STRATEGY:

Core Concepts and

Analytical Approaches
7th Edition (2022-2023)
Arthur A. Thompson
The University of Alabama

Chapter 4
Evaluating a
Company’s Resources
and Ability to Compete
Successfully

This digitally-delivered material contains proprietary intellectual content intended solely for the use of (1) Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. All rights reserved.
authorized instructors and (2) students or other participants that are duly registered for the ValuePak versions Not for distribution to non-registrants without permission. An e-book published and
of either The Business Strategy Game or GLO-BUS strategy simulations, both of which have been developed distributed by McGraw Hill Education Burr Ridge, Illinois
and copyrighted by Glo-Bus Software, Inc.
 Before executives can chart a new strategy, they must
reach common understanding of the company’s current
position.
—W. Chan Kim and Rene Mauborgne

Organizations succeed in a competitive marketplace

over the long run because they can do certain things
their customers value better than can their competitors.
—Robert Hayes, Gary Pisano, and David Upton

A new strategy nearly always involves acquiring new

resources and capabilities
—Laurence Capron and Will Mitchell

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–2

 Learning Objectives
1. Learn how to determine whether a firm’s strategy is
working well and to evaluate the competitive power of a
firm’s resources and capabilities.
2. Understand the meaning and significance of company
and industry value chains.
3. Gain proficiency in using four analytical tools to
evaluate a firm’s ability to compete successfully:
SWOT analysis, value chain analysis, benchmarking,
and competitive strength assessment.
4. Learn what to look for in identifying the strategic issues
company managers must address.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–3

 Chapter 4 Roadmap
Evaluating a Firm’s Resources and Its Ability to Compete
Successfully: The Six Questions to Answer
Question 1: How well is the firm’s present strategy working?
Question 2: What are the firm’s important resources and capabilities and
do they have the competitive power to enable the company to
build and/or sustain a competitive advantage over rivals?
Question 3: Are the firm’s resources and capabilities attractive and
well-matched to its market opportunities and external threats?
Question 4: Are the firm’s prices and costs competitive with those of key
rivals and does it have an attractive customer value
proposition?
Question 5: Is the firm competitively stronger or weaker than key rivals?
Question 6: What strategic issues and problems merit front-burner
managerial attention?

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–4

 Evaluating a Firm’s Ability to Compete
Successfully: Six Key Questions
The analytical spotlight in evaluating a firm’s resources and ability to
compete successfully is trained on six questions:
• How well is the firm’s present strategy working?
• What are the firm’s important resources and capabilities, and do
they have the competitive power to enable the firm to build and/or
sustain a competitive advantage over rival companies?
• Does the firm have attractively strong resource capabilities and how
well do they match its market opportunities and the external threats
to its future well-being?
• Are the firm’s prices and costs competitive with those of key rivals,
and does it have an appealing customer value proposition?
• Is the firm competitively stronger or weaker than key rivals?
• What strategic issues and problems merit front-burner managerial
attention?
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–5
 Question 1: How Well Is the
Firm’s Present Strategy Working?
Begin by understanding what its strategy is:
• Identify the firm’s competitive approach
• Lower-costs relative to rivals?
• A different or better product/service?
• Superior ability to serve a particular
market niche or group of buyers?
• Determine its competitive scope
• Broad or narrow geographic market coverage?
• Wide or narrow product line?
• Examine recent strategic moves
• Identify functional strategies
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–6
FIGURE 4.1 Identifying the Components of a Single-Business
Company’s Strategy

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. Access alternative text for slide image 4–7
 Key Indicators of How Well
a Firm’s Strategy Is Working

• The three best indicators:

• Whether the firm is meeting or beating its financial and strategic
performance targets

• Whether the firm is an above-average industry performer

• 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.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–8

 Other Good Indicators of How Well
a Firm’s Strategy Is Working
• 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.
• 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.
• Whether the firm’s image and reputation with its customers is growing
stronger or weaker.
• Whether the firm’s profit margins are increasing or decreasing.
• Trends in the firm’s net profits and return on investment and how these
compare to the same trends for rival companies.
• Whether the firm’s overall financial strength, credit rating, key financial
and operating ratios, and cash flows from operations are improving, 4–9
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc.
 Strategic Insight

Sluggish financial performance and second-rate

market accomplishments almost always signal
weak strategy, weak execution, or both.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–10

 Evaluating a Company’s Financial
Performance
• Accurate diagnosis of a company’s financial
performance and financial statements requires
some number-crunching.
• The financial ratios in Table 4.1 provide guidance
and direction in what numbers need to be
calculated and how to interpret them.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–11

TABLE 4.1 Key Financial Ratios: How to Calculate Them and What They Mean

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–12

TABLE 4.1 Key Financial Ratios: How to Calculate Them and What They Mean

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–13

TABLE 4.1 Key Financial Ratios: How to Calculate Them and What They Mean

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–14

TABLE 4.1 Key Financial Ratios: How to Calculate Them and What They Mean

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–15

 Question 2: What Are the Firm’s Resources and Capabilities and Do
They Have the Competitive Power to Enable the Firm to Build and/or
Sustain a Competitive Advantage Over Rivals?
A firm’s resources and capabilities are competitive assets and determine
whether its competitive power in the marketplace will be impressively
strong or disappointingly weak.

