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The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
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The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
The External Assessment
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The External Assessment
The External Assessment
The External Assessment
The External Assessment
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The External Assessment

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  • 1. Chapter 3 The External Assessment
    • Strategic Management: Concepts & Cases
    • 10 th Edition
    • Fred David PowerPoint Slides by
    • Anthony F. Chelte
    • Western New England College
  • 2. Chapter Outline The Nature of the External Audit The Industrial Organization (I/O) View Social, Cultural, Demographic & Environmental Forces
  • 3. Chapter Outline ( cont’d ) Political, Governmental, and Legal Forces Technological Forces Competitive Forces
  • 4. Chapter Outline ( cont’d ) Porter’s Five-Forces Model Sources of External Information Forecasting Tools & Techniques
  • 5. Chapter Outline ( cont’d ) Global Challenge The External Factor Evaluation (EFE) Matrix Competitive Profile Matrix (CPM)
  • 6.
    • It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. – Charles Darwin
    External Assessment Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map. – Wayne Calloway, Former CEO, PepsiCo
  • 7.
    • -- Environmental Scanning
    • -- Industry Analysis
    External Strategic Management Audit
  • 8.
    • Identify & Evaluate factors beyond the control of a single firm
      • Increased foreign competition
      • Population shifts
      • Information technology
    External Strategic Management Audit
  • 9.
    • Purpose of External Audit
      • Identify
        • Opportunities
        • Threats
    External Strategic Management Audit
  • 10. Key External Forces
    • Economic forces
    • Social, cultural, demographic & environmental forces
    • Political, governmental & legal forces
    • Technological forces
    • Competitive forces
  • 11. Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products Services Key External Forces Opportunities & Threats Key External Forces & the Organization
  • 12.
    • Gather competitive intelligence –
        • Social
        • Cultural
        • Demographic
        • Environmental
        • Economic
        • Political, legal governmental
        • Technological
    External Audit
  • 13. External Audit – Sources of Information
    • Internet
    • Libraries
    • Suppliers
    • Distributors
    • Customers
    • Competition
  • 14.
    • -- Key Factors
        • Vary over time
        • Vary by industry
    Performing External Audit
  • 15. Performing External Audit -- Variables
    • Market share
    • Breadth of competing products
    • World economies
    • Foreign affiliates
    • Proprietary account advantages
  • 16. Performing External Audit -- Variables
    • Price competitiveness
    • Technological advancements
    • Interest rates
    • Pollution abatement
  • 17. Performing External Audit External Factors Measurable Long-term orientation Applicable to competing firms Hierarchical
  • 18. Industrial Organization (I/O) View
    • -- Industry factors more important than internal factors
        • Performance determined by industry forces
  • 19. Economies of Scale Industry Properties Barriers to market entry Product differentiation Level of competitiveness I/O Perspective Firm Performance
  • 20. Economic Forces
    • Availability of credit
    • Level of disposable income
    • Interest rtes
    • Inflation rates
  • 21. Economic Forces
    • Money market rates
    • Fed Gov’t deficits
    • GDP trend
    • Consumption patterns
  • 22. Key Economic Variables Value of the dollar in world markets Worker productivity levels Stock market trends Foreign economic conditions Unemployment trends
  • 23. Key Economic Variables Income differences by region/customer Demand shifts for goods/services Price fluctuations Exportation of labor and capital Import/Export factors
  • 24. Key Economic Variables Tax rates Fiscal policies OPEC policies ECC policies Monetary policies
  • 25. Social, Cultural, Demographic & Environmental Forces
    • Major Impact –
      • Products
      • Services
      • Markets
      • Customers
  • 26. Social, Cultural, Demographic & Environmental Forces
    • U.S. Facts
      • Aging population
      • Less Caucasian
      • Widening gap between rich & poor
      • 2025 = 18.5% population >65 years
      • 2075 = no ethnic or racial majority
  • 27. Social, Cultural, Demographic & Environmental Forces
    • Facts
      • World population > 6 billion
      • U.S. population < 300 million
  • 28. Social, Cultural, Demographic & Environmental Forces Population characteristics require global strategies
  • 29. Social, Cultural, Demographic & Environmental Forces
    • Global trends
      • 2003 – China largest exporter to U.S.
