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Ateneo efe


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Ateneo efe

  1. 1. EXTERNAL ENVIRONMENT Session 3 Professor Hilda L. Teodoro Ateneo Graduate School of Business
  2. 2. Scan Internal Environment <ul><li>Identify Strategic </li></ul><ul><li>Factors </li></ul><ul><li>Strengths </li></ul><ul><li>Weaknesses </li></ul><ul><li>Identify Strategic </li></ul><ul><li>Factors </li></ul><ul><li>Opportunities </li></ul><ul><li>Threats </li></ul><ul><li>Define new: </li></ul><ul><li>Mission </li></ul><ul><li>Goals </li></ul><ul><li>Formulate </li></ul><ul><li>Strategy </li></ul><ul><li>Corporate </li></ul><ul><li>Business </li></ul><ul><li>Functional </li></ul><ul><li>Implement Strategy </li></ul><ul><li>via Changes in: </li></ul><ul><li>Leadership </li></ul><ul><li>Structure </li></ul><ul><li>Human Resources </li></ul><ul><li>Information and </li></ul><ul><li>control systems </li></ul>THE STRATEGIC MANAGEMENT PROCESS <ul><li>Evaluate Current </li></ul><ul><li>Mission </li></ul><ul><li>Goals </li></ul><ul><li>Strategies </li></ul>Scan External Environment
  3. 3. SESSION 2: AGENDA <ul><li>External Analysis </li></ul><ul><ul><li>General Environment </li></ul></ul><ul><ul><li>Industry Analysis </li></ul></ul><ul><li>Michael Porter Video on 5 Forces </li></ul><ul><li>Group Discussion: CPM, MVS, EFE </li></ul>
  4. 4. THE EXTERNAL ASSESSMENT <ul><li>Identification and evaluation of trends and events beyond control of a single firm </li></ul><ul><ul><li>Increased foreign competition </li></ul></ul><ul><ul><li>Populations shifts </li></ul></ul><ul><ul><li>Aging society </li></ul></ul><ul><ul><li>Information technology </li></ul></ul><ul><ul><li>Computer revolution </li></ul></ul><ul><li>“… External audit is not aimed at developing an exhaustive list of every possible factor that could influence the business; rather it is aimed at identifying key variables that offer actionable responses.” </li></ul>FRED DAVID
  5. 5. <ul><li>Economic trends </li></ul><ul><li>Social, Cultural and Demographic trends </li></ul><ul><li>Technological developments </li></ul><ul><li>Legal, Political, and Government forces </li></ul><ul><li>Competitive forces </li></ul>THE EXTERNAL ASSESSMENT EXTERNAL ASSESSMENT <ul><li>Development of Finite List: </li></ul><ul><li>Opportunities </li></ul><ul><ul><li>Threats to be avoided </li></ul></ul>FRED DAVID
  6. 6. ECONOMIC FORCES <ul><li>Industry Shifts </li></ul><ul><li>Availability of Credit </li></ul><ul><li>Level of Disposable Income </li></ul><ul><li>Consumption patterns </li></ul><ul><li>Interest/inflation </li></ul><ul><li>Money market rates </li></ul><ul><li>Budget deficits </li></ul><ul><li>Gross domestic product trend </li></ul><ul><li>Unemployment trends </li></ul><ul><li>Worker productivity levels </li></ul><ul><li>Exchange rates </li></ul><ul><li>Stock Market trends </li></ul><ul><li>Foreign economic conditions </li></ul><ul><li>Import/export factors </li></ul><ul><li>Demand shifts for different categories of products and services </li></ul><ul><li>Income differences by region/consumer groups </li></ul><ul><li>Price fluctuations </li></ul><ul><li>Export of labor and capital </li></ul><ul><li>Monetary policies </li></ul><ul><li>Fiscal policies </li></ul><ul><li>Tax rates </li></ul><ul><li>EEC policies </li></ul><ul><li>OPEC policies </li></ul><ul><li>Unemployment trends </li></ul><ul><li>Propensity of people to spend </li></ul>FRED DAVID
  7. 7. SOCIO-CULTURAL FORCES <ul><li>Child bearing rates </li></ul><ul><li>Number of special interest groups </li></ul><ul><li>Number of marriages/divorces </li></ul><ul><li>Immigration/emigration rates </li></ul><ul><li>Life expectancy rates </li></ul><ul><li>Per capita income </li></ul><ul><li>Location of businesses </li></ul><ul><li>Attitudes and lifestyles </li></ul><ul><li>Traffic congestion </li></ul><ul><li>Buying habits </li></ul><ul><li>Ethical concerns </li></ul><ul><li>Savings/investing </li></ul><ul><li>Sex roles </li></ul><ul><li>Birth control </li></ul><ul><li>Level of education </li></ul><ul><li>Government regulation </li></ul><ul><li>Trust in government </li></ul><ul><li>Pollution control </li></ul><ul><li>Energy programs </li></ul><ul><li>Social programs </li></ul><ul><li>Number of churches </li></ul><ul><li>Population changes by location and by age, sex, etc. </li></ul><ul><li>Number of high school and college graduates </li></ul><ul><li>Waste management </li></ul>FRED DAVID
