Fitbit Case Analysis and answer the questions

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Uneelcbgggre

Writing

MGT 432 Business Strategy Venture Development

Jacksonville University

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Read ch3 and ch4 of the book (Crafting and Executing Strategy: THE QUEST FOR COMPETITIVE ADVANTAGE

ISBN 978-1-259-73278-2)(I can mail you the ebook)

Read Case #7 Fitbit, Inc.: Has The Company Outgrown Its Strategy? and answer the following questions. (the case also in the book)

  1. What is competition like in the activity tracking industry? How strong is the competitive strength of buyers and suppliers? How do you describe the competitive strength of new entrants and substitute products? Rivalry among competing sellers?
  2. Prepare a Five Forces Model of Competition to support your conclusion.
  3. Analyze the company's financial performance. Do trends suggest that its strategy is working?
  4. To perform a SWOT analysis for Fitbit, how do you describe the company's primary strengths and weaknesses? What external opportunities and threats exist? Provide a summary of a SWOT analysis.
  5. What recommendations would you make to Fitbit management to address the most important strategic issues facing the company?

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CHAPTER 3 EVALUATING A COMPANY’S EXTERNAL ENVIRONMENT THIS CHAPTER WILL HELP YOU UNDERSTAND: LO 1 How to recognize the factors in a company’s broad macroenvironment that may have strategic significance. LO 2 How to use analytic tools to diagnose the competitive conditions in a company’s industry. LO 3 How to map the market positions of key groups of industry rivals. LO 4 How to use multiple frameworks to determine whether an industry’s outlook presents a company with sufficiently attractive opportunities for growth and profitability. 3–2 FIGURE 3.1 From Thinking Strategically about the Company’s Situation to Choosing a Strategy Chapter 3 Chapter 4 3–3 I. ASSESSING A COMPANY’S MACRO-ENVIRONMENT 3–4 CORE CONCEPT ♦ The macro-environment encompasses the broad environmental context in which a company’s industry is situated that includes strategically relevant components over which the firm has no direct control. 3–5 CORE CONCEPT ♦ PESTEL analysis focuses on the six principal components of strategic significance in the macro-environment: ● Political ● Economic ● Social ● Technological ● Environmental ● Legal 3–6 FIGURE 3.2 The Components of a Company’s Macro-Environment 3–7 Discussion question: For a retailer (e.g., Target or Walmart), how these six macro-environment factors have an impact on the firm’s business? 3–8 Discussion question: For a retailer (e.g., Target or Walmart), how these six macro-environment factors have an impact on the firm’s business? 3–9 II. ASSESSING A COMPANY’S INDUSTRY AND COMPETITIVE ENVIRONMENT 3–10 THE FIVE FORCES FRAMEWORK ◆ The Five Competitive Forces: ● Competition from rival sellers ● Competition from potential new entrants ● Competition from producers of substitute products ● Supplier bargaining power ● Customer bargaining power 3–11 FIGURE 3.3 The Five-Forces Model of Competition: A Key Analytical Tool Where does the primary competitive pressure come from for the following industry? • Car making industry (e.g. GM) • Taxi industry • Restaurant industry • Home decoration industry 3–12 COMPETITIVE PRESSURES THAT INCREASE RIVALRY AMONG COMPETING SELLERS ◆ Buyer demand is growing slowly or declining. ◆ It is becoming less costly for buyers to switch brands. ◆ Industry products are becoming less differentiated. ◆ There is unused production capacity, and\or products have high fixed costs or high storage costs. ◆ The number of competitors is increasing and\or they are becoming more equal in size and competitive strength. ◆ The diversity of competitors is increasing. ◆ High exit barriers keep firms from exiting the industry. Business in the News: Smartphone Sales Will Decline For the First Time Ever In 2018 | Fortune 3–13 FIGURE 3.4 Factors Affecting the Strength of Rivalry Switching Cost: • • Switching from Netflix to Hulu Switching from Windows OS to iOS 3–14 COMPETITIVE PRESSURES ASSOCIATED WITH THE THREAT OF NEW ENTRANTS ◆ Entry Threat Considerations: ● Expected defensive reactions of incumbent firms ● Strength of barriers to entry ● Attractiveness of a particular market’s growth in demand and profit potential ● Capabilities and resources of potential entrants ● Entry of existing competitors into market segments in which they have no current presence New brands in the smart phone industry? 3–15 MARKET ENTRY BARRIERS FACING NEW ENTRANTS ◆ Incumbent cost advantages related to learning and experience, proprietary patents and technology, favorable locations, and lower fixed costs ◆ Strong brand preferences and customer loyalty ◆ Strong “network effects” in customer demand ◆ High capital requirements ◆ Building a network of distributors or dealers and securing adequate space on retailers’ shelves ◆ Restrictive regulatory and trade policies What are the entry barriers for a potential new comer in the smart phone industry? 