• Firms with second-rate competitive assets nearly always are

relegated to a trailing position in the industry
Resource and capability analysis is a two-step process for determining
whether a firm’s competitive assets can provide the foundation necessary
for competitive success in the marketplace.
1. Identify the firm’s competitively important resources and capabilities.
2. Evaluate the competitive power of these resources and
capabilities—whether they are potent enough for the firm to be
competitively successful and perhaps achieve a sustainable
competitive advantage over rival firms

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–16

 Identifying a Firm’s Valuable Resources

• Any asset or productive input that a firm owns or controls

qualifies as a resource.
• Firms typically have many kinds and types of resources
• More importantly, a firm’s resources tend to vary widely in quality,
competitive relevance, and competitive value

• Our interest here is not in cataloging every resource a firm

has but rather in identifying those resources that are
competitively relevant, then assessing their competitive
value and evaluating the degree to which they can
underpin its strategy.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–17

 Types of Competitively Relevant and Valuable
Company Resources
Competitively relevant and potentially valuable resources can relate to:
• Physical resources—natural-resource deposits, real estate, store locations, plants,
equipment, and distribution facilities

• 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

• Organizational and technological resources—quality control systems, proprietary

technology, information systems, patents, just-in-time inventory systems

• Financial resources—cash on hand, balance sheet strength, credit rating, and

strength of access to additional financial capital

• Intangible assets—brand names, buyer loyalty and goodwill, trademarks, company

image and reputation

• 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
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–18
 Identifying Valuable Company Capabilities
A capability concerns the proficiency with which a company can perform
an activity.
In general, the competitive value of a company’s capability to perform an
activity depends on two factors:
• The proficiency a company has achieved in performing the activity
• The role of the activity in the company’s strategy and its importance to the
company’s competitive success and performance
There are four competitively relevant levels of capability:
• 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
• A demonstrated competence in performing an activity
• A core competence—a demonstrated competence in performing a
competitively relevant activity that is central to the company’s strategy
• A distinctive competence—the capability to perform a competitively valuable
activity better than any other company in the industry
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–19
 A Competitive Competence
A firm’s proficiency in performing an activity rises from that
of minimal capability to the level of a proven competence
when it demonstrates enough proficiency to perform the
activity consistently well and at acceptable cost
• Usually, competence in performing an activity begins with a
deliberate effort to develop the capability to do it once or twice.
Then, as experience builds consistent proficiency in performing
the activity at an acceptable cost, the activity evolves into a true
competence and capability.
The competitive value of a competence is directly related to
a firm’s strategy and competitive success or whether it has
minimal bearing on a firm’s competitiveness (like routine
maintenance or administering benefit programs).

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–20

 Core Concept

A firm has a competence in performing an activity

when, over time, it gains the experience,
know-how, and proficiency to perform that activity
consistently well and at acceptable cost.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–21

 Examples of Company Competencies
• 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)
• Proficiency in a single discipline or function that is performed in a
single department or organizational unit
• Inherently multidisciplinary and cross-functional activities that are the
result of effective collaboration among people with different expertise
working in different organizational units
• A competence 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 and proven competencies

are knowledge based, residing in people and in a company’s
intellectual capital
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–22
 A Core Competence—A Competitively
Valuable Capability
• A proven competence takes on a higher level of competitive
value and becomes a core competence when a firm
achieves a high level of proficiency in performing an activity
that is central to its strategy and competitiveness.
• A core competence is a more competitively valuable
capability than a competence because
• It adds power to a firm’s strategy
• This added power, in turn, positively impacts
• The firm’s efforts to compete successfully against rivals
• The firm’s ability to achieve its financial and strategic
objectives
• The firm’s overall performance
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–23
 Core Concept

A core competence is an activity that a firm

performs consistently well and is also central to its
strategy and competitiveness.
A core competence is a more important capability
than a competence because it adds power to a
firm’s strategy and has a bigger positive impact on
its competitive strength and profitability.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–24

 Examples of Core Competencies

• A core competence can relate to any of several aspects of

a company’s business and strategy:
• Expertise in product innovation
• Expertise in developing new and more efficient production
technologies

• Expertise in marketing
• Skills in manufacturing a high-quality product at a low cost
• 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
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–25
A Distinctive Competence—A Very Competitively
Valuable Capability
• A core competence rises to a higher level of competitive
importance and becomes a distinctive competence
when a firm achieves sufficiently high proficiency to
perform a competitively important activity better than
its rivals
• A distinctive competence thus represents a greater
proficiency (and a stronger capability) than a core
competence
• 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

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–26

 Core Concept

A distinctive competence is a competitively

important activity that a company performs better
than its rivals—it thus represents a competitively
superior capability

Because a distinctive competence represents a

competitively valuable capability that rivals do not
have, it can be a basis for sustainable competitive
advantage.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–27

 Why a Distinctive Competence Matters

• A distinctive competence adds real power to a

firm’s strategy and provides a pathway to
competitive advantage when:
• It relates to an activity important to competitive success
• Rival companies do not have offsetting competencies or
capabilities

• It is costly and time-consuming for rivals to imitate the

competence

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–28

 Core Concept

A company’s resources and capabilities represent

its competitive assets and are important
determinants of its competitiveness and ability to
succeed in the marketplace.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–29

 Astute Bundling of a Firm’s Resources
and Capabilities Can Result in Added
Competitive Power
• A particular resource or capability which may not seem to
have much competitive value by itself can often become
much more valuable when bundled with certain other
company resources and/or capabilities (that also, taken
singly, appear to lack “high” competitive value).
• 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—despite Nike’s lack of a distinctive
competence in any of these resources/capabilities.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–30

 Core Concept

A resource/capability bundle is a group of

resources and capabilities that, when linked and
integrated into a functioning whole, has greater
competitive value than the summed value of the
individual resource/capability components—in
other words, combining individual resources and
capabilities into an integrated bundle produces
a 1 +1 = 3 gain in competitive power versus
only a 1 + 1 = 2 gain when the same resources
and capabilities are unbundled.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–31

 Four Ways to Test the Competitive
Power of a Resource or Capability

The 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?
2. Do many or most rivals have much the same resource
or capability?
3. Is the resource or capability hard to copy?
4. Can the value of a resource or capability be trumped by
substitute resources and capabilities of rivals?

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–32

 Core Concept

The degree of success a company enjoys in the

marketplace is governed by the combined
competitive power of its resources and
capabilities.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–33

 Does a Firm Have a Competitively Attractive
Collection of Resources and Capabilities?

