The financial analysis should demonstrate two things:
1. Is the firm itself financially healthy? Look at its performance over time, both in terms of being profitable or solvent, and how the market has rewarded it. In general, this portion of the assignment should be an in-depth analysis of the financial status of the firm(s) being considered.
2. How strong is it relative to its competition? Are its competitors more or less profitable over time? How has the market valued them?
The internal analysis of the firm describes the strengths and weaknesses the firm brings to its competitive environment. What resources or capabilities can a firm leverage against its competitors and/or to tap new markets? What weaknesses we might see that will handicap the firm in the future? What are the key strategies the firm is pursuing? Explain whether the strategies are good or bad, and provide support for your arguments.
3. Identification of the firm’s strategy and its competitors’ strategies
This section is meant to accomplish two goals: First, you are asked to summarize the focal firm’s strategy as well as its competitors’ strategies, based upon your analysis of the internal and the external environments. Second, you should discuss why each firm has chosen its respective strategy, as well as the main advantages and disadvantages of each, based upon the firm’s characteristics. Keep in mind that this does not mean that you should replicate the same level of analysis that you have performed on the focal firm on every competitor. However, you should be familiar enough with each competitor to discuss its strategy at a high level. This task should be accomplished by means of a table, as follows:
Firm Name Strategy Highlights Rationale for Strategy Pros and Cons
Focal firm …
Competitor 1 …
Competitor 2 …
…
4. Value Chain Analysis: Outline
In addition to the individual company analysis, each student is asked to write a thorough value chain analysis. A value chain analysis allows the firm to understand the parts of its operations that create value and those that do not. It is a template that firms use to: (1) understand their cost position, and (2) identify multiple means that might be used to facilitate implementation of a chosen business-level strategy.
A complete value chain analysis broadly contains two main parts:
6. Primary activities involved with: (1) a product’s physical creation, (2) a product’s sale and distribution to buyers, and (3) the product’s service after the sale;
7. Support activities that provide the support necessary for the primary activities to take place.
As illustrated below, the value chain shows how a product moves from raw-material stage to the final customer. To be a source of competitive advantage, a resource or capability must allow the firm: (1) to perform an activity in a manner that is superior to the way competitors perform it, or (2) to perform a value-creating activity that competitors cannot complete.
As simple illustrations, the value chain analysis should include some the following ideas:
(A) Primary Activities
(1) Inbound Logistics. What activities are used to receive, store, and disseminate inputs to a product (materials handling, warehousing, inventory control, etc.) in your company?
(2) Operations. Describe the activities necessary to convert the inputs provided by inbound logistics into final product form (machining, packaging, assembly, etc.) What are the chief elements of your company’s production strategy? (e.g., making plant upgrades, use of TQM programs, etc)?
(3) Outbound Logistics. What activities are involved with collecting, storing, and physically distributing the product to your customers (e.g., finished goods warehousing, order processing, etc)?
(4) Marketing & Sales. Analyze the chief elements of your company’s marketing strategy (e.g., pricing, advertising, promotions, distribution channels, deployment of all the other weapons of competitive rivalry).
(5) Service. Describe the activities designed to enhance or maintain your product’s value (repair, training, adjustment, etc).
(B) Support Activities
(6) Firm Infrastructure. Analyze the activities that support the work of the entire value chain (e.g., general management, planning, finance, accounting, legal, government relations, etc). For example, what are the chief elements of your company’s finance strategy (e.g., the use of debt, dividend payments, sales/purchases of stock, use of cash, etc)? What is your company’s strategy for exercising social responsibility and being a good corporate citizen?
(7) Human Resource Management. How does your company recruit, hire, train, develop, and compensate its personnel (e.g., use of overtime, worker compensation)?
(8) Technology Development. What activities are completed to improve your firm’s product and what processes are used to manufacture it (process equipment, basic research, product design, etc)?
(9) Procurement. Describe the activities completed to purchase the inputs needed to produce your firm’s products (raw materials and supplies, machines, laboratory equipment, etc).
In addition, the value chain analysis should include the following:
(10) Competitor Analysis. Benchmark each activity against the closest competitor and industry averages. For example, in your analysis, elucidate what each firm spends on marketing? What marketing methods are used? Did the marketing tactics change in response to competition? In addition, each activity should be examined relative to competitors’ abilities and rated as superior, equivalent or inferior.
(11) Temporal Comparison. Compare each activity over two logical points in time (change in the economy, introduction of a new product in the industry, disaster like BP, Toyota recalls).
5. Recommendations
Explain why you believe this is the best option for the firm.
Mediocre analyses demonstrate few of these attributes. Instead of “telling a story” about a firm’s corporate strategies, these analyses simply repeat the facts and assertions contained in the materials you gather. Critical facts about the company are ignored, or not integrated into the paper. For example, a mediocre analysis will often include a summary and cursory discussion of a firm’s profit and loss statement and its balance sheet, but will fail to discuss the strategic implications of these analyses. The author(s) of these analyses often seem more interested in making sure that every theory or model mentioned by the professor or in the book is mentioned in the report than making sure that the report tells an integrated story about a firm’s strategy. Often, the different parts of these mediocre analyses are not linked–almost as if different people wrote different sections, but no one took the time to bring these sections together or to discuss the implications of each section for other sections. These analyses rarely generate any counter-intuitive or surprising analyses or recommendations. At the end of reading or listening to these analyses, the reader/listener is only convinced that, in fact, members of the group read the case. The reader is not convinced about the wisdom of any final recommendations.
Needs improvement – an element contains incorrect information, lacks support for analysis, contains mere restatement of facts, and/or does not incorporate appropriate use of terminology. For instance, in a 5-Forces analysis a student incorrectly states the strength of the force (high, moderate, low).