3–16 FIGURE 3.5 Factors Affecting the Threat of Entry 3–17 COMPETITIVE PRESSURES FROM THE SELLERS OF SUBSTITUTE PRODUCTS ◆ Substitute Products Considerations: 1. Readily available and attractively priced? 2. Comparable or better in terms of quality, performance, and other relevant attributes? 3. Offer lower switching costs to buyers? ◆ Indicators of Substitutes’ Competitive Strength: ● Increasing rate of growth in sales of substitutes ● Substitute producers adding new output capacity ● Increasing profitability of substitute producers Uber vs. Taxi Airbnb vs. Hotel 3–18 FIGURE 3.6 Factors Affecting Competition from Substitute Products 3–19 COMPETITIVE PRESSURES STEMMING FROM SUPPLIER BARGAINING POWER ◆ Supplier Bargaining Power Depends On: ● Strength of demand for and availability of suppliers’ products. ● Whether suppliers provide a differentiated input that enhances the performance of the industry’s product. ● Industry members’ costs for switching among suppliers ● Size and number of suppliers relative to industry members ● Possibility of backward integration into suppliers’ industry ● Fraction of the cost of the supplier’s product relative to the total cost of the industry’s product ● Availability of good substitutes for suppliers’ products ● Whether industry members are major customers of suppliers. Does Microsoft or Intel have strong bargaining power that influences PC industry’s profitability/attractiveness? 3–20 FIGURE 3.7 Factors Affecting the Bargaining Power of Suppliers 3–21 COMPETITIVE PRESSURES STEMMING FROM BUYER BARGAINING POWER AND PRICE SENSITIVITY ◆ Buyer Bargaining Power Considerations: ● Strength of buyers’ demand for sellers’ products ● Degree to which industry goods are differentiated ● Buyers’ costs for switching to competing sellers or substitutes ● Number and size of buyers relative to number of sellers ● Threat of buyers’ integration into sellers’ industry ● Buyers’ knowledge of products, costs and pricing ● Buyers’ discretion in delaying purchases Buyers’ price sensitivity due to low profits, size of purchase, and consequences of purchase Does Walmart or Amazon have strong bargaining power 3–22 over small manufacturers? ● FIGURE 3.8 Factors Affecting the Bargaining Power of Buyers 3–23 IS THE COLLECTIVE STRENGTH OF THE FIVE COMPETITIVE FORCES CONDUCIVE TO GOOD PROFITABILITY? ◆ Is the state of competition in the industry stronger than “normal”? ◆ Can industry firms expect to earn decent profits given prevailing competitive forces? ◆ Are some of the competitive forces sufficiently powerful to undermine industry profitability? ● Even one powerful force may be enough to make the industry unattractive in terms of its profit potential Is the industry attractive or not? 3–24 CORE CONCEPT ♦ The strongest of the five forces determines the extent of the downward pressure on an industry’s profitability. ♦ Having more than one strong force means that an industry has multiple competitive challenges with which to cope. 3–25 COMPLEMENTORS AND THE VALUE NET ◆ How the Value Net differs from the Five Forces ● Focuses on the interactions of industry participants with a particular (focal) company. ● Defines the category of “competitors” to include the focal firm’s direct competitors, industry rivals, the sellers of substitute products, and potential entrants. ● Introduces a new category of industry participant— “complementors”—producers of products that enhance the value of the focal firm’s products when they are used together. 3–26 CORE CONCEPT ♦ Complementors are the producers of complementary products, which are products that enhance the value of the focal firm’s products when they are used together. 3–27 FIGURE 3.9 The Value Net 3–28 FIGURE 3.9 The Value Net E.g., HP (Printer) Which is a competitor and which is a complementor for HP Printer? How do they have a distinctive impact on HP Printer’s profitability? A. Apple iMac B. Brother Printer 3–29 INDUSTRY DYNAMICS AND THE FORCES DRIVING CHANGE ◆ Driving forces analysis has three steps: 1. Identifying what the driving forces are. 2. Assessing whether the drivers of change are, on the whole, acting to make the industry more or less attractive. 3. Determining what strategy changes are needed to prepare for the impact of the driving forces. 3–30 3–31 STRATEGIC GROUP ANALYSIS ◆ Strategic Group ● Consists of those industry members with similar competitive approaches and positions in the market: ❖ Having comparable product-line breadth ❖ Emphasizing the same distribution channels ❖ Depending on identical technological approaches ❖ Offering the same product attributes to buyers ❖ Offering similar services and technical assistance 3–32 CORE CONCEPTS ♦ A strategic group is a cluster of industry rivals that have similar competitive approaches and market positions. ♦ Strategic group mapping is a technique for displaying the different market or competitive positions that rival firms occupy in the industry. 