Factors to consider in evaluating the attractiveness

of a company’s set of resources, competencies,
and capabilities:
• Both core competencies and distinctive competencies
are valuable because both enhance a firm’s
competitiveness
• However, some competencies merely enable market
survival because most rivals also possess them
• Lacking an important competence or competitive
capability that rivals have can result in competitive
disadvantage
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–34
 A Firm’s Important Resources and Capabilities
Must Be Dynamic and Freshly-Honed to Sustain
Its Competitiveness

Why is it important for a firm to keep its competencies

updated and on the cutting-edge?
• It often takes freshly-honed and sometimes totally refurbished or
altogether new resources/capabilities

• To effectively respond to ongoing changes in customer needs and

expectations

• To protect a firm’s long-term competitiveness against the improving

resources/capabilities and strategic maneuvering of rivals to steal
away customers

• To help maintain or improve its performance over the long-term

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–35

 Core Concept

A company requires a dynamically evolving

portfolio of competitively valuable resources and
capabilities to sustain its competitiveness and help
drive improvements in its performance. Otherwise,
the power of its competitive assets grow stale.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–36

 Dynamic Capabilities—What to Do?

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

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–37

 Strategic Insight

Executive attention to making sure a company

always has competitively valuable resources and
capabilities that dynamically evolve and help
sustain the company’s competitiveness is a
strategically important top management task.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–38

 Question 3: What Are the Firm’s Strengths and
Weaknesses and How Do They Relate to Its
Market Opportunities and External Threats?

• SWOT analysis
• Focuses on a firm’s competitively important Strengths
and Weaknesses, its market Opportunities, and those
external Threats that can adversely impact the firm’s
well-being.

• Has considerable managerial value because it helps

managers identify all the factors needed to craft a
winning strategy that fits the firm’s overall internal and
external situation.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–39

 Core Concept
SWOT analysis is a simple but powerful tool for
sizing up a company’s competitively important
strengths and weaknesses, its market opportunities,
and the external threats to its future well-being.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–40

FIGURE 4.2 The Three Steps of SWOT Analysis: Identify, Draw
Conclusions, Translate into Strategic Action

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. Access alternative text for slide image 4–41
 Identifying Competitively Strengths

• Tying strategy to the firm’s most competitively potent

resources and capabilities is a no-risk proposition.
There’s nothing to lose and much to gain.
• If the firm’s resource strengths and capabilities turn out to
be competitively stronger than those of some or many
rivals, its business performance is certain to improve

• And, in the best-case outcome, effectively deploying

competitively valuable resources and capabilities that are
hard for rivals to copy or trump usually puts achieving a
sustainable competitive advantage within reach

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–42

 Identifying a Company’s Competitively
Important Strengths
• A competitively important strength can be
• Something a company is good at doing (a competitively important
capability or a core competence)

• A competitively valuable resource (like a well-known brand name or

state-of-the-art plants and/or distribution centers, proprietary
technology, valuable natural resources, or large numbers of
high-traffic store locations)

• Certain kinds of competitively important achievements or attributes

that contribute to a company’s competitiveness in the marketplace
(like having low overall costs relative to competitors, being a market
share leader, having a wider product line than rivals, and having
wider geographic market coverage than rivals).

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–43

 Core Concept

A company’s competitively important strengths

are competitive assets that positively impact its
competitiveness and its ability to succeed in the
marketplace.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–44

TABLE 4.2 What to Look for in Identifying a Firm’s Strengths

• Core competencies in _______

• A distinctive competence in _______
• A product that is strongly differentiated from those of rivals
• Resources and capabilities well matched to industry key success factors
• A strong financial condition; ample financial resources to grow the business
• Strong brand name/company reputation
• Strong customer loyalty
• Proven technological capabilities, proprietary technology/important patents
• Strong bargaining power over suppliers or buyers
• Cost advantages over rivals
• Skills in advertising and promotion
• Product innovation capabilities
• Proven capabilities in improving production processes
• Good supply chain management capabilities
• Strong customer service capabilities
• Better product quality relative to rivals
• Wide geographic coverage and/or strong global distribution capability
• Alliances/joint ventures with firms that provide access to valuable
technology, expertise and/or attractive geographic markets

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–45

 A Firm’s Strategy Should Rely Upon Its Most
Competitively Powerful Resources and
Capabilities

A firm’s strategy should be anchored on and seek to fully

exploit its most competitively powerful resources and
capabilities (and also competitively valuable bundles of
resources/capabilities)

WHY?
Because using its most potent resources and capabilities to
power strategic initiatives to deliver value to customers and
win business away from rivals gives a company its best
chances for competitive success and better performance.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–46

 Identifying a Firm’s Competitively Important
Weaknesses and Deficiencies

• A weakness, or competitive deficiency, is

something a firm lacks, does poorly, or that puts it
at a disadvantage in the marketplace
• Resource weaknesses relate to:
• Inferior or unproven skills, capabilities, expertise, or
intellectual capital in important areas of the business
• Deficiencies in competitively important physical,
organizational, or intangible assets
• Missing or competitively weak capabilities in key areas

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–47

 Core Concept

A firm’s competitive weaknesses are internal

shortcomings or resource/capability deficiencies
that constitute competitive liabilities.