  8. 8. LEGAL/POLITICAL FORCES <ul><li>Government regulations/deregulations </li></ul><ul><li>Changes in tax laws </li></ul><ul><li>Special tariffs </li></ul><ul><li>Political action committees </li></ul><ul><li>Voter participation </li></ul><ul><li>Number and severity of protest against government </li></ul><ul><li>Patents and changes </li></ul><ul><li>Environmental protection laws </li></ul><ul><li>Level of defense spending </li></ul><ul><li>Antitrust legislation </li></ul><ul><li>Geopolitics </li></ul><ul><li>Import/export regulations </li></ul><ul><li>Fiscal & monetary policies </li></ul><ul><li>Lobbying activities </li></ul><ul><li>Size of gov’t budgets </li></ul><ul><li>World oil, currency, & labor markets </li></ul><ul><li>Terrorism </li></ul><ul><li>Local and national elections </li></ul>FRED DAVID
  9. 9. TECHNOLOGICAL FORCES <ul><li>A firm must be aware of technological changes that might influence its industry </li></ul><ul><li>TECHNOLOGICAL FORECASTING - key lies in accurately predicting future technological capabilities and their probable impacts </li></ul><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>PEARCE & ROBINSON
  10. 10. COMPETITOR ANALYSIS <ul><li>Purpose is to analyze each major competitor in sufficient detail so as to be able to construct the strategy the competitor is pursuing. </li></ul><ul><li>Not an easy task </li></ul><ul><ul><li>Some are small and privately held </li></ul></ul><ul><ul><li>Others don’t have a clearly articulated strategy – discern their implied strategy </li></ul></ul><ul><ul><li>Others say one thing and do something else. </li></ul></ul>BCG
  11. 11. COMPETITOR ANALYSIS INCLUDES <ul><li>A knowledge of the competitors priorities, objectives and goals </li></ul><ul><li>An understanding of their abilities and problems </li></ul><ul><li>How important this specific business is when compared with their other businesses. </li></ul><ul><li>What will they be doing in the future and how it will be accomplished. </li></ul>BCG
  12. 12. COMPETITOR PROFILE: <ul><li>Market share </li></ul><ul><li>Breadth of product line </li></ul><ul><li>Effectiveness of sales distribution </li></ul><ul><li>Proprietary and key account advantages </li></ul><ul><li>Price competitiveness </li></ul><ul><li>Advertising and promotion effectiveness </li></ul><ul><li>Location and age of facility </li></ul><ul><li>Capacity and productivity </li></ul><ul><li>Experience </li></ul>PEARCE & ROBINSON <ul><li>Raw material costs </li></ul><ul><li>Financial position </li></ul><ul><li>Relative product quality </li></ul><ul><li>R&D advantages position </li></ul><ul><li>Caliber of personnel </li></ul><ul><li>General images </li></ul><ul><li>Customer profiles </li></ul><ul><li>Patents and copyrights </li></ul><ul><li>Union relations </li></ul><ul><li>Technological position </li></ul><ul><li>Community reputation </li></ul>Collection and evaluation of information on competitors is essential for successful strategy formulation. FRED DAVID
  13. 13. COMPETITIVE PROFILE MATRIX <ul><li>Identifies a firm’s major competitors and their strengths and weaknesses in relation to the firm’s strategic position. </li></ul><ul><li>Include both internal and external issues </li></ul><ul><li>Identifies the Key Success Factors </li></ul><ul><li>Critical success factors are broader than EFE & IFE. </li></ul><ul><li>Critical success factors must apply to all competitors. </li></ul><ul><li>Numbers reveal the relative strength of firms, but their implied precision is an illusion. </li></ul>FRED DAVID
  14. 14. COMPETITIVE PROFILE MATRIX <ul><li>List (5-8) critical success factors identified. </li></ul><ul><li>Assign a weight to each factor. The sum of all weights must equal 1.0. </li></ul><ul><li>Assign a 1-4 rating to each factor to indicate whether that factor represents a </li></ul><ul><li>4 – major strength. </li></ul><ul><li>3 – minor strength. </li></ul><ul><li>2 – minor weakness. </li></ul><ul><li>1 – major weakness. </li></ul><ul><li>Multiply each factor by its rating to determine a weighted score . </li></ul><ul><li>Sum the weighted scores to determine total score for the organization. </li></ul>FRED DAVID
  15. 15. CPM - COMPETITIVE PROFILE MATRIX   SARAP CANNER ARIES CRITICAL SUCCESS FACTORS Weight Rating Score Rating Score Rating Score 1 Product quality and performance 0.40 4 1.60 2 0.80 3 1.20 2 Effective distribution 0.20 3 0.60 2 0.40 2 0.40 3 Market share 0.15 4 0.60 2 0.30 3 0.45 4 Brand management 0.10 3 0.30 2 0.20 2 0.20 5 Customer loyalty 0.15 3 0.45 2 0.30 2 0.30   Total 1.00   3.55   2.00   2.55
  16. 16. PORTER’S 5 FORCES OF COMPETITIVE ANALYSIS THREAT OF NEW ENTRANTS BARGAINING POWER OF BUYERS RIVALRY AMONG COMPETITORS BARGAINING POWER OF SUPPLIERS THREAT OF SUBSTITUTE PRODUCTS MICHAEL E. PORTER T he collective strength of the 5 forces determines the attractiveness of the industry. The 5 forces determine industry profitability because they influence the prices, costs, and required investment of firms in an industry.