3–33 USING STRATEGIC GROUP MAPS TO ASSESS THE MARKET POSITIONS OF KEY COMPETITORS ◆ Constructing a strategic group map: ● Identify the competitive characteristics that delineate strategic approaches used in the industry. ● Plot the firms on a two-variable map using pairs of the competitive characteristics. ● Assign firms occupying about the same map location to the same strategic group. ● Draw circles around each strategic group, making the circles proportional to the size of the group’s share of total industry sales revenues. 3–34 TYPICAL VARIABLES USED IN CREATING GROUP MAPS ◆ Price/quality range (high, medium, low) ◆ Geographic coverage (local, regional, national, global) ◆ Product-line breadth (wide, narrow) ◆ Degree of service offered (no frills, limited, full) ◆ Distribution channels (retail, wholesale, Internet, multiple) ◆ Degree of vertical integration (none, partial, full) ◆ Degree of diversification into other industries (none, some, considerable) 3–35 ILLUSTRATION CAPSULE 3.1 Comparative Market Positions of Producers in the U.S. Beer Industry: A Strategic Group Map Example • Can you draw a Comparative Market Positions for Higher Education Industry? • Based on the two dimensions, where should JU locate and who is the close competitor for JU? Footnote: Circles are drawn roughly proportional to the sizes of the chains, based on revenues. 3–36 THE VALUE OF STRATEGIC GROUP MAPS ◆ Maps are useful in identifying which industry members are close rivals and which are distant rivals. ◆ Not all map positions are equally attractive: 1. Prevailing competitive pressures from the industry’s five forces may cause the profit potential of different strategic groups to vary. 2. Industry driving forces may favor some strategic groups and hurt others. 3–37 III. ASSESSING A COMPANY’S COMPETITORS 3–38 COMPETITOR ANALYSIS ◆ Competitive Intelligence ● ◆ Information about rivals that is useful in anticipating their next strategic moves. Signals of the Likelihood of Strategic Moves: ● ● ● ● Rivals under pressure to improve financial performance Rivals seeking to increase market standing Public statements of rivals’ intentions Profiles developed by competitive intelligence units 3–39 FIGURE 3.10 A Framework for Competitor Analysis Apple’s move on autonomous car: • The first details on the Apple Car started leaking out at the beginning of 2015. • In August 2018, rumors suggested Apple could potentially be exploring the idea of a full Apple-branded vehicle once again. 3–40 A FRAMEWORK FOR COMPETITOR ANALYSIS ◆ Indicators of a rival firm’s likely strategic moves and countermoves: ● The rival firm’s current strategy ● The rival firm’s objectives ● The rival firm’s capabilities ● The rival firm’s assumptions about itself and its industry 3–41 CREATING A STRATEGIC PROFILE OF A RIVAL COMPETITOR FIRM ◆ ◆ Current Strategy ● How is the competitor positioned in the market? ● What is the basis for its competitive advantage? ● What kinds of investments is it making (as an indicator of its expected growth trajectory)? Objectives ● What are its financial performance objectives? ● What are its strategic objectives? ● How well is it performing in meeting its objectives? ● Is it under pressure to improve its performance? 3–42 CREATING A STRATEGIC PROFILE OF A RIVAL COMPETITOR FIRM (cont’d) ◆ ◆ Capabilities ● What are the competitor’s current capabilities? ● What weaknesses does it have? ● Which capabilities is it making efforts to obtain? Assumptions ● What do the competitor’s top managers believe about their strategic situation? ● How will their beliefs affect the competitor’s behavior in the market? 3–43 IV. IDENTIFYING KEY SUCCESS FACTORS (KSFs) 3–44 KEY SUCCESS FACTORS ◆ Key Success Factors (KSFs) ● Are the strategy elements, product and service attributes, operational approaches, resources, and competitive capabilities that are necessary for competitive success by any and all firms in an industry. ● Vary from industry to industry, and over time within the same industry, and in importance as drivers of change and competitive conditions change. What is your BSG company’s Key Success Factors? 3–45 IDENTIFICATION OF KEY SUCCESS FACTORS 1. On what basis do buyers of the industry’s product choose between the competing brands of sellers? That is, what product attributes and service characteristics are crucial to competitive success? 2. Given the nature of competitive rivalry prevailing in the marketplace, what resources and competitive capabilities must a firm have to be competitively successful? 3. What shortcomings are almost certain to put a firm at a significant competitive disadvantage? 