      • 2003 Asia receives highest foreign direct investment
  • 30.
    • Global trends
      • China’s labor rates less than Mexico
      • China provides more site location incentives than Mexico
    Social, Cultural, Demographic & Environmental Forces
  • 31.
    • Export Trends
      • Mexico-exports to U.S. 1.2% growth (2002)
      • China-exports to U.S. 19% growth (2002)
    Social, Cultural, Demographic & Environmental Forces
  • 32.
    • Export Trends
      • Mexico-corporate income tax rate 34%
      • China-corporate income tax rate 17%
    Social, Cultural, Demographic & Environmental Forces
  • 33. Social, Cultural, Demographic & Environmental Forces
    • More educated consumers
    • Aging population
    • Minorities more influential
    • Local rather than federal solutions
    21 st Century Trends
  • 34. Social, Cultural, Demographic & Environmental Forces (cont’d)
    • Fixation with youth decreasing
    • Hispanics increase to 15% by 2021
    • African American increase to 14% by 2021
    21 st Century Trends
  • 35. Key Social, Cultural, Demographic & Environmental Variables Number of marriages & divorces Number of special interest groups Number of births & deaths Immigration & emigration rates Childbearing rates
  • 36. Actuarial rates Monitor Key Variables Per capita income Attitudes toward business Avg. disposable income Social, Cultural, Demographic & Environmental Forces
  • 37. Consumer behavior Monitor Key Variables Ethical concerns Attitudes toward saving Racial equality Social, Cultural, Demographic & Environmental Forces
  • 38. Avg. educational level Monitor Key Variables Governmental regulation Attitudes toward customer service Attitudes toward quality Social, Cultural, Demographic & Environmental Forces
  • 39. Energy conservation Monitor Key Variables Social responsibility Leisure time values Recycling Social, Cultural, Demographic & Environmental Forces
  • 40. Waste management Monitor Key Variables Air & water pollution Ozone depletion Endangered species Social, Cultural, Demographic & Environmental Forces
  • 41. Political, Government & Legal Forces
    • Key opportunities & threats
        • Antitrust legislation
        • Tax rates
        • Lobbying efforts
        • Patent laws
    Government Regulation
  • 42. Political, Government & Legal Forces
    • Political variables impact –
      • Formulation of strategies
      • Implementation of strategies
    Increasing Global Interdependence
  • 43. Political, Government & Legal Forces
    • Strategists in a global economy --
      • Forecast political climates
      • Legalistic skills
      • Diverse world cultures
    Increasing Global Interdependence
  • 44. Political, Government & Legal Forces
    • Worldwide trend toward similar consumption patterns
    • Global buyers and sellers
    • E-commerce
    • Technology for instant currency transfers
    Globalization of Industry
  • 45. Key Political, Governmental, & Legal Variables Special tariffs Tax law changes PAC’s Voter participation rates Regulation/deregulation
  • 46. Key Political, Governmental, & Legal Variables (cont’d) Environmental protection laws Changes in patent laws Equal employment legislation Government subsidies Number of patents
  • 47. Key Political, Governmental, & Legal Variables (cont’d) Import/export regulations Global relationships Political conditions Location and severity of terrorist activity Anti-trust enforcement
  • 48. Technological Forces
    • Major Impact –
      • Internet
      • Communications
      • Semiconductors
  • 49. Technological Forces
    • Significance of IT
      • Chief Information Officer (CIO)
      • Chief Technology Officer (CTO)
  • 50. Technological Forces Essential for nearly every strategic decision Technology-based issues
  • 51. Competitive Forces Collection & evaluation of data on competitors is essential for successful strategy formulation
  • 52. Competitive Forces Competition on virtually all industries can be described as intense.
