2. COMPARISON STANDARDS:
ARE A CRITICAL ASPECT OF STRATEGIC ANALYSIS, ALLOWING BUSINESSES TO
EVALUATE THEIR PERFORMANCE AGAINST INDUSTRY BENCHMARKS AND IDENTIFY
IDENTIFY AREAS FOR IMPROVEMENT. BY SETTING CLEAR STANDARDS FOR
COMPARISON, ORGANIZATIONS CAN DEVELOP EFFECTIVE BUSINESS STRATEGIES
STRATEGIES THAT OPTIMIZE PERFORMANCE AND BOOST COMPETITIVENESS. IN THIS
COMPETITIVENESS. IN THIS BLOG, WE WILL DELVE INTO THE IMPORTANCE OF
OF COMPARISON STANDARDS IN STRATEGIC ANALYSIS AND HOW THEY CAN BE
BE EFFECTIVELY USED IN BUSINESS.
3. WHAT ARE COMPARISON STANDARDS?
COMPARISON STANDARDS ARE SPECIFIC BENCHMARKS
BENCHMARKS THAT BUSINESSES USE TO COMPARE THEIR
THEIR PERFORMANCE AGAINST INDUSTRY COMPETITORS
COMPETITORS OR INTERNAL TARGETS. THEY PROVIDE A
PROVIDE A REFERENCE POINT FOR EVALUATING BUSINESS
BUSINESS STRATEGIES AND CAN BE USED TO IDENTIFY
IDENTIFY STRENGTHS AND WEAKNESSES, AS WELL AS
AS AREAS FOR IMPROVEMENT. THERE ARE SEVERAL
TYPES OF COMPARISON STANDARDS, INCLUDING
INTERNAL, EXTERNAL, AND INDUSTRY BENCHMARKS.
BENCHMARKS.
4. WHY ARE COMPARISON STANDARDS IMPORTANT?
EFFECTIVE STRATEGIC ANALYSIS REQUIRES A CLEAR
UNDERSTANDING OF HOW A BUSINESS IS PERFORMING
PERFORMING COMPARED TO INDUSTRY STANDARDS.
STANDARDS. COMPARISON STANDARDS ALLOW
BUSINESSES TO IDENTIFY AREAS WHERE THEY ARE
UNDERPERFORMING AND DEVELOP STRATEGIES TO
IMPROVE. THEY ALSO PROVIDE A BASIS FOR EVALUATING
EVALUATING THE SUCCESS OF IMPLEMENTED STRATEGIES,
STRATEGIES, ALLOWING BUSINESSES TO REFINE AND
AND OPTIMIZE THEIR APPROACHES OVER TIME.
5. TYPES OF COMPARISON STANDARDS
THERE ARE SEVERAL TYPES OF COMPARISON STANDARDS, EACH OF WHICH
WHICH HAS ITS OWN BENEFITS AND LIMITATIONS.
INTERNAL COMPARISON STANDARDS COMPARE A BUSINESS’S
PERFORMANCE AGAINST ITS OWN PAST PERFORMANCE, ALLOWING IT TO
TO EVALUATE PROGRESS OVER TIME.
EXTERNAL COMPARISON STANDARDS COMPARE A BUSINESS’S
PERFORMANCE AGAINST THAT OF ITS COMPETITORS OR INDUSTRY
BENCHMARKS, PROVIDING A REFERENCE POINT FOR IDENTIFYING AREAS
AREAS WHERE IMPROVEMENTS ARE NEEDED.
INDUSTRY BENCHMARKS ARE COMPARISON STANDARDS THAT ARE SET
ARE SET BY INDUSTRY ASSOCIATIONS OR OTHER EXTERNAL SOURCES AND
AND PROVIDE A REFERENCE POINT FOR EVALUATING PERFORMANCE
AGAINST INDUSTRY STANDARDS.