3–46 THE INDUSTRY OUTLOOK FOR PROFITABILITY ◆ An industry environment is fundamentally attractive if it presents a company with good opportunity for above-average profitability. ◆ An industry environment is fundamentally unattractive if a firm’s profit prospects in the industry are unappealingly low. 3–47 FACTORS TO CONSIDER IN ASSESSING INDUSTRY ATTRACTIVENESS ◆ How the firm is being impacted by the state of the macro-environment. ◆ Whether strong competitive forces are squeezing industry profitability to subpar levels. ◆ Whether the presence of complementors and the possibility of cooperative actions improve the company’s prospects. ◆ Whether industry profitability will be favorably or unfavorably affected by the prevailing driving forces. ◆ Whether the firm occupies a stronger market position than rivals. ◆ Whether this is likely to change in the course of competitive interactions. ◆ How well the firm’s strategy delivers on industry key success factors. 3–48 INDUSTRY ATTRACTIVENESS IS NOT THE SAME FOR ALL PARTICIPANTS ● Industry outsiders may conclude that they have the resources to easily hurdle the barriers to entering an attractive industry while other outsiders may find the same industry unattractive because they do not want to challenge market leaders and have better opportunities elsewhere. A particular industry’s attractiveness depends in large part on whether a company has the resources and capabilities to be competitively successful and profitable in that environment. 3–49 WHAT SHOULD A CURRENT COMPETITOR DECIDE ABOUT ITS INDUSTRY? ◆ When a competitor decides an industry is attractive, it should invest aggressively to capture the opportunities it sees and to improve its long-term competitive position in the business. ◆ When a strong competitor concludes its industry is relatively unattractive and lacking in opportunity, it may elect to protect its present position, investing cautiously if at all and looking for opportunities in other industries. ◆ A competitively weak company in an unattractive industry may see its best option as finding a buyer, perhaps a rival, to acquire its business. 3–50 CHAPTER 4 Evaluating a Company’s Resources, Capabilities, and Competitiveness QUESTION 1: HOW WELL IS THE FIRM’S PRESENT STRATEGY WORKING? The three best indicators of how well a company’s strategy is working are: 1. Whether the company is achieving its stated financial and strategic objectives 2. Whether its financial performance is above the industry average 3. Whether it is gaining customers and increasing its market share SPECIFIC INDICATORS OF STRATEGIC SUCCESS • Trends in the firm’s sales and earnings growth • Trends in the firm’s stock price • The firm’s overall financial strength • The firm’s customer retention rate • The rate at which new customers are acquired • Evidence of improvement in internal processes such as defect rate, order fulfillment, delivery times, days of inventory, and employee productivity STRATEGIC MANAGEMENT PRINCIPLE (1 of 14) Sluggish financial performance and second-rate market accomplishments almost always signal weak strategy, weak execution, or both. TABLE 4.1 Key Financial Ratios: How to Calculate Them and What They Mean (1 of 8) Profitability Ratios How Calculated What It Shows Gross profit margin Sales revenues − Cost of goods sold Sales revenues Shows the percentage of revenues available to cover operating expenses and yield a profit. Operating profit margin (or return on sales) Sales revenues − Operating expenses Sales revenues or Operating income Sales revenues Shows the profitability of current operations without regard to interest charges and income taxes. Earnings before interest and taxes is known as EBIT in financial and business accounting. Net profit margin (or net return on sales) Profits after taxes Sales revenues Shows after-tax profits per dollar of sales. Profits after taxes + Interest Total assets A measure of the return on total investment in the enterprise. Interest is added to after-tax profits to form the numerator, since total assets are financed by creditors as well as by stockholders. Total return on assets Jump to Appendix 2 long image description TABLE 4.1 Key Financial Ratios: How to Calculate Them and What They Mean (2 of 8) Profitability Ratios How Calculated Net return on total assets (ROA) Profits after taxes Total assets What It Shows A measure of the return earned by stockholders on the firm’s total assets. Return on stockholders’ equity (ROE) Profits after taxes Total stockholders’ equity The return stockholders are earning on their capital investment in the enterprise. A return in the 12%–15% range is average. Return on invested capital (ROIC)— sometimes referred to as return on capital employed (ROCE)​ Profits after taxes Long-term debt + Total stockholders’ equity A measure of the return that shareholders are earning on the monetary capital invested in the enterprise. A higher return reflects greater bottom-line effectiveness in the use of long-term capital. Jump to Appendix 2 long image description TABLE 4.1 Key Financial Ratios: How to Calculate Them and What They Mean (3 of 8) Liquidity Ratios Current ratio Working capital How Calculated What It Shows Current assets Current liabilities Shows a firm’s ability to