chapter 3 the external assessment - gunadarma...

Fred R. David

Prentice Hall

Ch.3-1

Chapter 3

The External Assessment

Strategic Management:

Concepts and Cases. 9th edition

Fred R. David

PowerPoint Slides by

Anthony F. Chelte

Western New England College

Fred R. David

Prentice Hall

Ch.3-2

External Strategic Management Audit

Also called:

– Environmental scanning

– Industry analysis

Fred R. David

Prentice Hall

Ch.3-3

External Strategic Management Audit

External Audit:

– Identification and evaluation of trends and

events beyond control of single firm

• Increased foreign competition

• Populations shifts

• Aging society

• Information technology

• Computer revolution

Fred R. David

Prentice Hall

Ch.3-4

Purpose:

– Development of Finite List:

• Opportunities

• Threats to be avoided

Nature of External Audit

Fred R. David

Prentice Hall

Ch.3-5

Five (5) broad categories:

1. Economic forces

2. Social, cultural, demographic, & environmental forces

3. Political, governmental, and legal forces

4. Technological factors

5. Competitive forces

Key External Forces

Fred R. David

Prentice Hall

Ch.3-6

Relationships Between Key External Forces and an Organization

Key

External

Forces

Competitors

Suppliers

Distributors

Creditors

Customers

Employees

Communities

Managers

Stockholders

Labor Unions

Special Interest Groups

Products

Services

Opportunities

&

Threats

Fred R. David

Prentice Hall

Ch.3-7

Performing an External Audit

Gather competitive intelligence on factors:

– Social

– Cultural

– Demographic

– Environmental

– Economic

– Political, legal, governmental

– technological

Fred R. David

Prentice Hall

Ch.3-8


Sources of information include:

– Internet

– Libraries (corporate, university, public)

– Suppliers

– Distributors

– Customers

– Competition

Fred R. David

Prentice Hall

Ch.3-9


Key factors:

– Vary over time

– Vary by industry

Fred R. David

Prentice Hall

Ch.3-10


Variables include: – Market share

– Breadth of competing products

– World economies

– Foreign affiliates

– Proprietary account advantages

– Price competitiveness

– Technological advancements

– Interest rates

– Pollution abatement

Fred R. David

Prentice Hall

Ch.3-11

Key External Factors

Key External Factors:

1. Oriented to long-term & annual objectives

2. Measurable

3. Applicable to all competing firms

4. Hierarchical

• Overall company

• Divisional or functional areas

Fred R. David

Prentice Hall

Ch.3-12

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

Fred R. David

Prentice Hall

Ch.3-13


• 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

•

Fred R. David

Prentice Hall

Ch.3-14


• Price fluctuations

• Exportation of labor & capital

• Monetary policies

• Fiscal policies

• Tax rates

• ECC policies

• OPEC policies

• LDC policies

Fred R. David

Prentice Hall

Ch.3-15

Social, Cultural, Demographic &

Environmental Forces

Major impact on:

– Products

– Services

– Markets

– customers

Fred R. David

Prentice Hall

Ch.3-16

Monitor Key Variables

• Life expectancy rates

• Per capita income

• Attitudes toward business

• Average disposable income

• Buying habits

• Ethical concerns

• Attitudes toward saving

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Prentice Hall

Ch.3-17


• Racial equality

• Average level of education

• Government regulation

• Attitudes toward customer service

• Attitudes toward product quality

• Energy conservation

• Social responsibility

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Prentice Hall

Ch.3-18


• Value placed on leisure time

• Recycling

• Waste management

• Air & water pollution

• Ozone depletion

• Endangered species

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Prentice Hall

Ch.3-19

Political, Govt., & Legal Forces

Government Regulation

• Key opportunities & key threats • Antitrust legislation (Microsoft)

• Tax rates

• Lobbying efforts

• Patent laws

Fred R. David

Prentice Hall

Ch.3-20


Increasing Global Interdependence

• Impact of political variables

– Formulation of Strategies

– Implementation of Strategies

Fred R. David

Prentice Hall

Ch.3-21


Increasing Global Interdependence

• Strategists in a global economy

• Forecast political climates

• Legalistic skills

• Diverse world cultures

Fred R. David

Prentice Hall

Ch.3-22


Globalization of Industry

• Worldwide trend toward similar consumption patterns

• Global buyers & sellers • E-commerce • Instant transmission of money &

information across continents

Fred R. David

Prentice Hall

Ch.3-23


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

Fred R. David

Prentice Hall

Ch.3-24

Technological Forces

Revolutionary technological forces:

