Chapter Outline <ul><li>The Nature of an External Audit </li></ul><ul><li>Economic Forces </li></ul><ul><li>Social, Cultur...
Chapter Outline <ul><li>Political, Governmental, and Legal Forces </li></ul><ul><li>Technological Forces </li></ul><ul><li...
Chapter Outline <ul><li>Competitive Analysis: </li></ul><ul><ul><li>Porter’s Five-Forces Model  </li></ul></ul><ul><li>Sou...
Chapter Outline <ul><li>The Global Challenge </li></ul><ul><li>Industry Analysis: </li></ul><ul><ul><li>The External Facto...
The External Assessment <ul><li>Prediction is very difficult, especially about the future.  </li></ul><ul><li>--  Neils Bo...
External Strategic Management Audit <ul><li>Also called: </li></ul><ul><ul><li>Environmental scanning </li></ul></ul><ul><...
External Strategic Management Audit <ul><li>External Audit: </li></ul><ul><ul><li>Identification and evaluation of trends ...
<ul><li>Purpose: </li></ul><ul><ul><li>Development of Finite List: </li></ul></ul><ul><ul><ul><li>Opportunities </li></ul>...
<ul><li>Five (5) broad categories: </li></ul><ul><ul><li>Economic forces </li></ul></ul><ul><ul><li>Social, cultural, demo...
Relationships Between Key External Forces and an Organization Key External Forces Competitors Suppliers Distributors Credi...
Performing an External Audit <ul><li>Gather competitive intelligence on factors: </li></ul><ul><ul><li>Social </li></ul></...
Performing an External Audit <ul><li>Sources of information include: </li></ul><ul><ul><li>Internet </li></ul></ul><ul><ul...
Performing an External Audit <ul><li>Key factors: </li></ul><ul><ul><li>Vary over time </li></ul></ul><ul><ul><li>Vary by ...
Performing an External Audit <ul><li>Variables include: </li></ul><ul><ul><li>Market share </li></ul></ul><ul><ul><li>Brea...
Key External Factors <ul><li>Key External Factors: </li></ul><ul><li>Oriented to long-term & annual objectives </li></ul><...
Economic Forces <ul><li>Monitor Key Economic Variables: </li></ul><ul><li>Availability of credit </li></ul><ul><li>Level o...
Monitor Key Economic Variables: <ul><li>Unemployment trends </li></ul><ul><li>Worker productivity levels </li></ul><ul><li...
Monitor Key Economic Variables: <ul><li>Price fluctuations </li></ul><ul><li>Exportation of labor & capital </li></ul><ul>...
Social, Cultural, Demographic & Environmental Forces <ul><li>Major impact on: </li></ul><ul><ul><li>Products </li></ul></u...
Social, Cultural, Demographic & Environmental Forces <ul><li>Consider: </li></ul><ul><li>United States— </li></ul><ul><ul>...
Social, Cultural, Demographic & Environmental Forces <ul><li>World population > 6 billion </li></ul><ul><li>U.S. populatio...
Social, Cultural, Demographic & Environmental Forces <ul><li>NAFTA </li></ul><ul><ul><li>U.S. exports to Mexico increased ...
Social, Cultural, Demographic & Environmental Forces <ul><li>Trends for the 2000’s – </li></ul><ul><ul><li>More educated c...
Social, Cultural, Demographic & Environmental Forces  <ul><li>Key variables – </li></ul><ul><li>Childbearing rates </li></...
Monitor Key Variables  <ul><li>Life expectancy rates </li></ul><ul><li>Per capita income </li></ul><ul><li>Attitudes towar...
Monitor Key Variables  <ul><li>Racial equality </li></ul><ul><li>Average level of education </li></ul><ul><li>Government r...
Monitor Key Variables  <ul><li>Value placed on leisure time </li></ul><ul><li>Recycling </li></ul><ul><li>Waste management...
Political, Govt., & Legal Forces <ul><li>Government Regulation </li></ul><ul><li>Key opportunities & key threats </li></ul...
Political, Govt., & Legal Forces <ul><li>Increasing Global Interdependence </li></ul><ul><li>Impact of political variables...
Political, Govt., & Legal Forces <ul><li>Increasing Global Interdependence </li></ul><ul><li>Strategists in a global econo...
Political, Govt., & Legal Forces <ul><li>Globalization of Industry </li></ul><ul><ul><li>Worldwide trend toward similar co...