  17. 17. THREAT OF NEW ENTRANTS BARRIERS TO ENTRY <ul><li>Economies of scale </li></ul><ul><li>Brand Identity </li></ul><ul><li>Differentiation </li></ul><ul><li>Capital requirements </li></ul><ul><li>Switching costs </li></ul><ul><li>Access to distribution </li></ul><ul><li>Absolute cost advantages </li></ul><ul><li>Government policy </li></ul><ul><li>Expected retaliation </li></ul>These factors tend to raise barriers to market entry by new entrants MICHAEL E. PORTER
  18. 18. BARGAINING POWER OF BUYERS <ul><li>Buyer volume </li></ul><ul><li>Big ticket items </li></ul><ul><li>Low switching costs </li></ul><ul><li>Standardized or undifferentiated products </li></ul><ul><li>Purchase is not very important to buyer </li></ul><ul><li>Buyer has all the relevant information </li></ul>These factors tend to increase customer bargaining power Buyers can reduce industry profitability by forcing down prices, demanding more service, playing one competitor against another MICHAEL E. PORTER
  19. 19. THREAT OF SUBSTITUTE PRODUCTS <ul><li>Low switching costs </li></ul><ul><li>Whether buyers view the substitutes as being satisfactory in terms of quality, performance, and other relevant attributes </li></ul><ul><li>Whether attractively priced substitutes are available </li></ul>Substitute: look different but can perform the same function as your product MICHAEL E. PORTER TV Antenna vs Cable
  20. 20. BARGAINING POWER OF SUPPLIERS <ul><li>Dominated by a few suppliers </li></ul><ul><li>Suppliers are more concentrated than buyers </li></ul><ul><li>No substitutes </li></ul><ul><li>Supplier has more important customers </li></ul><ul><li>Differentiated product </li></ul><ul><li>High switching costs </li></ul>Tend to increase supplier bargaining power <ul><li>Suppliers can raise prices, or reduce quality </li></ul><ul><ul><li>Squeeze profitability </li></ul></ul>MICHAEL E. PORTER
  21. 21. RIVALRY AMONG COMPETITORS <ul><li>Numerous rivals </li></ul><ul><li>Slow growth </li></ul><ul><li>High fixed costs </li></ul><ul><li>Low differentiation </li></ul><ul><li>Low switching costs </li></ul><ul><li>Large capacity increments </li></ul><ul><li>High exit barriers </li></ul>Tend to increase rivalry among existing competitors MICHAEL E. PORTER
  22. 22. EFE Assign a weight to each factor Assign a 1–4 rating effectiveness of co. strategies E=Economic, S=Socio-cultural, P=Political, T=Technological, C=Competitive 2.55 1.00 Total EFE Score Started to increase its own promotional materials 0.60 3 0.20 Greater promotional resources of competitors 5-C Still rated as the most effective coxib in the market 0.60 3 0.20 Introduction of newer coxibs 4-C Lack of response to this threat 0.10 1 0.10 Unpredictable, unstable political situation 3-P Lack of response to this threat 0.05 1 0.05 Cost containment pressures from the government 2-P Cost of goods driven by mother co as supplier. 0.10 2 0.05 Increasing cost of sales due to fluctuation in peso. 1-E EXTERNAL THREAT Slow penetration of the HMO market 0.10 2 0.05 Increase in number of HMOs 5-S Rated as the most effective coxib in the market 0.60 3 0.20 Big unsatisfied acute pain market 4-S Focused on the older population coming out with medicines that address their medical problems very effectively. 0.20 4 0.05 Rapid growth of the older population 3-S Has not really taken full advantage of this increase 0.16 2 0.08 Increased level of health expenditures 2-E Hasn’t really taken advantage of the growth in GDP 0.04 2 0.02 Increased GDP level 1-E EXTERNAL OPPORTUNITIES Rating Rationale WTD Score Rat ing WT KEY EXTERNAL FACTORS
  23. 23. The External Factor Evaluation Matrix (EFE) <ul><li>1. List critical success factors identified. </li></ul><ul><li>2. Assign a weight to each factor. The sum of all weights must equal 1.0. </li></ul><ul><li>3. Assign a 1-4 rating to each critical factor to indicate how effectively the firm’s currents strategies respond to the factor. </li></ul><ul><li>4 – superior 3 - above average </li></ul><ul><li>2 – average 1 - poor </li></ul><ul><li>4. Multiply each factor by its rating to determine a weighted score . </li></ul><ul><li>5. Sum the weighted scores for each variable to determine total score for the organization. </li></ul>FRED DAVID