Advanced Analysis: Module II – Advanced Certification Courses
A NOTE TO PARTICIPANTS:
To gain the greatest benefit from this course, please be sure to review the case material in advance.
How does Dell manage to be so profitable in a generally unattractive industry? CI analysts often need to explain a competitor’s competitive advantage. How can it do what it does? The proper answer can come only from a Value Chain Analysis (VCA), which closely analyzes the chain of activities performed by a company to identify precisely (and numerically) the sources of differentiation and cost-value advantages. Understanding the value chain of a competitor means accurately understanding the value of its strategic differentiation. The same is true for understanding the threats to your own company’s position.
You will learn how to:
- Understand the real strategic differences in value chain activities between your company and its competitors
- Identify major cost drivers for competitors’ advantage
- Understand the various sources of sustainable and non-sustainable competitive advantages
- Replace SWOT with a significantly more sophisticated framework
- Use a numerical analysis to identify threats to your company’s position
- Assess which benchmarking has a chance to succeed and which is just a waste of money
Do you need to…
1. Estimate cost positions among various rivals in your market?
2. Understand how and why different industry players present – and can sustain – large differences in profitability?
3. Determine the actual strategic differences in value chain activities between your company and its rivals?
4. Deliver more precision in your strategic competitive assessments, offering more “hard” financial and performance models on competitors, customers, suppliers, and acquisition targets?
5. Produce relative cost analysis for your company and its rivals?
6. Understand the precise nature and sources of competitive advantage in your industry?
7. Alert management to threats regarding your company’s competitive advantage against competitors’ performance improvements?
8. Prepare recommendations to management on your company’s competitive positioning?
9. Improve your overall effectiveness in your competitive assessments?
10. End analytical confusion and debate over why a particular rival possesses competitive advantage?
1. Finding a Source of Competitive Advantage
Finding a Source of Competitive Advantage
The Pharmaceutical industry’s profitability (operating income/assets) over the period 1988-1995 was around 25%. During the same time period, Motor Vehicle industry average yield was about 4%. Drug stores generated 12%.
Within the Pharmaceutical industry, J&J’s Operating income/assets ratio during that time period was 39%. Schering Plough, 35%. Abbott was 22% and Rhone-Poulenc achieved 13% only. Genentech was even worse (4%).
1. What explains such persistent differences in profitability? Does the same analysis fit both examples (industries and companies)? If not, what is the difference in explanation?
2. What is the source of competitive advantage (what’s behind the empty slogans)?
3. Is creating and sustaining competitive advantage the same? How can your competitors sustain their advantage? How can your company?
4. How can you use the Value Chain template to analyze your company’s cost vs. competitors? What does it tell you about your company’s sources of competitive advantage? What conclusions would you draw for management?
2. From Where Inside Its Operations Does a Rival View Its True Value
From Where Inside Its Operations Does a Rival View Its True Value
Airborne Express is a small carrier surviving the giants in this industry, FedEx and UPS. To understand how it can do that, you should draw an activity map, comparing the three companies. If you do that, you find out Airborne has, for example, a manual sorting operations, compared with FedEx and UPS’ fully automated hubs.
1. How does a manual operating system deal with FedEx and UPS’ scale advantage?
2. How does Airborne’s manual operations fit in with the other activities in Airborne’s whole value chain?
How does Airborne achieve higher capacity utilization on its flights than its competitors? Why is that important in analyzing Airborne’s strategy?
3. How Much Cost Analysis is Enough – and When Do You Know?
How Much Cost Analysis is Enough – and When Do You Know?
If you can benefit from analyzing your competitor’s P&L to arrive at its relative cost (dis)advantage, start with your own P&L, then move to the competitor’s based on public and industry data. Identifying cost drivers associated with the activities you analyze on the P&L is crucial to analyzing differences between your company (or unit) and your competitor’s. Assigning cost figures follows the identification of cost drivers, and the assessment of how your competitor is affected by them relative to your own company.
1. Do you analyze all the hundreds of a competitor’s activities? A subset of activities? Which subset should you concentrate on?
2. How detailed is the analysis? What data do you use? Where do you get these data? What if it is a private company?
3. If you have no strategic option to act differently on a cost driver, does it matter? For example, if all the rivals produce in plants located in the same region, is the manufacturing location a cost driver?
4. How does relative cost analysis lead to better competitive positioning?
There are two different types of disruptions to an organization’s strategy and competitiveness. One is current and regards a misalignment between management assumptions about their competitor positioning and the reality of their financial performance. The other involves more long-term and less concrete spoilers to the company’s strategic positioning.
The first morning of this two day workshop focuses on determining that you or your decision makers are getting your competitive picture right. To be sure that correct assumptions are driving competitor comparisons, you need to test your competitive story with Key Success Factors and a comparative Financial Snapshot. “Key Success Factors” (KSF) reflect management and analyst assumptions about the drivers of success in a strategic group. It can be a powerful tool for quickly identifying where advantage may reside and whether your company has it.
You will learn how to:
- Design a simple but powerful format for competitor comparison.
- Understand the impact of industry structure, life cycle, and trends for selecting KSF.
- Create a comparative, quantitative KSF analysis of 5 or so factors in order to provide a succinct quantitative perspective of how competitors stack up against each other.
- Craft a telling and tight Financial Snapshot to identify comparative performance.
- Surprise yourself when you test competitive assumptions or KSF against the competitor group’s Financial Snapshot.
The next day and a half will focus on how to anticipate long-term disruptions. In a world filled with uncertainty, long term planning is at best an art. The longer the forecasting horizon, the less accurate the traditional prediction tools are. Worse – change drivers that can change your industry’s structural foundation and wreak havoc on your company’s business model are extremely hard to predict. Yet not all unknowns are also unknowable. There are some tools available to intelligence professionals to try and mitigate uncertainty. Scenario Analysis is probably the most effective tool for anticipating and responding to potential disruptions.
Scenario Analysis is a means to explore multiple outcomes to complex or rapidly changing competitive situations. A perfect complement to War Gaming, which focuses on short to medium term predictions, Scenario Analysis facilitates decision makers’ strategic thinking about longer term competitive landscapes. It is a critical element of any company’s early warning system. Filled with real-world cases and examples, Scenario Analysis relies on identifying and examining drivers of uncertainty – those factors and forces that can propel a particular competitive situation forward. Drivers may include regulatory developments, competitive behavior, industry consolidation, and other external forces over which organizations have little or no control. You will learn how to identify, qualify and apply key drivers to develop alternative outcomes, and plan your strategic moves to match those expected outcomes.
- You are a global business impacted by the price of commodities and relationships with foreign governments. You want to create an early warning system to help discern when and how to shift your client portfolio. You run a scenario analysis using the fluctuating price of the commodities, shifts in government orientation, a black swan disruptive technology, and product demand.
- You are venturing into a new consumer product area that crosses over different functional categories. You will have to charge a premium for the product to become profitable. You run a scenario analysis with drivers focused on consumer’s willingness to pay, the product’s relationship with regulators, whether endorsements will be forthcoming and whether demand is elastic.
Ben Gilad is the best instructor I have ever had at tying the principles of CI and economics into realistic applicable business decisions that direct successful strategies in the real world.
Great Course…The concepts taught in the War Gaming class are immediately applicable to any business and any industry, at any phase of the business life cycle.
Enriching, exciting, and fun!
This will challenge you to be a better CI professional regardless of your current level of expertise!
Fantastic real-world application of theory that was in the Anticipating Disruptions course CI403 ®. It allows you to see academia hit the business world head on.