Political, Govt., & Legal Forces <ul><li>Key Political, govt., & legal variables : </li></ul><ul><ul><li>Government regula...
Key Political, Government & Legal Variables <ul><ul><li>Environmental protection laws </li></ul></ul><ul><ul><li>Equal emp...
Key Political, Government & Legal Variables <ul><ul><li>African-American relationships </li></ul></ul><ul><ul><li>Import-e...
Technological Forces <ul><li>Revolutionary technological forces: </li></ul><ul><ul><li>Profound impact on organizations </...
Technological Forces <ul><li>Internet changes the nature of opportunities and threats -- </li></ul><ul><ul><ul><li>Alters ...
Technological Forces <ul><li>Capitalizing on Information Technology (IT) </li></ul><ul><li>Chief Information Officer (CIO)...
Technological Forces <ul><li>Technology-based issues </li></ul><ul><ul><li>Underlie nearly every strategic decision </li><...
Competitive Forces <ul><li>Collection and evaluation of information on competitors is essential for successful strategy fo...
Competitive Forces <ul><li>Competition in virtually all industries can be described as intense. </li></ul>
Competitive Forces <ul><li>Identifying rival firms </li></ul><ul><ul><li>Strengths </li></ul></ul><ul><ul><li>Weaknesses <...
Competitive Forces <ul><li>Key Questions About Competitors: </li></ul><ul><ul><li>Their strengths </li></ul></ul><ul><ul><...
Competitive Forces <ul><li>Key Questions About Competitors: </li></ul><ul><ul><li>Our vulnerability to successful strategi...
Competitive Forces <ul><li>Key Questions About Competitors: </li></ul><ul><ul><li>Sales and profit rankings of competitors...
Competitive Forces <ul><li>Sources of Corporate Information: </li></ul><ul><ul><li>Moody’s Manuals </li></ul></ul><ul><ul>...
Competitive Forces <ul><li>7 Characteristics of most competitive U.S. firms: </li></ul><ul><ul><li>Market share matters </...
Competitive Forces <ul><li>7 Characteristics of most competitive U.S. firms: </li></ul><ul><ul><li>Acquisition is essentia...
Competitive Forces <ul><li>Competitive Intelligence Programs: </li></ul><ul><li>Systematic and ethical process for gatheri...
Competitive Analysis:  Porter’s Five-Forces Model Potential development  of substitute products Rivalry among  competing f...
Global Challenge   <ul><li>International Challenge faced by U.S. firms: </li></ul><ul><ul><li>How to gain and maintain exp...
Industry Analysis (EFE) <ul><li>External Factor Evaluation Matrix </li></ul><ul><li>Summarize & evaluate: </li></ul>Compet...
Industry Analysis (EFE) <ul><li>Five-Step process: </li></ul><ul><li>List key external factors (10-20) </li></ul><ul><ul><...
Industry Analysis (EFE) <ul><li>Five-step process: </li></ul><ul><li>Assign 1-4 rating to each factor </li></ul><ul><ul><l...
Industry Analysis (EFE) <ul><li>Five-step process: </li></ul><ul><li>Sum the weighted scores for each </li></ul><ul><ul><l...
.20 1 .20 Clinton Administration .20 2 .10 Bad media exposure from FDA .10 2 .05 Smokeless market SE region U.S. .15 3 .05...
Industry Analysis (EFE) <ul><li>Total weighted score of 4.0 = </li></ul><ul><li>Organization response is outstanding to th...
Industry Analysis (EFE) <ul><li>UST (in the previous example), has a total weighted score of 2.10 indicating that the firm...
Industry Analysis (EFE) <ul><li>Important </li></ul><ul><li>Understanding of the factors used in the EFE Matrix is more im...
Industry Analysis (CPM) <ul><li>Competitive Profile Matrix </li></ul><ul><li>Identifies firm’s major competitors and their...
(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...
Key Terms <ul><li>America Online </li></ul><ul><li>Chief Information Officer (CIO) </li></ul><ul><li>Chief Technology Offi...
Key Terms <ul><li>Critical success factors </li></ul><ul><li>Cyberspace </li></ul><ul><li>Decruiting </li></ul><ul><li>Dir...
Key Terms <ul><li>External forces </li></ul><ul><li>Industry analysis </li></ul><ul><li>Information Technology (IT) </li><...
Key Terms <ul><li>Porter’s Five-Forces Model </li></ul><ul><li>Netscape </li></ul><ul><li>On-Line databases </li></ul><ul>...