pay current liabilities using assets that can be converted to cash in the near term. Ratio should be higher than 1.0. Current assets − Current liabilities The cash available for a firm’s day-to-day operations. Larger amounts mean the company has more internal funds to (1) pay its current liabilities on a timely basis and (2) finance inventory expansion, additional accounts receivable, and a larger base of operations without resorting to borrowing or raising more equity capital. Jump to Appendix 3 long image description TABLE 4.1 Key Financial Ratios: How to Calculate Them and What They Mean (6 of 8) Activity Ratios How Calculated Days of inventory Inventory Cost of goods sold ÷ 365 Inventory turnover Cost of goods sold Inventory Average collection period Accounts receivable Total sales ÷ 365 or Accounts receivable Average daily sales What It Shows Measures inventory management efficiency. Fewer days of inventory are better. Measures the number of inventory turns per year. Higher is better. Indicates the average length of time the firm must wait after making a sale to receive cash payment. A shorter collection time is better. Jump to Appendix 4 long image description TABLE 4.1 Key Financial Ratios: How to Calculate Them and What They Mean (7 of 8) Other Ratios How Calculated What It Shows Dividend yield on common stock Annual dividends per share Current market price per share A measure of the return that shareholders receive in the form of dividends. A “typical” dividend yield is 2%–3%. The dividend yield for fast-growth companies is often below 1%; the dividend yield for slow-growth companies can run 4%–5%. Price-toearnings (P/E) ratio Current market price per share Earnings per share P/E ratios above 20 indicate strong investor confidence in a firm’s outlook and earnings growth; firms whose future earnings are at risk or likely to grow slowly typically have ratios below 12. Annual dividends per share Earnings per share Indicates the percentage of after-tax profits paid out as dividends. Dividend payout ratio Jump to Appendix 5 long image description QUESTION 2: WHAT ARE THE FIRM’S MOST IMPORTANT RESOURCES AND CAPABILITIES, AND WILL THEY GIVE THE FIRM A LASTING COMPETITIVE ADVANTAGE OVER RIVAL COMPANIES? ◆ Competitive assets ● Are the firm’s resources and capabilities ● Are the determinants of its competitiveness and ability to succeed in the marketplace ● Are what a firm’s strategy depends on to develop sustainable competitive advantage over its rivals CORE CONCEPTS (1 of 9) A resource is a competitive asset that is owned or controlled by a firm. A capability or competence is the capacity of a firm to perform an internal activity competently through deployment of a firm’s resources. A firm’s resources and capabilities represent its competitive assets and are determinants of its competitiveness and ability to succeed in the marketplace. STRATEGIC MANAGEMENT PRINCIPLE (2 of 14) Resource and capability analysis is a powerful tool for sizing up a firm’s competitive assets and determining if they can support a sustainable competitive advantage over market rivals. TABLE 4.2 Types of Company Resources (1 of 2) Tangible resources • Physical resources: land and real estate; manufacturing plants, equipment, or distribution facilities; the locations of stores, plants, or distribution centers, including the overall pattern of their physical locations; ownership of or access rights to natural resources (such as mineral deposits) • Financial resources: cash and cash equivalents; marketable securities; other financial assets such as a company’s credit rating and borrowing capacity • Technological assets: patents, copyrights, production technology, innovation technologies, technological processes • Organizational resources: IT and communication systems (satellites, servers, workstations, etc.); other planning, coordination, and control systems; the company’s organizational design and reporting structure Jump to Appendix 6 long image description TABLE 4.2 Types of Resources (2 of 2) Intangible resources • Human assets and intellectual capital: the education, experience, knowledge, and talent of the workforce, cumulative learning, and tacit knowledge of employees; collective learning embedded in the organization, the intellectual capital and know-how of specialized teams and work groups; the knowledge of key personnel concerning important business functions; managerial talent and leadership skill; the creativity and innovativeness of certain personnel • Brands, company image, and reputational assets: brand names, trademarks, product or company image, buyer loyalty and goodwill; company reputation for quality, service, and reliability; reputation with suppliers and partners for fair dealing • Relationships: alliances, joint ventures, or partnerships that provide access to technologies, specialized know-how, or geographic markets; networks of dealers or distributors; the trust established with various partners • Company culture and