The degree to which a firm’s weaknesses make it

competitively vulnerable depends on how much
they matter in the marketplace and the extent to
which they can be offset by the firm’s
competitively valuable resources and capabilities

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–48

TABLE 4.2 What to Look for in Identifying a Firm’s Weaknesses

• No well-developed or proven core • Weaker brand name/reputation than

competencies rivals
• Resources and capabilities that are • Weaker dealer network than key rivals
not well matched to an industry’s key • Weak global distribution capability
success factors
• Weaker product quality, R&D, and/or
• Too much debt; a weak credit rating technological know-how than key rivals
• Short on financial resources to grow • In an overcrowded strategic group
the business and pursue promising
initiatives • Losing market share because
_________
• Higher overall unit costs relative to
key rivals • Competitive disadvantages in ________
• Weaker product innovation • Inferior intellectual capital relative to
capabilities than key rivals rivals
• A product/service with attributes or • Subpar profitability because _________
features inferior to those of rivals • Plagued with internal operating problems
• Too narrow a product line relative to or obsolete facilities
rivals • Too much underutilized plant capacity

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–49

 Identifying a Firm’s Market Opportunities

• To tailor the firm’s strategy to its situation,

managers must first identify and appraise its
market opportunities and the growth and profit
potential each one holds.
• A firm’s market opportunities can be:
• Plentiful or scarce, fleeting or lasting
• Very attractive (an absolute “must” to pursue)
• Marginally interesting (because of the high risks or large capital
requirements or unappealing revenue growth and profit potentials)

• Unsuitable (because its resource strengths and capabilities are

ill-suited to capturing particular opportunities)
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–50
 Identifying a Firm’s Market Opportunities

• The market opportunities most relevant to a firm

are those that:
• Match up well with the firm’s competitively valuable
resources and capabilities
• Offer the best prospects for growth and profitability
• Present the most potential for achieving competitive
advantage
Sound A firm should pass on a particular market opportunity unless it
Advice has or can acquire the resources and capabilities to capture it.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–51

Table 4.2 What to Look for in Identifying Market Opportunities

• Openings to win market share from rivals

• Sharply rising buyer demand for the industry’s product
• Serving additional customer groups or market segments
• Expanding into new geographic markets
• Expanding the company’s product line to meet a broader range of customer
needs
• Utilizing existing company skills or technological knowhow to enter new
product lines or new businesses
• Online sales via the Internet
• Integrating forward or backward
• Falling trade barriers in attractive foreign markets
• Acquiring rival firms or companies with attractive capabilities
• Entering into alliances or joint ventures to expand the firm’s market coverage
or boost its competitiveness
• Openings to exploit emerging new technologies

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–52

 Identifying External Threats to
a Firm’s Future Profitability
• Factors in a firm’s external environment can pose threats
to its profitability and competitive well-being
• External threats vary in importance
• Threats that pose only a moderate degree of adversity (most all
companies confront threatening outside elements in the course of
conducting their business)

• Some threats may be formidable enough to make a firm’s situation

and outlook quite tenuous

• On rare occasions, a market shock can give birth to a sudden-death

threat that throws a firm into an immediate crisis and battle
to survive

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–53

TABLE 4.2 What to Look for in Identifying External Threats

• More intense competitive pressures from industry rivals and/or

sellers of substitute products—may squeeze profit margins
• The entry (or likely entry) of new competitors into the company’s
market stronghold (especially lower-cost foreign competitors)
• Growing bargaining power of buyers or suppliers
• Slowing or declining market demand for the industry’s product
• A shift in buyer needs and tastes away from the industry’s product
• Adverse demographic changes that threaten to curtail demand for
the industry’s product
• Vulnerability to unfavorable industry driving forces
• Unfavorable trade policies and tariffs; a threat of trade wars
• Costly new regulatory requirements
• Tight credit conditions
• Rising prices for energy or other key inputs

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–54

 What Do the Four SWOT Lists Reveal?

The two most important parts of SWOT analysis are

• Drawing conclusions from the SWOT listings about the
company’s overall situation, and
• Translating these conclusions into strategic actions and
an overall strategy that is well-matched to the company’s
overall situation—as indicated by its strengths and
weaknesses, its market opportunities, and its external
threats.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–55

 What Story Do the SWOT Listings Tell?
The answers to the following questions reveal the story in the 4 lists:
• What are the attractive aspects of the firm’s situation?
• What aspects are of the most concern?
• Does the firm have sufficient resource strengths/competitive capabilities to compete
successfully?
• Are the firm’s weaknesses/deficiencies of major or minor consequence? Must remedial
action be taken immediately? Or, are the weaknesses/deficiencies sufficiently offset by
the firm’s strengths and competitive assets that corrective action is probably not the best
use of company resources?
• Does the firm have resources and capabilities that are especially well-suited to
successfully pursuing and capturing its most attractive market opportunities?
• Is the firm lacking certain resources and/or capabilities that make it inadvisable to pursue
any of the market opportunities (especially those that are most attractive)?
• Are the external threats alarming, or are they something the firm appears able to
withstand and/or deal with and/or defend against?

All things considered, where on a scale of 1 to 10 (where 1 is alarmingly weak and

10 is exceptionally strong) does the firm’s overall situation
and future prospects rank?
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–56
 Translating the SWOT Analysis Results into
Effective Strategic Action

• The four SWOT lists provide excellence guidance

to company managers in crafting a strategy (or
improving an existing strategy) in ways that
• Fit the company’s internal and external situation
• Helps build or strengthen competitive advantage
• Boost its strategic and financial performance
thus enabling the chosen strategy to pass all three tests of
a winning strategy

The payoff from SWOT analysis comes from the conclusions

about a company’s situation that flow from the four lists and then
translating these conclusions into actions for improving the
company’s strategy and business prospects.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–57
 Core Concept
Relying on a company’s strongest resources and
capabilities to power its strategy produces the
best fit with the company’s internal and external
situation, thereby making such an approach to
crafting strategy the surest route to market
success and good business results.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–58

 Translating the SWOT Analysis Results into
Effective Strategic Action (continued)
• Four conditions are necessary for a firm’s strategy to be a
good to excellent fit with its overall situation:
• The foundation and centerpiece of a firm’s strategy must be its most
competitively powerful resources and capabilities.

• The strategy must include actions to correct weaknesses that make it

vulnerable to attack, depress profitability, or disqualify it from
pursuing a particularly attractive opportunity.

