Evaluating a company’s internal environment begins with assessing your company’s performance on achieving its financial and strategic objectives. In this 3rd post of our 4-part strategy series, we’ll dig into understanding your company’s competitive micro-environment by addressing 5 key questions.
Company’s Microenvironment (Internal Situation Analysis)
- How well is the company’s strategy working?
- What are the company’s competitive important resources and capabilities?
- Are the company’s prices and costs competitive?
- Is the company competitively stronger or weaker than key rivals?
- What strategic issues and problems merit front-burner managerial attention?
1. Measuring Performance
First, assess the overall performance in achieving financial and strategic objectives. The objectives you track should be specific and relevant to your company’s goals. Nevertheless, some common objectives include:
- Financial: Sales, Earnings, Profits, Growth and Retention Rates, etc.
- Strategic: Customer Satisfaction, Brand Equity, Customer Loyalty, Supply Chain Efficiency, etc.
Leverage the Balanced Scorecard, a strategic performance management tool, to help you monitor and assess performance against your objectives.
What is the Balanced Scorecard?
- Balanced Scorecard: The balanced scorecard is a strategic planning and management system that was developed by Robert Kaplan and David Norton in 1992,to help organizations align business activities to the vision and strategy of the organization, as well as monitor performance against a set of measures and strategic goals.
- The Balanced Scorecard is a ‘financial & non-financial’ system for translating strategy into action.
How do I use the Balanced Scorecard?
- Identify the financial and strategic objectives that are important to your business. Address each of the 4 quadrants.
- Define measures for each objective and set desired performance targets.
- Outline the actions and initiatives to be carried out to bridge the gap between the current state and the future desired state.
A useful way to visualize the Balanced Scorecard was the following, provided by HBR:
For more on the “Balanced Scorecard”, read:
2. Resources and Capabilities
Second, assess if your company has the resources and competitive capabilities necessary to create and deliver the customer value stated in your vision and strategy.
Resources and capabilities may include:
- Expertise/Experience: such as low-cost operations, innovative research and development, etc.
- Physical Assets: such as plants, equipment, real estate, etc.
- Intellectual Assets: such as intellectual property, knowledge workers, troprietary technology, patents, etc.
- Intangible Assets: such as goodwill, brand and/or buyer loyalty
- Strategic: industry alliances, joint ventures, exclusivity contracts and regulations
For your resources to be competitively powerful in the marketplace, they must be:
- Valuable: Do they help you build a competitive advantage over your competitors
- Rare: Are they unique to you? Are they something your rivals lack?
- Inimitable: Are they hard to copy or imitate?
- Non-Substitutable: Are they easily matched by other substitute resources/capabilities?
Assess the degree of proficiency of your company to performing key activities:
- Competence: “an activity that a company performs well”
- Core Competence: “a proficiently performed internal activity that is central to a company’s strategy and competitiveness”
- Distinctive Competence: “a competitively valuable activity that a company performs better than its rivals.”
Competitive capabilities boil down to performing an activity that is core to your strategy better than your rivals; such that you build a competitive advantage over your competitors.
What is a SWOT Analysis?
Leverage the effectiveness of a SWOT Analysis, to holistically size up a company’s resource strengths, competitive weaknesses, market opportunities and external industry threats. A SWOT analysis can help you derive strategic actions to better match your company’s resources and capabilities to market opportunities.
3. Value Chains
Third, assess your company’s ability to create value for customers at competitive prices and costs. Leverage the power of Value Chain Analysis to identify the activities (primary and support) required to create value and then Benchmark these against your competitors to identify and exploit industry best practices.
What are Value Chains?
- Value Chains: “the process or activities by which a company adds value to an article, including production, marketing, and the provision of after-sales service.”
What is Benchmarking?
- Benchmarking: “comparing one’s business processes and performance metrics to industry bests and best practices from other companies.”
Use Value Chain Analysis and Benchmarking to assess your ability perform key activities in a way that is more profitable and cost-effective than your competitors.
For more on Value Chains, read:
4. Competitive Strengths
Use a Competitive Strength Assessment to evaluate your company’s overall market position against its competitors.
- List the industry’s competitive strengths.
- Assign a weight to each Key Success Factor (KSF).
- Rate each company against its each KSF.
- Calculate the overall competitive strength of each company
5. Worry List
Put together your “worry list”. Identify and pinpoint the issues that need to be addressed and corrected by your team.
- Draw on your identified upcoming Industry and Competitive Challenges
- Assess these against your Company’s Internal Situation Analysis (Strengths and Weaknesses)
- Identify the strategic issues and problems that merit managerial attention.
- Decide on the actions necessary to improve the company’s financial and competitive outlook.
Leverage the concept of a ‘worry list‘ to set your ‘managerial agenda‘.
To recap, assessing your company’s situation comes down to:
- Measuring performance (actual vs. target) against strategic objectives
- Matching your resources and capabilities to market opportunities and threats
- Maximizing the profitability of your value chain
- Assessing your competitive strength against rivals
- Identifying the issues and problems necessary for success and setting these at the forefront of your action plan.
That’s it for now! In the 4th and final post, I’ll detail the competitive positions and strategies you can leverage to outperform and win against the competition.
Cheers ‘till next time!