incentive system: the norms of behavior, business principles, and ingrained beliefs within the company; the attachment of personnel to the company’s ideals; the compensation system and the motivation level of company personnel Jump to Appendix 6 long image description IDENTIFYING CAPABILITIES • An organizational capability • Is the intangible but observable capacity of a firm to perform a critical activity proficiently using a related combination (cross-functional bundle) of its resources • Is knowledge-based, residing in people and in a firm’s intellectual capital or in its organizational processes and systems, emboding tacit knowledge CORE CONCEPTS (2 of 9) A resource bundle is a linked and closely integrated set of competitive assets centered around one or more cross-functional capabilities. The VRIN Test for sustainable competitive advantage asks if a resource is Valuable, Rare, Inimitable, and Non-substitutable. VRIN TESTING: RESOURCES AND CAPABILITIES ◆ Identifying the firm’s resources and capabilities by testing the competitive power of its resources and capabilities: ● Is the resource (or capability) competitively valuable? ● Is the resource rare—is it something rivals lack? ● Is the resource hard to copy (inimitable)? ● Is the resource invulnerable to the threat of substitution of different types of resources and capabilities (non-substitutable)? VRIN: FOUR TESTS OF A RESOURCE’S COMPETITIVE POWER Support for competitive advantage? Support for sustained competitive advantage? Valuable Inimitable Resource Rare Nonsubstitutable Jump to Appendix 7 long image description CORE CONCEPTS (3 of 9) Social complexity (company culture, interpersonal relationships among managers or R&D teams, trust-based relations with customers or suppliers) and causal ambiguity are two factors that inhibit the ability of rivals to imitate a firm’s most valuable resources and capabilities. Causal ambiguity makes it very hard to figure out how a complex resource contributes to competitive advantage and therefore exactly what to imitate. STRATEGIC MANAGEMENT PRINCIPLE (3 of 14) A firm requires a dynamically evolving portfolio of resources and capabilities to sustain its competitiveness and help drive improvements in its performance. CORE CONCEPT (4 of 9) A dynamic capability is the ongoing capacity of a firm to modify its existing resources and capabilities or create new ones by: • Improving existing resources and capabilities incrementally • Adding new resources and capabilities to the firm’s competitive asset portfolio MANAGING RESOURCES AND CAPABILITIES DYNAMICALLY ◆ ◆ Threats to resources and capabilities ● Rivals providing better substitutes over time ● Capabilities decaying from benign neglect ● Disruptive competitive environment change Manage capabilities dynamically by: ● Attending to the ongoing modification of existing competitive assets ● Taking advantage of any opportunities to develop totally new kinds of capabilities QUESTION 3: WHAT ARE THE FIRM’S STRENGTHS AND WEAKNESSES IN RELATION TO MARKET OPPORTUNITIES AND EXTERNAL THREATS? ◆ SWOT Analysis ● Is a powerful tool for sizing up a firm’s: ❖ Internal strengths (the basis for strategy) ❖ Internal weaknesses (deficient capabilities) ❖ Market opportunities (strategic objectives) ❖ External threats (strategic defenses) CORE CONCEPT (5 of 9) SWOT analysis is a simple but powerful tool for sizing up a company’s strengths and weaknesses, its market opportunities, and the external threats to its future well-being. STRATEGIC MANAGEMENT PRINCIPLE (4 of 14) Basing a company’s strategy on its most competitively valuable strengths gives the company its best chance for market success. IDENTIFYING A COMPANY’S INTERNAL STRENGTHS ◆ A competence: ● ◆ A core competence: ● ◆ Is an activity that a firm has learned to perform with proficiency—a true capability Is a proficiently performed internal activity that is central to a firm’s strategy and competitiveness A distinctive competence: ● Is a competitively valuable activity that a firm performs better than its rivals CORE CONCEPTS (6 of 9) A competence is an activity that a firm has learned to perform with proficiency—a capability, in other words. A core competence is an activity that a firm performs proficiently and that is also central to its strategy and competitive success. A distinctive competence is a competitively important activity that a firm performs better than its rivals—it thus represents a competitively superior internal strength. IDENTIFYING A FIRM’S WEAKNESSES AND COMPETITIVE DEFICIENCIES ◆ A weakness (competitive deficiency): ● ◆ Is something a firm lacks or does poorly (in comparison to others) or a condition that puts it at a competitive disadvantage in the marketplace Types of weaknesses ● Inferior skills, expertise, or intellectual capital ● Deficiencies in physical, organizational, or intangible assets ● Missing or competitively inferior capabilities in key areas CORE CONCEPTS (7 of 9) A firm’s strengths represent