6. INTERNEL COMPARISON STANDARDS
THIS CHAPTER FOCUSES ON IDENTIFYING AND
EVALUATING A FIRM’S STRENGTHS AND WEAKNESSES IN
THE FUNCTIONAL AREAS OF BUSINESS, INCLUDING
MANAGEMENT, MARKETING, FINANCE/ACCOUNTING,
PRODUCTION/OPERATIONS, RESEARCH AND
DEVELOPMENT, AND MANAGEMENT INFORMATION
SYSTEMS. RELATIONSHIPS AMONG THESE AREAS OF
BUSINESS ARE EXAMINED. STRATEGIC IMPLICATIONS OF
IMPORTANT FUNCTIONAL AREA CONCEPTS ARE
EXAMINED. THE PROCESS OF PERFORMING AN INTERNAL
AUDIT IS DESCRIBED. THE RESOURCE-BASED VIEW (RBV) OF
STRATEGIC MANAGEMENT IS INTRODUCED AS IS THE
VALUE CHAIN ANALYSIS (VCA) CONCEPT.
7. THE NATURE OF AN INTERNEL AUDIT
All organizations have strengths and weaknesses in the
functional areas of business.
No enterprise is equally strong or weak in all areas.
Maytag, for example, is known for
excellent production and product design, whereas
Procter & Gamble is known for superb
marketing. Internal strengths/weaknesses, coupled with
external opportunities/threats and
a clear statement of mission, provide the basis for
establishing objectives and strategies.
Objectives and strategies are established with the
intention of capitalizing upon internal
strengths and overcoming weaknesses.
8. THE RESOURCE-BASED VIEW (RBV)
Some researchers emphasize the importance of the
internal audit part of the strategicmanagement process
by comparing it to the external audit. Robert Grant
concluded that the
internal audit is more important.
The Resource-Based View (RBV) approach to
competitive advantage contends that internal resources
are more important for a firm than external factors in
achieving and sustaining competitive advantage. In
contrast to the I/O theory presented in the previous
chapter, proponents of the RBV view contend that
organizational performance will primarily be
determined by internal resources that can be grouped
into three all-encompassing categories: physical
9. INTEGRATING STRATEGY AND CULTURE
Relationships among a firm’s functional business
activities perhaps can be exemplified
best by focusing on organizational culture, an internal
phenomenon that permeates all
departments and divisions of an organization.
Organizational culture can be defined as “a pattern of
behavior that has been developed by an organization
as it learns to cope with its problem of external
adaptation and internal integration, and that has
worked well enough to be considered valid and to be
taught to new members as the correct way to
perceive, think, and feel.”
cultural products include values, beliefs, rites, rituals,
ceremonies, myths, stories, legends, sagas, language,
10. MARKETING
Marketing can be described as the process
of defining, anticipating, creating, and
fulfilling
customers’ needs and wants for products
and services. There are seven basic
functions of
marketing: (1) customer analysis, (2) selling
products/services, (3) product and service
planning, (4) pricing, (5) distribution, (6)
marketing research, and (7) opportunity
analysis.16 Understanding these functions
helps strategists identify and evaluate
11. FINANCE/ACCOUNTING
Financial condition is often considered
the single best measure of a firm’s
competitive
position and overall attractiveness to
investors. Determining an
organization’s financial
strengths and weaknesses is essential
to effectively formulating strategies. A
firm’s liquidity, leverage, working
capital, profitability, asset utilization,
cash flow, and equity can
eliminate some strategies as being
12. RESEARCH AND DEVELOPMENT
THE FIFTH MAJOR AREA OF INTERNAL OPERATIONS
THAT SHOULD BE EXAMINED FOR SPECIFIC
STRENGTHS AND WEAKNESSES IS RESEARCH AND
DEVELOPMENT (R&D). MANY FIRMS TODAY
CONDUCT NO R&D, AND YET MANY OTHER
COMPANIES DEPEND ON SUCCESSFUL R&D
ACTIVITIES FOR SURVIVAL. FIRMS PURSUING A
PRODUCT DEVELOPMENT STRATEGY ESPECIALLY
NEED TO HAVE A STRONG R&D ORIENTATION.
13. MANAGEMENT INFORMATION SYSTEMS
INFORMATION TIES ALL BUSINESS FUNCTIONS
TOGETHER AND PROVIDES THE BASIS FOR ALL
MANAGERIAL DECISIONS. IT IS THE
CORNERSTONE OF ALL ORGANIZATIONS.