• The strategy must include initiatives to capture those market

opportunities best suited to its strengths and competitive assets. The
firm’s most potent resources and capabilities should almost always
spearhead such initiatives.

• The strategy should include efforts to defend against external threats

that adversely impact the firm’s long-term business prospects or put
its survival at risk.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–59
Question 4: Are the Firm’s Prices and Costs Competitive
with Those of Key Rivals ,and Does It Have an
Appealing Customer Value Proposition?

• Two telling signs of whether a firm’s business position is

strong or precarious are:
• Whether its prices are justified by the value delivered to customers
• Whether its costs are competitive with industry rivals delivering
similar customer value at a similar price

• Two analytical tools are particularly useful for determining

whether the firm’s customer value proposition, prices, and
costs are competitive:
• Value chain analysis
• Benchmarking
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–60
 The Concept of a Firm’s Value Chain

• A firm’s value chain

• Concerns the functions, tasks, and activities that a firm
performs internally to create value for customers
• Consists of two broad categories of activities
• Primary activities that are foremost in the firm’s scheme for
creating and delivering value to customers

• Support activities that facilitate and enhance the performance of

primary activities.

• A firm has no sound business justification for

performing an activity that does not result in greater
value for customers
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–61
 Core Concept

A organization’s value chain identifies

• The primary activities it performs that create

customer value
• The related support activities
The “outputs” of an organization’s value chain activities are
the value delivered to customers and the resulting
revenues it collects.
The “inputs” are all of the resources required to conduct
the various value chain activities; use of these resources
creates costs.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–62

FIGURE 4.3 A Representative Company Value Chain

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. Access alternative text for slide image 4–63
FIGURE 4.3 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.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–64

FIGURE 4.3 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.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–65

 Example: Value Chain Activities
for a Bakery Goods Maker

• Primary Activities • Support Activities

• Supply chain • Quality control
management • Human resource
• Recipe development and management
testing • Administration
• Mixing and baking
• Packaging
• Sales and marketing
• Distribution

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–66

 Example: Value Chain Activities for
a Department Store Retailer

• Primary Activities • Support Activities

• Merchandise selection • Site selection
and purchasing • Hiring and training
• Store layout and product • Store maintenance
display
• Administrative activities
• Advertising
• Customer service

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–67

 Rivals’ Value Chains Are Often Different

• Several factors cause the value chains

of rival firms to be different:
• Different strategies
• Different operating practices
• Different technologies
• Different degrees of vertical integration
• Some firms perform certain activities internally
while others outsource them
Differences in the value chains of competing firms
complicate assessment of their relative cost positions.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–68

 Comparing the Value Chains of Rival Firms

• 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
cost-efficient value chain operations.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–69

 Core Concept

The greater the value a firm can profitably deliver

to its customers relative to the value delivered by
close rivals, the less competitively vulnerable it
becomes.
The higher a firm’s costs relative to those of rivals
delivering comparable customer value at a
comparable price, the more competitively
vulnerable it becomes.
Each activity in a firm’s value chain gives rise to
costs and ties up assets.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–70

 A Firm’s Primary and Support Activities Identify the
Major Components of Its Internal Cost Structure

• The combined costs of a firm’s primary and support value chain

activities comprise its internal cost structure
• The cost of each activity contributes to whether firm’s overall cost
position relative to rivals is favorable or unfavorable
• Activity-based accounting cost estimates are needed for each broad
category of primary and support activities in a firm’s value chain
• Accurate cost assessments for specific activities within each
category are required to identify the source or activity causing the
cost disadvantage vis-à-vis rivals

However, just knowing the costs of a firm’s internal value

chain activities is insufficient to assess whether its product
offering and customer value proposition are competitive
with those of rivals.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–71

 Value Chain System for an Entire Industry

• A firm’s value chain is embedded in a larger system of

activities that includes the value chains of its suppliers and
the value chains of the wholesale distributors and retailers
it utilizes in getting its product or service to end users
• 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

• 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

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–72

 Core Concept

A firm’s cost-competitiveness depends not

only on costs of internally performed activities
(its own value chain) but also on costs in the value
chains of its suppliers and distribution channel
allies.
Accurately assessing a firm’s competitiveness
entails scrutinizing how the costs of its entire value
chain system for delivering a product or service to
end-use customers compares against the costs of
its rivals’ entire value chain systems

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–73

FIGURE 4.4 A Representative Value Chain for an Entire Industry

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–74

 Example: Components of the Industry Value
Chain System in the Pulp and Paper Industry

Timber farming Pulp mills Distribution

Logging Papermaking

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–75

 Example: Components of the Industry Value
Chain System in the Home Appliance Industry

Parts and Assembly Wholesale Retail

components distribution sales
manufacture

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–76

 Example: Components of the Industry Value
Chain System in the Soft Drink Industry

Processing Syrup Bottling and Wholesale

of basic manufacturing can filling distribution
ingredients

Today’s Special
15% Off
All Diet Colas

Retailing Advertising

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–77

 Why the Values Chains of Suppliers and
Distribution Allies Matter
• Whether a firm’s costs are competitive with the costs of
close rivals is a function of
• 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)
This is why knowledge of a firm’s own internal costs is
insufficient to assess whether its product offering and
customer value proposition are competitive with those of
rivals—the value chains of suppliers and
distribution allies matter.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–78
How to Determine a Firm’s Cost Competitiveness

• STEP 1: Determine the costs/margins of activities across

the firm’s own entire value chain system:
• The costs/profit margin of activities comprising a firm’s own value
chain PLUS
• The costs/margins of activities comprising the value chains of its
suppliers PLUS
• The costs/margins of activities comprising the value chains of its
distribution allies
• STEP 2: Compare the sum of the costs/margins of the
firm’s entire value chain system to the sum of the
costs/margins of the entire value chain systems of close
rivals to determine if the overall costs of a firm’s value chain
system is higher or lower or roughly equal to the overall
costs of the value chain systems of key rivals.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–79
 Benchmarking: A Tool for Assessing Whether
a Firm’s Value Chain Costs Are in Line