its competitive assets. A firm’s weaknesses are shortcomings that constitute competitive liabilities. IDENTIFYING A COMPANY’S MARKET OPPORTUNITIES ◆ Characteristics of market opportunities An absolute “must pursue” market: ❖ Represents much potential but is hidden in “fog of the future” ● A marginally interesting market: ❖ Presents high risk and questionable profit potential ● An unsuitable or mismatched market: ❖ Is best avoided as the firm’s strengths are not matched to market factors ● STRATEGIC MANAGEMENT PRINCIPLE (5 of 14) A company is well advised to pass on a particular market opportunity unless it has or can acquire the competencies needed to capture it. IDENTIFYING THREATS TO A FIRM’S FUTURE PROFITABILITY ◆ ◆ Types of threats: ● Normal course-of-business threats ● Sudden-death (survival) threats Considering threats ● Identify the threats to the firm’s future prospects ● Evaluate what strategic actions can be taken to neutralize or lessen their impact TABLE 4.3 What to Look for in Identifying a Company’s Strengths, Weaknesses, Opportunities, and Threats (1 of 4) Potential Strengths and Competitive Potential Weaknesses and Competitive Assets Deficiencies • Competencies that are well matched to industry key success factors • No clear strategic vision • Ample financial resources to grow the business • No well-developed or proven core competencies • Strong brand-name image or company reputation • No distinctive competencies or competitively superior resources • Economies of scale or learning- and experience-curve advantages over rivals • Lack of attention to customer needs • Other cost advantages over rivals • A product or service with features and attributes that are inferior to those of rivals • Attractive customer base • Weak balance sheet, few financial resources to grow the firm, too much debt • Proprietary technology, superior technological skills, important patents • Higher overall unit costs relative to those of key competitors TABLE 4.3 What to Look for in Identifying a Company’s Strengths, Weaknesses, Opportunities, and Threats (2 of 4) Potential Strengths and Competitive Assets (continued) Potential Weaknesses and Competitive Deficiencies (continued) • Strong bargaining power over suppliers or buyers • Too narrow a product line relative to rivals • Resources and capabilities that are valuable and rare • Weak brand image or reputation • Resources and capabilities that are hard to copy and for which there are no good substitutes • Weaker dealer network than key rivals or lack of adequate distribution capability • Superior product quality • Lack of management depth • Wide geographic coverage or strong global distribution capability • A plague of internal operating problems or obsolete facilities • Alliances or joint ventures that provide access to valuable technology competencies, or attractive geographic markets • Too much underutilized plant capacity • Resources that are readily copied or for which there are good substitutes TABLE 4.3 What to Look for in Identifying a Company’s Strengths, Weaknesses, Opportunities, and Threats (3 of 4) Potential Market Opportunities Potential External Threats to a Company’s Future Profitability • Meeting sharply rising buy demand for the industry’s product • Increasing intensity of competition among industry rivals—may squeeze profit margins • Serving additional customer groups or market segments • Slowdowns in market growth • Expanding into new geographic markets • Likely entry of potent new competitions • Expanding the company’s product line to meet a broader range of customer needs • Growing bargaining power of customers or suppliers • Utilizing existing company skills or technological know-how to enter new product lines or new businesses • 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 TABLE 4.3 What to Look for in Identifying a Company’s Strengths, Weaknesses, Opportunities, and Threats (4 of 4) Potential Market Opportunities (continued) Potential External Threats to a Company’s Future Profitability (continued) • Taking advantage of failing trade barriers in attractive foreign markets • Adverse economic conditions that threaten critical suppliers or distributors • Acquiring rival firms or companies with attractive technological expertise or capabilities • Changes in technology—particularly disruptive technology that can undermine the company’s distinctive competencies • Taking advantage of emerging technological developments to innovate • Entering into alliances or joint ventures to expand the firm’s market coverage or boost its competitive capability • • • • Restrictive foreign trade policies Costly new regulatory requirements Tight credit conditions Rising prices on energy or other key inputs STRATEGIC MANAGEMENT PRINCIPLE (6 of 14) Simply making lists of a company’s strengths, weaknesses, opportunities, and threats is not enough. The payoff from SWOT analysis comes from the conclusions about a company’s situation and the implications for strategy