In Chapter 3 we described how to use the tools of industry and competitive analysis to assess a company's external environment and lay the groundwork for matching a company's strategy to its external situation. In this chapter we discuss the techniques of evaluating a company's resource capabilities, relative cost position, and competitive strength vis-à-vis its rivals. The analytical spotlight will be trained on five questions:

1. How well is the company's present strategy working?

2. What are the company's resource strengths and weaknesses, and its external opportunities and threats?

3. Are the company's prices and costs competitive?

4. Is the company competitively stronger or weaker than key rivals?

5. What strategic issues and problems merit front-burner managerial attention?

We will describe four analytical tools that should be used to probe for answers to these questions—SWOT analysis, value chain analysis, benchmarking, and competitive strength assessment. All four are valuable techniques for revealing a company's competitiveness and for helping company managers match their strategy to the company's own particular circumstances.