-quality manufacturing capability
and short design-to-market cycles
 Intel
 Ability to design and manufacture ever more
powerful microprocessors for PCs
 Motorola
 Defect-free manufacture (six-sigma quality) of
cell phones
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 Determining the Competitive
Value of a Company Resource
 To qualify as the basis for sustainable
competitive advantage, a “resource” must
pass 4 tests
1. Is the resource hard to copy ?
2. Does the resource have staying power --
is it durable ?
3. Is the resource really competitively
superior ?
4. Can the resource be trumped by the
different capabilities of rivals ?
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 Identifying External Threats
 Emergence of cheaper/better technologies
 Introduction of better products by rivals
 Intensifying competitive pressures
 Onerous regulations
 Rise in interest rates
 Potential of a hostile takeover
 Unfavorable demographic shifts
 Adverse shifts in foreign exchange rates
 Political upheaval in a country
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