© prentice-hall 2005 3-1 strategic management in action 3 assessing opportunities and threats:...
TRANSCRIPT
© Prentice-Hall 2005 3-1
Strategic Management in Action
3 Assessing Opportunities and Threats:
Doing an External Analysis
Mary Coulter
© Prentice-Hall 2005 3-2
Learning Outline
What is an external analysis? Differentiate between external opportunities and threats. Describe how organizations are open systems. Distinguish between the environment as information
perspective and the environment as source of resources perspective.
Explain how an external analysis is more than scanning the environment.
How do you do an external analysis? Describe the components in an organization’s specific
environment. Explain each of the forces in Porter’s five forces model.
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Learning Outline (contd.)
Describe the components in an organization’s general environment.
Discuss what types of external information strategic managers need and where they might find this information.
Describe the type of external information managers at different levels might need.
Why do an external analysis? Explain the benefits and challenges of doing an external
analysis.
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WHAT IS AN EXTERNAL ANALYSIS?
External AnalysisScan and evaluate various external environmental sectors impacting performance
OpportunitiesPositive external environmental trends thatimprove the organization’s performance
ThreatsNegative external environmental trends that
hinder the organization's performance
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Organizations as Open Systems
Organizations function as systems (Barnard, 1938)
Affect and impact environment
Open SystemInteracts with and responds to
its external environment
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Figure 3.2 Organizations as Open Systems
EnvironmentEnvironm
ent
Environment
Envir
onm
ent
Organization
Organization
Inputs Processes Outputs
Resources:PhysicalCapitalHuman Information
Organization Functions:Production-OperationsMarketingFinancial-AccountingHuman Resource Mgt.Research and DevelopmentInformation Systems
Managerial Activities:PlanningOrganizationLeadingControlling
GoodsServicesPerformance
Measures:FinancialProductivityAchieve Goal
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Table 3.1 Summary of Two Perspectives on Environment
Environment as Source of Information Environment viewed as source of information Environments differ in amount of uncertainty Uncertainty is determined by complexity and rate of
change Reducing uncertainty means obtaining information Amount of uncertainty determines amount and types
of information needed Information obtained by analyzing external
environment
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Table 3.1 (contd.)
Environment as Source of Resources Environment viewed as source of scarce and valued
resources Organizations depend on the environment for these
resources Resources are sought by competing organizations Dependency is determined by difficulty of obtaining and
controlling resources Reducing dependency means controlling environmental
resources Controlling environmental resources means knowing about
the environment and attempting to change or influence it
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External Environmental Sectors
Specific EnvironmentExternal sectors that directly impact the
organization’s strategic decisions by opening up opportunities or threats
General EnvironmentExternal sectors that indirectly affect the
organization’s strategic decisions and which may pose opportunities and threats
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Organization
Specific EnvironmentIndustry-Competitors
SubstituteProducts
BargainingPower of Suppliers
BargainingPower of Buyers
PotentialEntrants
Current Rivalry
General Environment
Technological
Political-Legal
Sociocultural
Demographic
Economic
Figure 3.3 An Organization’s External Environment
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Specific Environment
IndustryGroup(s) of organizations producing
similar or identical products Competitive Variables
Compete for customersCompete for resources
Assess an organization’s specific env.Porter’s five forces model
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Figure 3.4 Five Forces Model
IndustryCompetitors
Rivalry AmongExisting Firms
Suppliers
BargainingPower
of Suppliers
Potential Entrants
Threat of New Entrants
Buyers
BargainingPower
of Buyers
Substitutes
Threat of Substitute Products or Services
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Five Forces
Evaluating the Five Forces (from Table 3-2)
Current Rivalry among Existing FirmsCurrent Rivalry among Existing FirmsThreat Opportunity
–– –– –– –– –– –– –– –– ––
Numerous competitors Few competitorsEqually balanced competitors One or a few strong competitorsIndustry sales growth slowing Industry sales growth strongHigh fixed or inventory storage costs Low fixed or inventory storage costsNo differentiation or no switching costs Significant differentiation or switching costsLarge capacity increments required Minimal capacity increments requiredDiverse competitors Similar competitorsHigh strategic stakes Low strategic stakesHigh exit barriers Minimal exit barriers
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Five Forces (contd.)