INFORMATION REPRESENTS A MAJOR SOURCE
OF COMPETITIVE MANAGEMENT ADVANTAGE
OR DISADVANTAGE. ASSESSING A FIRM’S
INTERNAL STRENGTHS AND WEAKNESSES IN
INFORMATION SYSTEMS IS A CRITICAL
DIMENSION OF PERFORMING AN INTERNAL
AUDIT
14. EXTERNEL ENVIRONMENT
This chapter examines the tools and
concepts needed to conduct an external
strategic
management audit (sometimes called
environmental scanning or industry
analysis). An
external audit focuses on identifying and
evaluating trends and events beyond the
control of a
single firm, such as increased foreign
competition, population shifts to the
15. THE NATURE OF AN EXTERNAL AUDIT
The purpose of an external audit is to
develop a finite list of opportunities that
could
benefit a firm and threats that should be
avoided. As the term finite suggests, the
external
audit is not aimed at developing an
exhaustive list of every possible factor
that could
influence the business; rather, it is aimed
at identifying key variables that offer
actionable
16. External forces can be
divided into five broad
categories: (1) economic
forces; (2) social, cultural,
demographic, and natural
environment forces; (3)
political, governmental, and
legal
forces; (4) technological
forces; and (5) competitive
forces
17. THE INDUSTRIAL ORGANIZATION (I/O) VIEW
The Industrial Organization (I/O) approach to
competitive advantage advocates that
external (industry) factors are more important than
internal factors in a firm achieving
competitive advantage. Proponents of the I/O view, such
as Michael Porter, contend that
organizational performance will be primarily determined
by industry forces. Porter’s FiveForces Model, presented
later in this chapter, is an example of the I/O
perspective, which
focuses on analyzing external forces and industry
variables as a basis for getting and
keeping competitive advantage.
18. ECONOMIC FORCES
Increasing numbers of two-income
households is an economic trend in the
United States.
Individuals place a premium on time.
Improved customer service, immediate
availability,
trouble-free operation of products, and
dependable maintenance and repair services
are
becoming more important. People today are
more willing than ever to pay for good service
19. SOCIAL, CULTURAL, DEMOGRAPHIC, AND
NATURAL
ENVIRONMENT FORCES
Social, cultural, demographic, and
environmental changes have a major impact on
virtually
all products, services, markets, and customers.
Small, large, for-profit, and nonprofit
organizations in all industries are being
staggered and challenged by the opportunities
and
threats arising from changes in social, cultural,
demographic, and environmental variables.
In every way, the United States is much
different today than it was yesterday, and
20. POLITICAL, GOVERNMENTAL, AND LEGAL
FORCES
Federal, state, local, and foreign governments are major regulators,
deregulators, subsidizers, employers, and customers of
organizations. Political, governmental, and legal
factors, therefore, can represent key opportunities or threats for
both small and large
organizations.
For industries and firms that depend heavily on government
contracts or subsidies,
political forecasts can be the most important part of an external
audit. Changes in patent
laws, antitrust legislation, tax rates, and lobbying activities can
affect firms significantly.
The increasing global interdependence among economies, markets,
governments, and
organizations makes it imperative that firms consider the possible
impact of political
21. TECHNOLOGICAL FORCES
represent major opportunities and
threats that must be considered in
formulating strategies. Technological
advancements can dramatically affect
organizations’ products, services,
markets, suppliers, distributors,
competitors, customers,
manufacturing processes, marketing
practices, and competitive position.
Technological
advancements can create new markets,
result in a proliferation of new and
improved products, change the relative
22. COMPETITIVE ANALYSIS: PORTER’S FIVE-
FORCES MODEL
Porter’s Five-Forces Model of competitive
analysis is a widely used approach for developing
strategies in many industries.
The intensity of competition among firms varies
widely across industries.
According to Porter, the nature of
competitiveness in a given industry can be
viewed as a composite of five forces:
1. Rivalry among competing firms
2. Potential entry of new competitors
3. Potential development of substitute products
4. Bargaining power of suppliers
23. BENCHMARKING
Benchmarking is an analytical tool used to determine
whether a firm’s value chain activities are competitive
compared to rivals and thus conducive to winning in the
marketplace.
Benchmarking entails measuring costs of value chain
activities across an
industry to determine “best practices” among competing
firms for the purpose of duplicating or improving upon
those best practices. Benchmarking enables a firm to take
action to improve its competitiveness by identifying (and
improving upon) value chain
activities where rival firms have comparative advantages in
cost, service, reputation, or operation.