• Benchmarking entails
• Comparing how well different firms perform key value
chain activities. Examples include:
• How inventories are managed
• How products are assembled
• How fast it takes to get new products to market
• How customer orders are filled and shipped
• Making cross-company comparisons of the costs of
these activities

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–80

 How Benchmarking Works
• Identify the best practices in performing particular
activities
• Learn how other firms have achieved lower costs or better
results in performing benchmarked activities
• Adapt their approaches to fit the firm’s own circumstances
• Take actions to improve cost competitiveness whenever
benchmarking indicates that a firm’s own costs and results
of performing an activity are not on a par with what other
firms (competitors or non-competitors) have achieved
The tough part of benchmarking is gaining access to
information about other firms’ practices and costs.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–81

 Core Concept

Benchmarking is a potent tool for learning which

firms are best at performing particular activities
and then adapting their techniques (“best
practices”) to improve the cost and effectiveness
of a firm’s own internal activities.

Benchmarking the costs of a firm’s value chain activities

against rivals provides hard evidence of whether a firm is
cost-competitive.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–82

 Tip for Simulation Company Co-Managers
• Carefully review the benchmarking data provided in the Industry Report
after each decision round.
• There are 1-2 pages of data showing how your costs and profit margins in
the prior year compared against the industry’s low, high, and average
values for a variety of the cost components and selected profit margin
components in its value chain.

• If your costs are deemed “too high” in one or more areas, consider
taking actions to reduce these costs.
• If your profit margins are deemed “too low” in one or more regions,
consider taking actions to improve these margins.
• If you have already taken actions to be more cost efficient, check (1)
whether those efforts have been more/less successful than those of
rivals and (2) whether you have a cost advantage or disadvantage.
Failing to monitor the available benchmarking data means you have
no idea whether your company’s costs are or are not
competitive with those of rivals.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–83
 Strategic Options for Creating an Advantage
or Remedying a Disadvantage as Concerns
Cost or the Value Delivered to Customers
• Areas in which to create a cost advantage or remedy a cost
disadvantage are:
• The value chain activities a company performs internally
• Suppliers’ part of the company’s value chain system
• The distribution-related portion of the company’s value chain system
The Value Chain System for a Company

Activities, Costs,
Activities, Costs, Internally Performed
and Margins of
and Margins of Activities, Costs,
Distribution-Related
Suppliers and Margins
Allies

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–84

 Options for Improving the Performance of
Internally Performed Activities
• Implement the use of best practices throughout firm
• Redesign the product to eliminate costs or enable faster and
more economical manufacture or assembly
• Relocate high-cost activities to lower-cost locations
• Outsource high-cost activities to outside vendors/ suppliers
who can perform these activities cheaper
• Shift to lower-cost technologies and/or invest in
productivity-enhancing, cost-saving technological
improvements
• Cease performing activities with little or no customer value
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–85
 Options for Improving the Performance of
Supplier-Related Value Chain Activities
• Pressure suppliers for lower prices
• Switch to lower-priced substitute inputs
• Collaborate closely with suppliers to identify mutual
cost-saving opportunities

• Just-in-time supplier deliveries can lower both the firm’s and

the supplier’s inventory and internal logistics costs

• Integrate backward into the businesses of suppliers

responsible for cost disadvantages and make the items
in-house instead of buying them from outside suppliers

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–86

 Options for Improving the Performance of
Distribution-Related Value Chain Activities

• Pressure dealers, distributors and channel allies to reduce

costs to make final prices to buyers more competitive with
the prices of rivals
• Collaborate with forward channel allies to identify win-win
opportunities to reduce costs
• Change to a lower-cost distribution strategy or switch to
cheaper distribution channels
• Integrate forward by opening company-owned retail outlets

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–87

 Translating Proficient Performance of Value
Chain Activities into Competitive Advantage
• Doing a first rate job of managing value chain activities
can often translate into competitive advantage.

• 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

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–88

 Strategic Insight

Performing value chain activities in ways that give

a company
either a lower-cost advantage
or a value-creating differentiation advantage
over rivals
are two surefire ways to secure competitive
advantage.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–89

FIGURE 4.5 Two Options for Translating Company Performance of Value
Chain Activities into Competitive Advantage

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. Access alternative text for slide image. 4–90
 Question 5: Is the Firm Competitively
Stronger or Weaker than Its Key Rivals?
• Whether a firm is competitively stronger or weaker
than key rivals hinges on:
• How the firm ranks relative to competitors on each
important factor that determines market success
• The firm’s net competitive advantage or disadvantage
versus major competitors

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–91

 How to Do a Competitive Strength Assessment
Step 1: Make a list of 6 to 10 of (a) the industry’s key success factors and
(b) other highly relevant measures of competitive
strength/weakness
Step 2: Assign weights to each of the measures of competitive strength
based on their perceived importance (the sum of the weights must
equal 1.0)
Step 3: Rate the firm and its key rivals on strength measure using rating
scale of 1 to 10 (1 = very weak; 5 = average; 10 = very strong)
Step 4: Multiply each strength rating by its importance weight to obtain
weighted strength scores
Step 5: Sum the weighted strength scores to get an overall weighted
measure of competitive strength for each rival
Step 6: Use the overall weighted strength scores to draw conclusions
about the firm’s net competitive advantage or disadvantage vis-
à-vis each of its rivals

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–92

TABLE 4.3 A Representative Weighted Competitive Strength Assessment

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–93

 Interpreting the Competitive Strength Scores

• The higher a firm’s overall weighted strength score, the

stronger its overall competitiveness versus rivals
• The lower a firm’s score, the weaker is its ability to compete
successfully
• The sizes of the differences between a firm’s score and
those of its rivals are indicative of the size of its net
competitive advantage or disadvantage versus its rivals
• The bigger the difference between a firm’s overall weighted rating
and the ratings of lower-rated rivals, the greater is its implied net
competitive advantage over these rivals

