chap3- external environment

8/3/2019 Chap3- External Environment

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2001 Prentice Hall

Ch. 3-1

Comprehensive Strategic Management Model

Vision

&MissionStatements

Chapter 2

External

Audit

Chapter 3

Internal

Audit

Chapter 4

Long-Term

Objectives

Chapter 5

Generate,

Evaluate,Select

Strategies

Chapter 6

Implement

Strategies:Mgmt Issues

Chapter 7

Implement

Strategies:Marketing,Fin/Acct,R&D, CIS

Chapter 8

Measure &

EvaluatePerformance

Chapter 9


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Ch. 3-2

External Assessment

If you're not faster than your competitor,youre in a tenuous position, and ifyoure only half as fast, youre terminal.

George Salk


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Ch. 3-3

External Assessment (Contd)

External Strategic-Management Audit

Environmental scanning

Industry Analysis


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Ch. 3-4


External audit:

Focuses on identifying &

evaluating events beyond theimmediate control of the firm


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Ch. 3-5


External audit focuses on:

Increased foreign competition

Population shifts

Demographics (e.g., aging population)

Information technology


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Ch. 3-6


External audit reveals:

Key opportunities

Key threats

Managers then formulate strategies:

Take advantage of opportunities

Avoid/reduce impact of threats


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Ch. 3-7


External Audit

Aimed at identifying key variables thatofferactionableresponses


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Ch. 3-8


Key External ForcesFive (5) broad categories:

Economic forces

Social, cultural, demographic, & environmental forces

Political, governmental, & legal forces

Technological forces

Competitive forces


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Ch. 3-9

Characteristics of Environment

Complexity & Uncertainty

Dynamic

Multi-Faceted

Far-Reaching Impact


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Ch. 3-10


Process of External Audit:

Involve as many managers & employees as possible

Gather competitive intelligence

Information about social, demographic, cultural,environmental, etc.

Monitor sources of information (key magazines,articles, etc.)

Utilization of Internet

Suppliers, distributors, customers as sources ofinformation


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Ch. 3-11

Economic Forces

Monitor Key Economic Variables:

Availability of credit

Level of disposable income Interest rates

Inflation rates

Money market rates

Federal government budget deficits Gross domestic product trend

Consumption patterns


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Ch. 3-12

Economic Forces (Contd)

Monitor Key Economic Variables: (Contd)

Unemployment trends

Worker productivity levels Value of the dollar in world markets

Stock market trends

Foreign countries economic conditions

Import/export factors Demand shifts for goods/services

Income differences by region/customer


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Ch. 3-13

Social & Environmental Forces

Social, cultural, demographic, andenvironmental changes:

Major impact on:Products

Services

Markets

Customers


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Ch. 3-14

Social & Environmental Forces(Contd)

Key social, cultural, demographic, &environmental variables: (Contd)

Life expectancy rates Per capita income

Attitudes toward business

Average disposable income

Buying habits

Ethical concerns

Attitudes toward saving


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Ch. 3-15

Social & Environmental Forces(Contd)

Key social, cultural, demographic, &environmental variables: (Contd)

Value placed on leisure time

Recycling

Waste management

Air & water pollution

Ozone depletion

Endangered species


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Ch. 3-16

Political, Govt., & Legal Forces

Government Regulation

Key opportunities & key threats

Antitrust legislation (Microsoft)

Tax ratesLobbying efforts

Patent laws


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Ch. 3-17

Political, Govt., & Legal Forces(Contd)

Increasing Global Interdependence

Strategists in a global economy

Forecast political climates

Legalistic skills

Diverse world cultures


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Ch. 3-18

Political, Govt., & Legal Forces(Contd)

Key Political, govt., & legal variables:

Government regulation/deregulation

Tax law changes

Special tariffs

Political Action Committees (PACs)

Voter participation rates Number of patents

Changes in patent laws


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Ch. 3-19

Technological Forces

Technological Change

Dramatic effect on businessFiber optics

Biometrics

EFT

Computer engineering

Superconductivity advancements


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Ch. 3-20

Technological Forces (Contd)

Internet impact on opportunities & threats:

Altering life cycles of products

Increasing speed of distribution

Creating new products & services

Erasing limitations of traditionalgeographic markets


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Ch. 3-21

Competitive Forces

External Audit & Competing Firms

Identifying rival firms

StrengthsWeaknesses

Capabilities

Opportunities

Threats

Objectives

Strategies


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Ch. 3-22

Techniques for Environmental

Scanning Forecasting

Delphi Method

Scenario Planning (QUEST)

Brainstorming

Benchmarking


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Ch. 3-23

SCENARIO PLANNING (QUEST)

Quick Environmental Scanning Technique based onPEST analysis.

Observation Major trends & Events.

Experts speculate issues affecting Firm. Pen down issues and implication & build 3 to 5

scenarios. Another Group reviews and rank the options and

select the most appropriate option.

Develop strategy according to selected option. A tool for ordering ones perception about alternative

future environments in which ones decision might beplayed out. Nanus


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Ch. 3-24

BENEFITS-

SCENARIO PLANNING (QUEST) Incorporate subjective assessment of

participants.

Scenarios constructed based on factsand proven assumptions.

Extrapolated to create series of

alternate futures that are mutuallyconsistent.


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Ch. 3-25

BENCH MARKING

1970 Xeros Corporation, Studied JapCos.

STEPS1. Understand own processes in detail.

2. Select best firms in the industry.

3. Analyse factors responsible for betterperformance.

4. Take corrective measures.


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Ch. 3-26

BENCH MARKING

Customer service performance

Product/ service performance

Core business process performance

Support processes

Employee performance

Supplier performance

Technology performance

Innovation performance

Cost performance

Financial performance


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Ch. 3-27

Competitive Analysis: Porters Five-Forces Model

Potential developmentof substitute products

Rivalry amongcompeting firms

Bargaining powerof suppliers

Potential entry of newcompetitors

Bargaining powerof consumers


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Ch. 3-28

Customers

Needs, trends, Loyalties,

Price sensitiveness

Quality conscious

Psyche

Attitudes


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Ch. 3-29

New Entrants

Monopolistic and Oligipolistic Climate

Entry barriers to entrepreneurs

1. Economies of scale2. Brand Loyalty

3. Absolute Cost advantage

4. Product differentiation5. Access to distribution

6. Capital requirement


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Ch. 3-30

Rivalry among firms

Demand of product determine intensityof rivalry.

Exit barriers high- difficult to exit.

Industry competitive structure


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Ch. 3-31

Bargaining Power- Buyers &

Suppliers Relative Power status

Bulk purchase can lead to price

reduction

Substitutes availability

Few suppliers and buyers


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Ch. 3-32

SUBSTITUTES

Few substitutes increases bargainingpower.

Substitutes limit the potential returns of an industry byplacing a ceiling on the prices firms in the industry can

profitably charge Porter


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Ch 3-33

CONCLUSION

The opportunities and threats existing in any

situation always exceed the resources

needed to exploit the opportunities or avoidthe threats. Thus, strategy is essentially a

problem of allocating the resources. If

strategy is to be successful, it must allocate

superior resources against a decisiveopportunity.

William Cohen

chap3- external environment

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