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  1. 1. Chapter Outline <ul><li>The Nature of an External Audit </li></ul><ul><li>Economic Forces </li></ul><ul><li>Social, Cultural, Demographic, and Environmental Forces </li></ul>
  2. 2. Chapter Outline <ul><li>Political, Governmental, and Legal Forces </li></ul><ul><li>Technological Forces </li></ul><ul><li>Competitive Forces </li></ul>
  3. 3. Chapter Outline <ul><li>Competitive Analysis: </li></ul><ul><ul><li>Porter’s Five-Forces Model </li></ul></ul><ul><li>Sources of External Information </li></ul><ul><li>Forecasting Tools and Techniques </li></ul>
  4. 4. Chapter Outline <ul><li>The Global Challenge </li></ul><ul><li>Industry Analysis: </li></ul><ul><ul><li>The External Factor Evaluation Matrix </li></ul></ul><ul><li>The Competitive Profile Matrix </li></ul>
  5. 5. The External Assessment <ul><li>Prediction is very difficult, especially about the future. </li></ul><ul><li>-- Neils Bohr </li></ul>
  6. 6. External Strategic Management Audit <ul><li>Also called: </li></ul><ul><ul><li>Environmental scanning </li></ul></ul><ul><ul><li>Industry analysis </li></ul></ul>
  7. 7. External Strategic Management Audit <ul><li>External Audit: </li></ul><ul><ul><li>Identification and evaluation of trends and events beyond control of single firm </li></ul></ul><ul><ul><ul><li>Increased foreign competition </li></ul></ul></ul><ul><ul><ul><li>Populations shifts </li></ul></ul></ul><ul><ul><ul><li>Aging society </li></ul></ul></ul><ul><ul><ul><li>Information technology </li></ul></ul></ul><ul><ul><ul><li>Computer revolution </li></ul></ul></ul>
  8. 8. <ul><li>Purpose: </li></ul><ul><ul><li>Development of Finite List: </li></ul></ul><ul><ul><ul><li>Opportunities </li></ul></ul></ul><ul><ul><ul><li>Threats to be avoided </li></ul></ul></ul>Nature of External Audit
  9. 9. <ul><li>Five (5) broad categories: </li></ul><ul><ul><li>Economic forces </li></ul></ul><ul><ul><li>Social, cultural, demographic, & environmental forces </li></ul></ul><ul><ul><li>Political, governmental, and legal forces </li></ul></ul><ul><ul><li>Technological factors </li></ul></ul><ul><ul><li>Competitive forces </li></ul></ul>Key External Forces
  10. 10. 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
  11. 11. Performing an External Audit <ul><li>Gather competitive intelligence on factors: </li></ul><ul><ul><li>Social </li></ul></ul><ul><ul><li>Cultural </li></ul></ul><ul><ul><li>Demographic </li></ul></ul><ul><ul><li>Environmental </li></ul></ul><ul><ul><li>Economic </li></ul></ul><ul><ul><li>Political, legal, governmental </li></ul></ul><ul><ul><li>technological </li></ul></ul>
  12. 12. Performing an External Audit <ul><li>Sources of information include: </li></ul><ul><ul><li>Internet </li></ul></ul><ul><ul><li>Libraries (corporate, university, public) </li></ul></ul><ul><ul><li>Suppliers </li></ul></ul><ul><ul><li>Distributors </li></ul></ul><ul><ul><li>Customers </li></ul></ul><ul><ul><li>Competition </li></ul></ul>
  13. 13. Performing an External Audit <ul><li>Key factors: </li></ul><ul><ul><li>Vary over time </li></ul></ul><ul><ul><li>Vary by industry </li></ul></ul>
  14. 14. Performing an External Audit <ul><li>Variables include: </li></ul><ul><ul><li>Market share </li></ul></ul><ul><ul><li>Breadth of competing products </li></ul></ul><ul><ul><li>World economies </li></ul></ul><ul><ul><li>Foreign affiliates </li></ul></ul><ul><ul><li>Proprietary account advantages </li></ul></ul><ul><ul><li>Price competitiveness </li></ul></ul><ul><ul><li>Technological advancements </li></ul></ul><ul><ul><li>Interest rates </li></ul></ul><ul><ul><li>Pollution abatement </li></ul></ul>
  15. 15. Key External Factors <ul><li>Key External Factors: </li></ul><ul><li>Oriented to long-term & annual objectives </li></ul><ul><li>Measurable </li></ul><ul><li>Applicable to all competing firms </li></ul><ul><li>Hierarchical </li></ul><ul><ul><li>Overall company </li></ul></ul><ul><ul><li>Divisional or functional areas </li></ul></ul>