Evaluating the Five Forces (from Table 3-2)
Potential EntrantsPotential EntrantsThreat Opportunity
–– –– –– –– –– –– ––
No or low economies of scale Significant economies of scaleNo other potential cost disadvantages Cost disadvantages from other aspectsWeak product differentiation Strong product differentiationMinimal capital requirements Huge capital requirementsMinimal switching costs Significant switching costsOpen access to distribution channels Controlled access to distribution channelsNo government policy protection Government policy protection
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Five Forces (contd.)
Evaluating the Five Forces (from Table 3-2)
Bargaining Power of BuyersBargaining Power of BuyersThreat Opportunity
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Buyer purchases large volumes Buyer purchases small volumesPurchases are significant part Purchases aren't significant part of buyer's costsPurchases standard or undifferentiated Purchases highly differentiated and unique
Buyer faces few switching costs Buyer faces significant switching costsBuyer's profits are low Buyer's profits are strong
Buyer can manufacture products Buyer can’t manufacture productsIndustry's products aren't important Industry's products are important
to quality of buyer's products to quality of buyer's productsBuyers have full information Buyers have limited information
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Five Forces (contd.)
Evaluating the Five Forces (from Table 3-2)
Bargaining Power of SuppliersBargaining Power of SuppliersThreat Opportunity
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Supplying industry has few companies Supplying industry has many companiesand is more concentrated and is fragmented
Supplier's products don’t have substitutes Supplier's products do have substitutesIndustry isn’t an important customer Industry is an important customerSupplier's product is an important input Supplier's product isn’t an important inputSupplier's products are differentiated Supplier's products aren't differentiatedSignificant switching costs Minimal switching costs in supplier's productsSupplier has ability to do Supplier doesn't have ability to do
what buying industry does what buying industry does
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Five Forces (contd.)
Evaluating the Five Forces (from Table 3-2)
Substitute ProductsSubstitute ProductsThreat Opportunity
– ––
There are few good substitutesThere are several not-so-good substitutes There are no good substitutes
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General Environment
Econo
mic
Dem
ographic
Sociocultural
Polit
ical
-Leg
al Technical Sources ofExternal Influence
Sources ofExternal Influence
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General Environment
EconomicAll the macroeconomic data, current statistics, trends, and changes
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Interest rates
Monetary exchange rates
Budget deficit-surplus
Trade deficit-surplus
Inflation rates
GNP or GDP
Consumer income, spending, and debt levels
Unemployment levels
Workforce productivity
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General Environment
DemographicsCurrent statistical data and trends in population characteristics
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Gender
Age
Income levels
Ethnic makeup
Education
Family composition
Geographic location
Birth rates
Employment status
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General Environment
Sociocultural
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Country's culture
Society's• Traditions
• Values
• Attitudes
• Beliefs
• Tastes
• Patterns of behavior
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General Environment
Political-Legal
• Federal, state, and local• Laws
• Regulations
• Judicial decisions
• Political forces
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General Environment
Examples of Significant Legislation Affecting Organizations (from Table 3-3)
Occupational Safety and Health Act of 1970 Consumer Product Safety Act of 1972 Equal Employment Opportunity Act of 1972 Worker Adjustment and Retraining Notification Act of 1988 Americans with Disabilities Act of 1990 Civil Rights Act of 1991 Family and Medical Leave Act of 1993 North American Free Trade Agreement of 1993 U. S. Economic Espionage Act of 1996 Sarbanes-Oxley Act of 2002
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General Environment
TechnicalImprovements, advancements, and innovations
that create opportunities and threats•
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Communications
Computing
Transportation
Manufacturing
Robotics
Biotechnology
Medicine and medical
Telecommunications
Consumer electronics
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External Information System
An external information system (EIS) is an information system that provides managers with needed external information on a regular basis
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Responsibilities for External Analysis at Different Managerial Levels
Lower Level Managers/Supervisors Observe and interact Collect and consolidate
Middle Managers Coordinate Share with organizational units Gatherer and disseminator Monitor general environmental sectors Make needed strategic changes
Upper Management Evaluate opportunities and threats
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Benefits of Doing An External Analysis
Proactive managers anticipate change and plan accordingly Provide information for
• Planning
• Decision making
• Strategy formulation
Acquire and control needed resources Cope effectively with increasingly dynamic
environment Make a difference with higher performance
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Challenges of Doing an External Analysis
Rapid environmental changes are difficult to keep up with
Amount of time that analysis can consume
Forecasts and trend analyses are not actual fact
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Chapter Three
Questions