  • 53. Competitive Forces
    • Strengths
    • Weaknesses
    • Capabilities
    • Opportunities
    • Threats
    • Objectives
    • Strategies
    Identifying Rival Firms
  • 54. Key Questions Concerning Competitors Their objectives and strategies Their weaknesses Their responses to external variables Their vulnerability to our alternative strategies Their strengths
  • 55. Key Questions Concerning Competitors (cont’d) Entry and exit of firms in the industry Our product/service positioning Key factors for our current position in industry Sales/profit rankings of competitors over time Our vulnerability to strategic counterattack
  • 56. Key Questions Concerning Competitors (cont’d) The threat of substitute products/services Nature of supplier & distributor relationships Should we keep our strategies secret from employees and stakeholders?
  • 57. Competitive Forces
    • Moody’s Manuals
    • Standard Corporation Descriptions
    • Value Line Investment Surveys
    • Dun’s Business Rankings
    • Standard & Poor’s Industry Surveys
    • Industry Week
    • Forbes, Fortune, Business Week
    Sources of Corporate Information
  • 58. Competitive Forces
    • Market share matters
    • Understand what business you are in
    • Broke or not, fix it
    • Innovate or evaporate
    7 Characteristics of most Competitive U.S. Firms:
  • 59. Competitive Forces
    • Acquisition is essential to growth
    • People make a difference
    • No substitute for quality
    7 Characteristics of most Competitive U.S. Firms:
  • 60. The Five-Forces Model of Competition Potential development of substitute products Rivalry among competing firms Bargaining power of suppliers Potential entry of new competitors Bargaining power of consumers
  • 61. The Five-Forces Model
    • Most powerful of the five forces
    • Focus on competitive advantage of strategies
    Rivalry Among Competing Firms
  • 62. The Five-Forces Model
    • Barriers to entry are important
    • Quality, pricing, and marketing can overcome barriers
    Potential Entry of New Competitors
  • 63. The Five-Forces Model
    • Pressures increase when consumer’s switching costs decrease
    • Firm’s plans for increased capacity & market penetration
    Potential Development of Substitute Products
  • 64. The Five-Forces Model
    • Large number of suppliers & few substitutes affects intensity of competition
    • Backward integration can gain control or ownership of suppliers
    Bargaining Power of Suppliers
  • 65. The Five-Forces Model
    • Customers concentrated or buy in volume affects intensity of competition
    • Consumer power is higher where products are standard or undifferentiated
    Bargaining Power of Consumers
  • 66. The Global Challenge
    • Faced by U.S. Firms --
      • Gain & maintain exports to other nations
      • Defend domestic markets against imported goods
  • 67. The Global Challenge Simultaneously globally competitive & nationally responsive Multinational Corporations (MNC’s)
  • 68. The Global Challenge
    • Worldwide integration of:
      • Strategy formulation
      • Strategy implementation
      • Strategy evaluation
    Globalization
  • 69. The Global Challenge
    • Similar consumption patterns
    • Global buyers and sellers
    • E-commerce
    • Instant transmission of money & information
    Globalization of Industries
  • 70. Industry Analysis: The External Factor Evaluation (EFE) Matrix Summarize & Evaluate Competitive Political Cultural Technological Environmental Social Governmental Demographic Economic
  • 71. 0.15 3 0.05 5. The average income for PC worker has declined from $40K/yr to $30k/yr 0.10 1 0.10 4. China entered WTO; lowered taxes for importing PC’s 0.10 2 0.05 3. Internet use growing rapidly 0.30 3 0.10 2. Cost of PC component parts expected to decrease 10% - 2004 0.30 3 0.10 1. Global PC market expected to grow 20% in 2004 Opportunities Wtd Score Rating Weight Key External Factors EFE – Gateway Computers (2003)
  • 72. 0.05 1 0.10 1. Intense rivalry in industry 0.10 1 0.10 Threats 0.05 1 0.05 8. 30% of Chinese population can afford a PC; only 10% of homes have a PC 0.15 3 0.05 7. U.S. (& world) economies recovering 0.10 2 0.05 6. Modernization of business firms and government agencies Opportunities (cont’d) Wtd Score Rating Weight Key External Factors EFE – Gateway Computers (2003) (cont’d)
  • 73. 0.15 3 0.05 6. Birth rate in U.S. declining annually 0.20 4 0.05 5. Demand exceeds supply of experienced PC workers 0.15 3 0.05 4. Palm & PDA becoming substitutes 0.05 1 0.05 3. Different countries have different reg’s and infrastructure for PC’s 0.20 2 0.10 2. Severe price cutting in PC industry Threats (cont’d) Wtd Score Rating Weight Key External Factors EFE – Gateway Computers (2003) (cont’d)
  • 74. 2.40 1.00 Total 0.15 3 0.05 8. PC firms diversifying into consumer electronics 0.10 2 0.05 7. U.s. consumers and businesses delaying purchase of PC’s Threats (cont’d) Wtd Score Rating Weight Key External Factors EFE – Gateway Computers (2003) (cont’d)
  • 75.