  16. 16. Economic Forces <ul><li>Monitor Key Economic Variables: </li></ul><ul><li>Availability of credit </li></ul><ul><li>Level of disposable income </li></ul><ul><li>Interest rates </li></ul><ul><li>Inflation rates </li></ul><ul><li>Money market rates </li></ul><ul><li>Federal government budget deficits </li></ul><ul><li>Gross domestic product trend </li></ul><ul><li>Consumption patterns </li></ul>
  17. 17. Monitor Key Economic Variables: <ul><li>Unemployment trends </li></ul><ul><li>Worker productivity levels </li></ul><ul><li>Value of the dollar in world markets </li></ul><ul><li>Stock market trends </li></ul><ul><li>Foreign countries’ economic conditions </li></ul><ul><li>Import/export factors </li></ul><ul><li>Demand shifts for goods/services </li></ul><ul><li>Income differences by region/customer </li></ul>
  18. 18. Monitor Key Economic Variables: <ul><li>Price fluctuations </li></ul><ul><li>Exportation of labor & capital </li></ul><ul><li>Monetary policies </li></ul><ul><li>Fiscal policies </li></ul><ul><li>Tax rates </li></ul><ul><li>ECC policies </li></ul><ul><li>OPEC policies </li></ul><ul><li>LDC policies </li></ul>
  19. 19. Social, Cultural, Demographic & Environmental Forces <ul><li>Major impact on: </li></ul><ul><ul><li>Products </li></ul></ul><ul><ul><li>Services </li></ul></ul><ul><ul><li>Markets </li></ul></ul><ul><ul><li>customers </li></ul></ul>
  20. 20. Social, Cultural, Demographic & Environmental Forces <ul><li>Consider: </li></ul><ul><li>United States— </li></ul><ul><ul><li>Population growing older </li></ul></ul><ul><ul><li>Less Caucasian </li></ul></ul><ul><ul><li>Gap between rich and poor widening </li></ul></ul><ul><ul><li>65 and older will rise to 18.5% of population by 2025 </li></ul></ul><ul><ul><li>By 2075, no racial or ethnic majority </li></ul></ul>
  21. 21. Social, Cultural, Demographic & Environmental Forces <ul><li>World population > 6 billion </li></ul><ul><li>U.S. population < 300 million </li></ul><ul><ul><ul><li>Great potential for domestic production expansion to other markets </li></ul></ul></ul><ul><li>Domestic only is a risky strategy </li></ul>
  22. 22. Social, Cultural, Demographic & Environmental Forces <ul><li>NAFTA </li></ul><ul><ul><li>U.S. exports to Mexico increased 170% </li></ul></ul><ul><ul><li>2000, U.S. trade deficits: </li></ul></ul><ul><ul><ul><li>Mexico -- $25 billion </li></ul></ul></ul><ul><ul><ul><li>China -- $84 billion </li></ul></ul></ul><ul><ul><ul><li>Japan -- $81 billion </li></ul></ul></ul><ul><ul><li>2001 Recession (U.S. and World) </li></ul></ul><ul><ul><ul><li>> 60,000 laid off along Mexico Border with U.S. </li></ul></ul></ul>
  23. 23. Social, Cultural, Demographic & Environmental Forces <ul><li>Trends for the 2000’s – </li></ul><ul><ul><li>More educated consumers </li></ul></ul><ul><ul><li>Population aging </li></ul></ul><ul><ul><li>Minorities more influential </li></ul></ul><ul><ul><li>Local rather than federal solutions </li></ul></ul><ul><ul><li>Fixation with youth decreasing </li></ul></ul><ul><ul><li>Hispanics increase to 15% by 2021 </li></ul></ul><ul><ul><li>African Americans increase to 14% by 2021 </li></ul></ul>
  24. 24. Social, Cultural, Demographic & Environmental Forces <ul><li>Key variables – </li></ul><ul><li>Childbearing rates </li></ul><ul><li>Number of special-interest groups </li></ul><ul><li>Number of marriages </li></ul><ul><li>Number of divorces </li></ul><ul><li>Number of births </li></ul><ul><li>Number of deaths </li></ul><ul><li>Immigration & emigration rates </li></ul>
  25. 25. Monitor Key Variables <ul><li>Life expectancy rates </li></ul><ul><li>Per capita income </li></ul><ul><li>Attitudes toward business </li></ul><ul><li>Average disposable income </li></ul><ul><li>Buying habits </li></ul><ul><li>Ethical concerns </li></ul><ul><li>Attitudes toward saving </li></ul>