• Profound impact on organizations

• Internet

• Semiconductors

• XML technologies

• UWB communications

Fred R. David

Prentice Hall

Ch.3-25

Technological Forces

Internet changes the nature of opportunities and

threats --

• Alters life cycle of products

• Increases speed of distribution

• Creates new products and services

• Eases limitations of geographic markets

• Alters economies of scale

• Changes entry barriers

Fred R. David

Prentice Hall

Ch.3-26

Competitive Forces

Collection and evaluation of information on

competitors is essential for successful

strategy formulation

Fred R. David

Prentice Hall

Ch.3-27

Competitive Forces

Competition in virtually all industries can be

described as intense.

Fred R. David

Prentice Hall

Ch.3-28

Competitive Forces

Identifying rival firms

• Strengths

• Weaknesses

• Capabilities

• Opportunities

• Threats

• Objectives

• Strategies

Fred R. David

Prentice Hall

Ch.3-29

Competitive Analysis: Porter’s Five-

Forces Model

Potential development of substitute products

Rivalry among competing firms

Bargaining power of suppliers

Potential entry of new competitors

Bargaining power of consumers

Fred R. David

Prentice Hall

Ch.3-30

Industry Analysis (EFE)

External Factor Evaluation Matrix

Summarize & evaluate:

Competitive Political Cultural

Technological Environmental Social

Governmental Demographic Economic

Fred R. David

Prentice Hall

Ch.3-31


Five-Step process:

• List key external factors (10-20)

Opportunities & threats

• Assign weight to each (0 to 1.0)

Sum of all weights = 1.0

(not important to very important)

Fred R. David

Prentice Hall

Ch.3-32


• Five-step process:

• Assign 1-4 rating to each factor

• Firm’s current strategies response to the

factor • Response poor - superior

• Multiply each factor’s weight by its rating

• Produces a weighted score

Fred R. David

Prentice Hall

Ch.3-33


Five-step process: • Sum the weighted scores for each

Determines the total weighted score for the organization.

• Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5

Factor Weight Rating Weighted

score

Opportunities

High-end in-home entertainment sales are growing nationally 0.15 4 0.60

Forecast for continued growth of expensive housing in Dade &

Broward counties

0.16 4 0.64

Wealthy foreigners buy expensive entertainment equipment for

their homes in South Florida

0.07 3 0.21

Current customers refer new prospects with little prompting 0.12 3 0.36

Direct mailing lists are available by household income 0.06 3 0.18

Threats

Large chains could expand upward into their niche 0.13 1 0.13

New technologies such as satellite broadcast compete with

current technologies

0.10 1 0.10

Declining incomes in South Florida versus the U.S. 0.08 2 0.16

South Florida highly dependent on trade with Latin America 0.07 1 0.07

Economy depends on air transport, a volatile industry 0.06 2 0.12

Total 1.00 2.57

Fred R. David

Prentice Hall

Ch.3-34

Fred R. David

Prentice Hall

Ch.3-35


Important

• Understanding of the factors used in the

EFE Matrix is more important than the

actual weights and ratings assigned.

Fred R. David

Prentice Hall

Ch.3-36

Industry Analysis (CPM)

Competitive Profile Matrix

• Identifies firm’s major competitors

and their strengths & weaknesses

in relation to a sample firm’s

strategic position

• Major weakness – major strength

Fred R. David

Prentice Hall

Ch.3-37

(CPM) Procter

Avon L’Oreal & Gamble

2.80 3.25 3.15 1.00 Total

0.15 3 0.20 4 0.05 1 0.05 Market Share

0.40 2 0.40 2 0.80 4 0.20 Global Expansion

0.20 2 0.40 4 0.40 4 0.10 Customer Loyalty

0.45 3 0.45 3 0.60 4 0.15 Financial Position

0.30 3 0.30 3 0.40 4 0.10 Management

0.40 4 0.30 3 0.30 3 0.10 Price Competition

0.30 3 0.40 4 0.40 4 0.10 Product Quality

0.60 3 0.80 4 0.20 1 0.20 Advertising

Score Rating Score Rating Score Rating Weight Critical Success Factor

chapter 3 the external assessment - gunadarma...

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