    • Total weighted score of 4.0
        • Organization response is outstanding to threats and weaknesses
    Industry Analysis EFE
    • Total weighted score of 1.0
        • Firm’s strategies not capitalizing on opportunities or avoiding threats
  • 76. Industry Analysis EFE Understanding the factors used in the EFE Matrix is more important than the actual weights and ratings assigned. Important --
  • 77. Industry Analysis: Competitive Profile Matrix (CPM) Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions
  • 78. 0.15 3 0.15 3 0.15 3 0.05 Org. Structure 0.60 4 0.30 2 0.45 3 0.15 Global Exp. 0.30 3 0.20 2 0.30 3 0.10 Sales Distr 0.08 4 0.06 3 0.06 3 0.02 Cons. Loyalty 0.24 3 0.32 4 0.24 3 0.08 Prod. Quality 0.30 3 0.30 3 0.20 2 0.10 Fin position 0.32 4 0.16 2 0.16 2 0.08 Inventory sys 0.60 4 0.30 2 0.45 3 0.15 Market share Wt’d Score Rating Wt’d Score Rating Wt’d Score Rating Wt CSF’s Dell Apple Gateway
  • 79. 3.49 2.47 2.83 1.00 Total 0.02 2 0.04 4 0.02 2 0.01 Mgt. experience 0.06 3 0.02 1 0.08 4 0.02 Price competitive 0.40 4 0.20 2 0.30 3 0.10 Customer Serv 0.30 3 0.30 3 0.30 3 0.10 E-commerce 0.12 3 0.12 3 0.12 3 0.04 Prod. Capacity Wt’d Score Rating Wt’d Score Rating Wt’d Score Rating Wt CSF’s (cont’d) Dell Apple Gateway
  • 80. Industry Analysis CPM Just because one firm receives a 3.2 rating and another receives a 2.8 rating, it does not follow that the first firm is 20 percent better than the second. Important --
  • 81.
    • Key Terms & Concepts
    For Review (Chapter 3) AOL Competitive Analysis Chief Information Officer (CIO) Competitive Intelligence (CI) Chief Technology Officer (CTO) Competitive Profile Matrix (CPM) Competitive Advantage Decruiting
  • 82.
    • Key Terms & Concepts
    For Review (Chapter 3) Director of Competitive Analysis External Factor Evaluation Matrix (EFE) Downsizing External Forces Environmental Scanning Industry Analysis External Audit Industrial Organizational (I/O)
  • 83.
    • Key Terms & Concepts
    For Review (Chapter 3) Information Technology (IT) Lifecare Facilities Internet Porter’s Five-Forces Model Learning from the Partner Rightsizing Linear Regression World Wide Web
  • 84.
    • Key Terms & Concepts
    For Review (Chapter 3) Tax Harmonization Foreign Direct Investment

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