• The bigger the difference between a firm’s overall weighted rating

and the overall weighted ratings of higher-rated rivals, the greater is
its implied net competitive disadvantage vis-à-vis these rivals
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–94
 Strategic Implications of
Competitive Strength Scores
• A firm’s competitive strength scores pinpoint where it is
competitively stronger and weaker vis-à-vis rivals

• When a firm has high competitive strength scores in areas

where one or more rivals have low scores, it should
consider offensive moves that pit its competitive strengths
directly against rivals’ competitive weaknesses

• When a firm has low scores on strength measures where

one or more rivals have high scores, it should consider
defensive moves to curtail its vulnerability to rivals’ offensive
attacks

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–95

 Strategic Insight

A firm’s competitive strength scores pinpoint its

strengths and weaknesses against rivals and point
directly to the kinds of offensive/defensive actions
it can use to exploit its competitive strengths and
reduce its competitive vulnerabilities.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–96

Questions for Simulation Company Co-Managers
• Are you regularly monitoring the sizes of your firm’s competitive advantages
and disadvantages vis-à-vis the industry average level of competitive effort in
each geographic region (see the last column on the right side of each page of
the Comparative Competitive Efforts section of the Competitive Intelligence
Report)?
• In crafting your firm’s strategy and making decision entries for each geographic
region each year, are you trying to capitalize on your firm’s regional competitive
advantages and to narrow (if not eliminate) your firm’s regional competitive
disadvantages (especially as concerns important competitive factors)?
• Have you used the menus at the top of each page of the Comparative
Competitive Efforts report to view the sizes of the regional competitive
advantages and disadvantages that important rivals have on the various
competitive factors (to help pinpoint the specific competitive factors that
accounted for why they were competitively successful or unsuccessful)?
• Would this information be of value in crafting your company’s levels of
competitive effort in the upcoming year to compete more effectively and
improve the buyer appeal of your company’s product offering vis-à-vis the
offerings of these important rivals?
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–97
 Two Final Questions for Simulation
Company Co-Managers
1. After each decision round, does failing to review the competitive efforts of important
rivals in each of the four geographic regions comprising the Comparative Competitive
Efforts section of the Competitive Intelligence Report put you in the position of having
no fact-based evidence regarding what levels of competitive efforts it might take to
improve your company’s competitiveness vis-à-vis important rivals in the upcoming
decision round?
2. If your answer is “yes” or “often” or “sometimes,” wouldn’t it make more sense to decide
what levels of competitive effort to employ in the upcoming decision round based on
(a) what levels of competitive effort your important rivals employed in the prior year and
(b) your considered judgement about whether each of these rivals might well increase,
decrease or leave unchanged their various levels of competitive effort?

A good argument could be made that doing your best to anticipate the
probable levels of competitive effort that important rivals will exert and then
using these guestimates to arrive at the levels of competitive effort your
company should employ in the upcoming decision round is a reasonable
and sound approach to try compete more successfully and improve your
company’s performance outcomes.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–98

Question 6: What Strategic Issues and Problems Merit
Front-Burner Managerial Attention?

• Involves compiling a “worry list” based on:

• Your assessment of the external environment (answers to the six
analytical questions posed in Chapter 3)

• Your evaluations of your company’s resources and ability to compete

successfully (answers to questions 1-5 in this chapter)

• All of the strategic issues and problems that managers need to

address; the “worry list” always centers on such concerns as

• “How to…?”, “Whether to…?”, “What should be done about …?”

The purpose of compiling a worry list is to create an agenda of
items that managers need to consider before attempting to craft a
refurbished strategy that is better suited to the particulars of the
company’s external and internal situation.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–99
 Strategic Insight

Compiling a “worry list” that zeros in on the

strategic issues and problems a company faces
always centers on such concerns as “how to…,”
“what to do about…,” and “whether to….”

The purpose of compiling a worry list is to create

an agenda of items that managers need to
consider and resolve as they craft a refurbished
strategy that is suited to all of the various aspects
of the company’s external and internal situation

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–100

 Questions to Answer in Identifying
Strategic Issues
• How to stave off market challenges from foreign competitors?

• How to combat price discounting of rivals?

• How to reduce the firm’s high costs?

• How to sustain firm’s growth as buyer demand slows?

• Whether to expand the firm’s product line?

• What to do about growing buyer interest in substitute products?

• Whether to acquire a rival firm?

• Whether to expand into foreign markets rapidly or cautiously?

• Whether to reposition the firm in a different strategic group?

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–101
 Why Compile a “Worry List”?
• The role of the “worry list” is to pinpoint
• The strategic and competitive challenges confronting the firm
• Competitive shortcomings that must be addressed
• Obstacles to improving the firm’s competitive position and financial
performance
• Other issues/problems that management must address
• The purpose is NOT to list what specific actions to take
• Deciding which strategic actions to take and which strategic moves
to make comes later
• A worry list with minor problems/issues suggests the firm’s strategy is on
track and fine-tuning it will be adequate
• A worry list with major problems/issues signals the need for immediate
major strategy revisions and action plans
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–102
 Items on the Worry List Represent an Agenda
for Management Action
• Why create a strategic agenda?
• Compiling a “worry list” draws managerial attention to the
strategic issues a firm faces
• What comes after developing the list of strategic issues and
problems?
• Actually deciding upon a strategy, including what specific
actions to take to address each and every item on the
“worry list”
A strategy is neither complete nor well matched to
the firm’s situation unless it contains actions and
initiatives to address each issue and problem on the
“worry list.”
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–103
 The Lessons of Chapters 3 and 4