  26. 26. Monitor Key Variables <ul><li>Racial equality </li></ul><ul><li>Average level of education </li></ul><ul><li>Government regulation </li></ul><ul><li>Attitudes toward customer service </li></ul><ul><li>Attitudes toward product quality </li></ul><ul><li>Energy conservation </li></ul><ul><li>Social responsibility </li></ul>
  27. 27. Monitor Key Variables <ul><li>Value placed on leisure time </li></ul><ul><li>Recycling </li></ul><ul><li>Waste management </li></ul><ul><li>Air & water pollution </li></ul><ul><li>Ozone depletion </li></ul><ul><li>Endangered species </li></ul>
  28. 28. Political, Govt., & Legal Forces <ul><li>Government Regulation </li></ul><ul><li>Key opportunities & key threats </li></ul><ul><ul><ul><li>Antitrust legislation (Microsoft) </li></ul></ul></ul><ul><ul><ul><li>Tax rates </li></ul></ul></ul><ul><ul><ul><li>Lobbying efforts </li></ul></ul></ul><ul><ul><ul><li>Patent laws </li></ul></ul></ul>
  29. 29. Political, Govt., & Legal Forces <ul><li>Increasing Global Interdependence </li></ul><ul><li>Impact of political variables </li></ul><ul><ul><li>Formulation of Strategies </li></ul></ul><ul><ul><li>Implementation of Strategies </li></ul></ul>
  30. 30. Political, Govt., & Legal Forces <ul><li>Increasing Global Interdependence </li></ul><ul><li>Strategists in a global economy </li></ul><ul><ul><ul><ul><li>Forecast political climates </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Legalistic skills </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Diverse world cultures </li></ul></ul></ul></ul>
  31. 31. Political, Govt., & Legal Forces <ul><li>Globalization of Industry </li></ul><ul><ul><li>Worldwide trend toward similar consumption patterns </li></ul></ul><ul><ul><li>Global buyers & sellers </li></ul></ul><ul><ul><li>E-commerce </li></ul></ul><ul><ul><li>Instant transmission of money & information across continents </li></ul></ul>
  32. 32. Political, Govt., & Legal Forces <ul><li>Key Political, govt., & legal variables : </li></ul><ul><ul><li>Government regulation/deregulation </li></ul></ul><ul><ul><li>Tax law changes </li></ul></ul><ul><ul><li>Special tariffs </li></ul></ul><ul><ul><li>Political Action Committees (PACs) </li></ul></ul><ul><ul><li>Voter participation rates </li></ul></ul><ul><ul><li>Number of patents </li></ul></ul><ul><ul><li>Changes in patent laws </li></ul></ul>
  33. 33. Key Political, Government & Legal Variables <ul><ul><li>Environmental protection laws </li></ul></ul><ul><ul><li>Equal employment legislation </li></ul></ul><ul><ul><li>Level of government subsidies </li></ul></ul><ul><ul><li>Antitrust legislation/enforcement </li></ul></ul><ul><ul><li>Sino-American relationships </li></ul></ul><ul><ul><li>Russian-American relationships </li></ul></ul><ul><ul><li>European-American relationships </li></ul></ul>
  34. 34. Key Political, Government & Legal Variables <ul><ul><li>African-American relationships </li></ul></ul><ul><ul><li>Import-export regulations </li></ul></ul><ul><ul><li>Monetary policy </li></ul></ul><ul><ul><li>Political conditions in other countries </li></ul></ul><ul><ul><li>Government budgets </li></ul></ul><ul><ul><li>World oil, currency, & labor markets </li></ul></ul><ul><ul><li>Location and severity of terrorist activities </li></ul></ul>
  35. 35. Technological Forces <ul><li>Revolutionary technological forces: </li></ul><ul><ul><li>Profound impact on organizations </li></ul></ul><ul><ul><ul><li>Internet </li></ul></ul></ul><ul><ul><ul><li>Semiconductors </li></ul></ul></ul><ul><ul><ul><li>XML technologies </li></ul></ul></ul><ul><ul><ul><li>UWB communications </li></ul></ul></ul>