improvement that flow from the four lists. FIGURE 4.2 The Steps Involved in SWOT Analysis: Identify the Four Components of SWOT, Draw Conclusions, Translate Implications into Strategic Actions Jump to Appendix 8 long image description QUESTION 4: HOW DO A FIRM’S VALUE CHAIN ACTIVITIES IMPACT ITS COST STRUCTURE AND CUSTOMER VALUE PROPOSITION? ◆ Signs of a firm’s competitive strength: ● Its prices and costs are in line with rivals ● Its customer-value proposition is competitive and cost effective ● Its bundled capabilities are yielding a sustainable competitive advantage STRATEGIC MANAGEMENT PRINCIPLE (7 of 14) The higher a firm’s costs are above those of close rivals, the more competitively vulnerable it becomes. Conversely, the greater the amount of customer value that a firm can offer profitably relative to close rivals, the less competitively vulnerable the firm becomes. THE CONCEPT OF A COMPANY VALUE CHAIN The value chain: ● Identifies the inner workings of the firm's customer value proposition and business model ● Permits a deep look at the firm’s cost structure and its ability to profitably offer low prices ● Reveals the emphasis that a firm places on activities that enhance differentiation and support higher prices CORE CONCEPT (8 of 9) A company’s value chain identifies the primary activities and related support activities that create customer value. FIGURE 4.3 A Representative Company Value Chain Jump to Appendix 9 long image description CORE CONCEPT (9 of 9) Benchmarking is a potent tool for improving a company’s own internal activities that is based on learning how other companies perform them and borrowing their “best practices.” USING BENCHMARKING TO ASSESS A FIRM’S VALUE CHAIN ACTIVITIES ◆ ◆ Benchmarking: ● Involves improving a firm’s internal activities based on learning from other firms’ “best practices” ● Assesses whether the cost competitiveness and effectiveness of a firm’s value chain activities are in line with its competitors’ activities Sources of benchmarking information ● Reports, trade groups, analysts, and customers ● Visits to benchmark companies ● Data from consulting firms STRATEGIC MANAGEMENT PRINCIPLE (9 of 14) Benchmarking the costs of a firm's activities against those of rivals provides hard evidence of whether the firm is cost-competitive. STRATEGIC MANAGEMENT PRINCIPLE (10 of 14) Performing value chain activities with capabilities that permit the firm to either outmatch rivals on differentiation or beat them on costs will give the firm a competitive advantage. QUESTION 5: IS THE FIRM COMPETITIVELY STRONGER OR WEAKER THAN KEY RIVALS? ◆ Assessing the firm’s overall competitive strength ● How does the firm rank relative to competitors on each of the important factors that determine market success? ● Does the firm have a net competitive advantage or disadvantage versus major competitors? STRATEGIC MANAGEMENT PRINCIPLE (11 of 14) High-weighted competitive strength ratings signal a strong competitive position and possession of competitive advantage; low ratings signal a weak position and competitive disadvantage. STEPS IN THE COMPETITIVE STRENGTH ASSESSMENT PROCESS 1. Make a list of the industry’s key success factors and measures of competitive strength or weakness. 2. Assign weights to each competitive strength measure based on its perceived importance. 3. Score competitors on each competitive strength measure and multiply by each measure by its corresponding weight. 4. Sum the weighted strength ratings on each factor to get an overall measure of competitive strength for each company. 5. Use overall strength ratings to draw conclusions about the company’s net competitive advantage or disadvantage and to take specific note of areas of strength and weakness.
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Running Head: CASE 07- FITBIT INC

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Case 07- Fitbit Inc.
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CASE 07- FITBIT INC

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Case 07- Fitbit Inc.
Question 1
a. The threat of new entrants, in this case, is MODERATE


Fitbit is a leader in the industry because it still had a market share of 25.9% in 2015. However,
the company’s market share is gradually declining since buyers want something more than
fitness level trackers.



Fitbit Inc. benefits from being the first company in the market to come up with a product, which
gave them a brand name that is reputable up to date.



The fitness trackers have a huge industry potential since millennials consider health and wellness
as essential aspects. This means that millennials are the biggest customers for this product. Fitbit
has embraced technology such as a mobile app and track technology to create a huge base of
users.

b. The bargaining power of the clients/customers/purchasers is HIGH


There is a high purchaser...


Anonymous
Really great stuff, couldn't ask for more.

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