Lesson 1: An analysis of the firm’s external situation

must always come before crafting a
firm’s strategy
• Managers are ready to craft a strategy that is
well-matched to the macro-environment, competitive
forces, industry driving forces, industry key success
factors, and the likely actions of rivals only when they first
have done careful and thorough analysis of the firm’s
external situation and have strong understanding of all the
strategically relevant external factors.
Analysis is the critical starting point for crafting a strategy
capable of producing good business results.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–104

 The Lessons of Chapters 3 and 4

Lesson 2: An analysis of the firm’s internal situation

must always come before crafting a
firm’s strategy.
• A competently done evaluation of a firm’s resources,
competencies, and competitive strengths and weaknesses
exposes strong and weak points in the present strategy and
explains why the firm’s competitive position is attractive or
unattractive.
Absent such knowledge, managers are not well prepared to craft a
strategy well suited to the firm’s competitive capabilities and best
market opportunities.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–105

 The Lessons of Chapters 3 and 4
Lesson 3: Accurate diagnosis of the firm’s external and
internal circumstances and development of a list of
front-burner issues provides managers with the knowledge
they need to craft a sound strategy that is tightly matched to
the firm’s overall situation and that passes “the goodness of
fit test” for a winning strategy.

Managers are operating by the seat-of-their-pants if they leap

into the task of tailoring a strategy that should tightly fit a firm’s
Beware situation without first having an accurate understanding of what
all of the strategically relevant facets of that situation are and
what issues and problems the strategy needs to address.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–106

 Questions for Company Co-Managers

• After each decision round, do you take into account the percentage
sizes of your company’s competitive advantages and disadvantages
(listed in the last column on each page of the Comparative Competitive
Efforts Report) in crafting a strategy for each geographic region for the
upcoming decision round?

• Before proceeding to enter decisions for each upcoming decision

round, do your regularly make a list of the strategic issues and
problems your company needs to address and make sure that you
enter decisions intended to resolve each and every one of these
issues/problems?

• If not, then is the failure to craft a strategy matched to your company’s

internal situation that deals with the “worry list” likely to be a partial
reason why your company’s performance is not as good as it could be
(or as good as you would like it to be)?

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–107

 Accessibility Content: Text Alternatives for Images

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 4–108

 Figure 4.1 Identifying the Components of a Single-Business Company’s Strategy,
Alternate Text
Return to parent slide

• Business strategy: The actions and approaches crafted to compete successfully in a particular business.
• Key functional strategies:
• Research and development, technology, product design, strategy.
• Supply chain management strategy.
• Production strategy.
• Sales, marketing, and distribution strategies.
• Information technology strategy.
• Human resources strategy.
• Finance strategy.
• Actions to compete successfully:
• Planned, proactive moves to attract customers and out-compete rivals via improved product design, better
features, higher quality, wider selection, lower prices, and so on.
• Actions to respond to changing conditions in the macroenvironment or in industry and competitive
conditions.
• Initiatives to build competitive advantage based on:
• Lower costs relative to rivals?

• A different or better product offering?

• Superior ability to serve a market niche or specific group of buyers?

• Efforts to expand or narrow geographic coverage.

• Efforts
Copyright © 2022
toby Arthur
build A. Thompson and
competitively Glo-Bus
valuable Software, Inc. and
partnerships strategicReturn to parent
alliances withslide
other enterprises. 4–109
 Figure 4.2 The Three Steps of SWOT Analysis: Identify, Draw Conclusions,
Translate into Strategic Action, Alternate Text
Return to parent slide

What can be gleaned from the SWOT listings?

The first two steps of SWOT analysis are:
1. Identify the firm’s strengths and competitive assets.
2. Identify the firm’s weaknesses and competitive deficiencies.
These two steps lead to conclusions concerning the firm’s overall business situation.
This includes determining what are the underlying reasons for the success (or lack of
success) of its strategy. It also includes what the attractive and unattractive aspects of
its situation are.
The last two steps of SWOT analysis are:
3. Identify market opportunities.
4. Identify external threats.
These two steps reveal implications for improving the firm’s strategy. This includes
using its strengths as the foundation for its strategy; shoring up weaknesses that are
interfering with the success of the strategy; pursuing those market opportunities best
suited to the firm’s strengths; correcting weaknesses that impair pursuit of important
market opportunities; repair weaknesses that heighten vulnerability of external threats;
and using its strengths to lessen the impact of important external threats.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. Return to parent slide 4–110
 Figure 4.3 A Representative Company Value Chain , Alternate Text
Return to parent slide

• Primary activities:
• Supply chain management.
• Operations.
• Distribution.
• Sales and Marketing.
• Service.
• Profit Margin.
• Support activities:
• Product research and development, technology, and systems development.
• Human resource management
• General administration

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. Return to parent slide 4–111
 FIGURE 4.5 Translating Company Performance of Value Chain Activities into Competitive
Advantage, Alternate Text
Return to parent slide.

Option 1: Beat rivals by creating more customer value from value chain activities, for a
differentiation-based competitive advantage
1. Managers decide to perform value chain activities in ways that drive improvements in quality, features,
performance, and other differentiation-enhancing aspects.
2. Competencies gradually emerge in performing value chain activities that drive improvements in
quality, features, and performance.
3. Company proficiency in performing some of these differentiation-enhancing activities rises to the level
of a core competence.
4. Company proficiency in performing the core competence continues to build and evolves into a
distinctive competence
5. Company gains a competitive advantage based on superior differentiation capabilities.
Option 2: Beat rivals by conducting value chain activities more efficiently, for a cost-based competitive
advantage
1. Company managers decide to perform value chain activities in the most cost-efficient manner.
2. Competencies gradually emerge in driving down the cost of value chain activities (such as production,
inventory management, etc.).
3. Company capabilities in performing certain value chain activities more efficiently rise to the level of a
core competence.
4. Company proficiency in performing the core competence continues to build and evolves into a
distinctive competence.
5. Company gains a competitive advantage based on superior differentiation capabilities.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. Return to parent slide. 4–112