  36. 36. Technological Forces <ul><li>Internet changes the nature of opportunities and threats -- </li></ul><ul><ul><ul><li>Alters life cycle of products </li></ul></ul></ul><ul><ul><ul><li>Increases speed of distribution </li></ul></ul></ul><ul><ul><ul><li>Creates new products and services </li></ul></ul></ul><ul><ul><ul><li>Eases limitations of geographic markets </li></ul></ul></ul><ul><ul><ul><li>Alters economies of scale </li></ul></ul></ul><ul><ul><ul><li>Changes entry barriers </li></ul></ul></ul>
  37. 37. Technological Forces <ul><li>Capitalizing on Information Technology (IT) </li></ul><ul><li>Chief Information Officer (CIO) </li></ul><ul><li>Chief Technology Officer (CTO) </li></ul>
  38. 38. Technological Forces <ul><li>Technology-based issues </li></ul><ul><ul><li>Underlie nearly every strategic decision </li></ul></ul>
  39. 39. Competitive Forces <ul><li>Collection and evaluation of information on competitors is essential for successful strategy formulation </li></ul>
  40. 40. Competitive Forces <ul><li>Competition in virtually all industries can be described as intense. </li></ul>
  41. 41. Competitive Forces <ul><li>Identifying rival firms </li></ul><ul><ul><li>Strengths </li></ul></ul><ul><ul><li>Weaknesses </li></ul></ul><ul><ul><li>Capabilities </li></ul></ul><ul><ul><li>Opportunities </li></ul></ul><ul><ul><li>Threats </li></ul></ul><ul><ul><li>Objectives </li></ul></ul><ul><ul><li>Strategies </li></ul></ul>
  42. 42. Competitive Forces <ul><li>Key Questions About Competitors: </li></ul><ul><ul><li>Their strengths </li></ul></ul><ul><ul><li>Their weaknesses </li></ul></ul><ul><ul><li>Their objectives and strategies </li></ul></ul><ul><ul><li>Their responses to all external variables (e.g. social, political, demographic, etc.) </li></ul></ul><ul><ul><li>Their vulnerability to our alternative strategies </li></ul></ul>
  43. 43. Competitive Forces <ul><li>Key Questions About Competitors: </li></ul><ul><ul><li>Our vulnerability to successful strategic counterattack </li></ul></ul><ul><ul><li>Our product and service positioning relative to competitors </li></ul></ul><ul><ul><li>Entry and exit of firms in the industry </li></ul></ul><ul><ul><li>Key factors for our current position in industry </li></ul></ul>
  44. 44. Competitive Forces <ul><li>Key Questions About Competitors: </li></ul><ul><ul><li>Sales and profit rankings of competitors over time </li></ul></ul><ul><ul><li>Nature of supplier and distributor relationships </li></ul></ul><ul><ul><li>The threat of substitute products or services </li></ul></ul>
  45. 45. Competitive Forces <ul><li>Sources of Corporate Information: </li></ul><ul><ul><li>Moody’s Manuals </li></ul></ul><ul><ul><li>Standard Corporation Descriptions </li></ul></ul><ul><ul><li>Value Line Investment Surveys </li></ul></ul><ul><ul><li>Dun’s Business Rankings </li></ul></ul><ul><ul><li>Standard & Poor’s Industry Surveys </li></ul></ul><ul><ul><li>Industry Week </li></ul></ul><ul><ul><li>Forbes, Fortune, Business Week </li></ul></ul>
  46. 46. Competitive Forces <ul><li>7 Characteristics of most competitive U.S. firms: </li></ul><ul><ul><li>Market share matters </li></ul></ul><ul><ul><li>Understand what business you are in </li></ul></ul><ul><ul><li>Broke or not, fix it </li></ul></ul><ul><ul><li>Innovate or evaporate </li></ul></ul>
  47. 47. Competitive Forces <ul><li>7 Characteristics of most competitive U.S. firms: </li></ul><ul><ul><li>Acquisition is essential to growth </li></ul></ul><ul><ul><li>People make a difference </li></ul></ul><ul><ul><li>No substitute for quality </li></ul></ul>
  48. 48. Competitive Forces <ul><li>Competitive Intelligence Programs: </li></ul><ul><li>Systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’ own goals . </li></ul>
  49. 49. 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
  50. 50. Global Challenge <ul><li>International Challenge faced by U.S. firms: </li></ul><ul><ul><li>How to gain and maintain exports to other nations </li></ul></ul><ul><ul><li>How to defend domestic markets against imported goods </li></ul></ul>
  51. 51. Industry Analysis (EFE) <ul><li>External Factor Evaluation Matrix </li></ul><ul><li>Summarize & evaluate: </li></ul>Competitive Political Cultural Technological Environmental Social Governmental Demographic Economic
  52. 52. Industry Analysis (EFE) <ul><li>Five-Step process: </li></ul><ul><li>List key external factors (10-20) </li></ul><ul><ul><li>Opportunities & threats </li></ul></ul><ul><li>Assign weight to each (0 to 1.0) </li></ul><ul><ul><li>Sum of all weights = 1.0 </li></ul></ul>
  53. 53. Industry Analysis (EFE) <ul><li>Five-step process: </li></ul><ul><li>Assign 1-4 rating to each factor </li></ul><ul><ul><li>Firm’s current strategies response to the factor </li></ul></ul><ul><li>Multiply each factor’s weight by its rating </li></ul><ul><ul><li>Produces a weighted score </li></ul></ul>
  54. 54. Industry Analysis (EFE) <ul><li>Five-step process: </li></ul><ul><li>Sum the weighted scores for each </li></ul><ul><ul><li>Determines the total weighted score for the organization. </li></ul></ul><ul><li>Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5 </li></ul>
  55. 55. .20 1 .20 Clinton Administration .20 2 .10 Bad media exposure from FDA .10 2 .05 Smokeless market SE region U.S. .15 3 .05 Production limits on tobacco .20 2 .10 Legislation against the tobacco industry Threats .30 3 .10 More social pressure to quit smoking 2.10 1.00 TOTAL .60 4 .15 Pinkerton leader in discount market .05 1 .05 Astronomical Internet growth .15 3 .05 Increased demand .15 1 . 15 Global markets untapped Weighted score Rating Weight UST—Key External Factors Opportunities
  56. 56. Industry Analysis (EFE) <ul><li>Total weighted score of 4.0 = </li></ul><ul><li>Organization response is outstanding to threats & weaknesses </li></ul><ul><li>Total weighted score of 1.0 = </li></ul><ul><li>Firm’s strategies not capitalizing on opportunities or avoiding threats </li></ul>
  57. 57. Industry Analysis (EFE) <ul><li>UST (in the previous example), has a total weighted score of 2.10 indicating that the firm is below average in its effort to pursue strategies that capitalize on external opportunities and avoid threats. </li></ul>
  58. 58. Industry Analysis (EFE) <ul><li>Important </li></ul><ul><li>Understanding of the factors used in the EFE Matrix is more important than the actual weights and ratings assigned. </li></ul>
  59. 59. Industry Analysis (CPM) <ul><li>Competitive Profile Matrix </li></ul><ul><li>Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic position </li></ul>
  60. 60. (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
  61. 61. Key Terms <ul><li>America Online </li></ul><ul><li>Chief Information Officer (CIO) </li></ul><ul><li>Chief Technology Officer (CTO) </li></ul><ul><li>Competitive advantages </li></ul><ul><li>Competitive analysis </li></ul><ul><li>Competitive intelligence (CI) </li></ul><ul><li>Competitive Profile Matrix (CPM) </li></ul>
  62. 62. Key Terms <ul><li>Critical success factors </li></ul><ul><li>Cyberspace </li></ul><ul><li>Decruiting </li></ul><ul><li>Director of competitive analysis </li></ul><ul><li>Downsizing </li></ul><ul><li>Econometric models </li></ul><ul><li>Environmental scanning </li></ul><ul><li>External audit </li></ul><ul><li>External Factor Evaluation (EFE) Matrix </li></ul>
  63. 63. Key Terms <ul><li>External forces </li></ul><ul><li>Industry analysis </li></ul><ul><li>Information Technology (IT) </li></ul><ul><li>Industrial policies </li></ul><ul><li>Internet learning from the partner </li></ul><ul><li>Linear regression </li></ul>
  64. 64. Key Terms <ul><li>Porter’s Five-Forces Model </li></ul><ul><li>Netscape </li></ul><ul><li>On-Line databases </li></ul><ul><li>Rightsizing </li></ul><ul><li>Trend extrapolation </li></ul><ul><li>World Wide Web (www) </li></ul>
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