Staratetic Management Staratetic Management Staratetic Management

1. ENVIRONMENTAL
ANALYSIS AND APPRAISAL
EXTERNAL ENVIRONMENT
CHAPTER THREE

2. Purpose of External Analysis
 To understand the external environment as it affects the enterprise
 3 levels of analysis:
 General changes in business(Macro) environment
 Changes within the industry
 Activities of competitors and other specifics

3. Purpose of External Analysis…
• To identify opportunities and threats of env’t
• Opportunity
− A condition in the general environment that helps a company
achieve strategic competitiveness
• Threat
− A condition in the general environment that may hinder a company’s
efforts to achieve strategic competitiveness

4. Analysis of the External Environments
• General environment
− Focused on the future
• Industry environment
− Focused on factors and conditions influencing a
firm’s profitability within an industry
• Competitor environment
− Focused on predicting the dynamics of
competitors’ actions, responses and intentions

5. External Environmental Analysis…
Strategic Intent
Strategic Mission
Analysis of general environment
Analysis of industry environment
Analysis of competitor environment
The External
Environment

6. External Environmental Analysis…
A continuous process which includes
 Scanning: Identifying early signals of environmental
changes and trends
 Monitoring: Detecting meaning through ongoing
observations of environmental changes and trends
 Forecasting: Developing projections of anticipated
outcomes based on monitored changes and trends
 Assessing: Determining the timing and importance of
environmental changes and trends for firms’ strategies and
their management

7. General Environment
 The Economic Segment
 Inflation rates
 Interest rates
 Trade deficits or
surpluses
 Budget deficits or
surpluses
 Personal savings rate
 Business savings rates
 Gross domestic product

8. General Environment (cont’d)
 The Sociocultural Segment
 Women in the workplace
 Workforce diversity
 Attitudes about quality of
worklife
 Concerns about
environment
 Shifts in work and career
preferences
 Shifts in product and
service preferences

9. General Environment (cont’d)
 The Global Segment
 New global markets
 Changing existing
markets
 Important
international events
 Critical cultural and
institutional
characteristics of
global markets

10. General Environment (cont’d)
 The Technological Segment
 Product innovations
 Applications of knowledge
 Focus of private and
government-supported
R&D expenditures
 New communication
technologies

11. General Environment (cont’d)
 The Political/Legal Segment
 Antitrust laws
 Called competition law :ensuring that fair
competition exists in an open-market economy
 Taxation laws
 Deregulation philosophies
 Labor training laws
 Educational philosophies and
policies

12. General Environment
 The Demographic
Segment
 Population size
 Age structure
 Geographic
distribution
 Ethnic mix
 Income distribution

13. Industry Environment
 Set of factors directly influencing a firm and its
competitive actions and competitive responses
 Threat of new entrants
 Power of suppliers
 Power of buyers
 Threat of product substitutes
 Intensity of rivalry among competitors

14. Threat of
Substitute
Products
Threat of
New
Entrants
Threat of New
Entrants
Rivalry Among
Competing Firms in
Industry
Bargaining
Power of
Buyers
Bargaining
Power of
Suppliers
Porter’s Five Forces
Model of Competition

15. Threat of New Entrants
 If barriers of industry is low. it is threat for the present firm
 Barriers to entry
 Economies of scale
 Product differentiation
 Capital requirements
 Switching costs
 Access to distribution channels
 Cost disadvantages independent of scale
 Government policy
 Expected retaliation

16. Bargaining Power of Suppliers
 A supplier group is powerful when:
 it is dominated by a few large companies
 satisfactory substitute products are not available to industry
firms
 industry firms are not a significant customer for the supplier group
 suppliers’ goods are critical to buyers’ marketplace success
 effectiveness of suppliers’ products has created high switching
costs
 suppliers are a credible threat to integrate forward into the buyers’
industry

17. Bargaining Power of Buyers
 Buyers (customers) are powerful when:
 they purchase a large portion of an industry’s
total output
 the sales of the product being purchased account
for a significant portion of the seller’s annual
revenues
 they could easily switch to another product
 the industry’s products are undifferentiated or
standardized, and buyers pose a credible threat if
they were to integrate backward into the seller’s
industry

18. Threat of Substitute Products
 Product substitutes are strong threat when:
 customers face few switching costs
 substitute product’s price is lower
 substitute product’s quality and performance
capabilities are equal to or greater than those of
the competing product

19. Intensity of Rivalry
 Intensity of rivalry is stronger when competitors:
 are numerous or equally balanced
 experience slow industry growth
 have high fixed costs or high storage costs
 lack differentiation or low switching costs
 experience high strategic stakes
 have high exit barriers

20. Competitor Environment
 All of the companies that the firm competes
against.

21. Competitor Environment
Competitor intelligence is the ethical gathering of needed
information and data about competitors’ objectives,
strategies, assumptions, and capabilities
 What drives the competitor as shown by its future objectives
 What the competitor is doing and can do as revealed by its current
strategy
 What the competitor believes about itself and the industry, as shown
by its assumptions
 What the competitor may be able to do, as shown by its capabilities

22. Case analysis
 (Hill 74 )pharmaceutical industry

23. The Internal Assessment
 . Class activity
 Write down your expectation of what you are going to learn!
 What manager internally assess ? Use your experience and explain
to class

24. Nature of an Internal Audit
-- Strengths
-- Weaknesses
Focus on functional Areas of Business

25. Key Internal Forces
Functional Business Areas:
Vary by organization
Divisions have differing strengths &
weaknesses

26. Key Internal Forces…
Distinctive Competencies :
Firm’s strengths that cannot be easily matched or imitated by competitors
 Core competences or distinctive capabilities are combinations of
resources and capabilities which are unique to a specific organization and
which are responsible for generating its competitive advantage
 Competences and capabilities will often be internally generated, but may
be obtained by collaboration with other organizations.

27. Key Internal Forces…
Distinctive Competencies:
Strategies designed to improve on a firm’s weaknesses and turn to strengths
A unique firm-specific strength that enables a company to better differentiate its
products and/or achieve substantially lower costs than its rivals and thus gain a
competitive advantage.
Capabilities:
company’s skills at coordinating its resources
and putting them to productive use

28. Key Internal Forces..
Resource Based View (RBV)
As RBV; Internal resources are more important than external factors
RBV argues resources that are simultaneously valuable, rare, inimitable, and
non substitutable(VRIN) are sources of competitive advantage (Barney, 1991).
Includes: corporate culture, unique historical conditions, managerial
capabilities, property rights, information, knowledge etc

29. Resource Based View (RBV)…
 Resources are assets employed in the activities and processes of the
organization.
 They can be tangible or intangible.
 Resources fall within several categories:
 Human
 Financial
 Physical
 Technological
 Informational

30. Internal Audit
•Identifying strength and weakness in :
•Management
•Marketing
•Finance/accounting
•Production/operations
•Research & Development
•Management information Systems
Is assessing internal environment/factors

31. Management
Functions of Management
1. Planning
2. Organizing
3. Motivating
4. Staffing
5. Controlling

32. Management
Planning
Stage When Most
Important
Function
Strategy Formulation
Organizing Strategy Implementation
Motivating Strategy Implementation
Staffing
Controlling
Strategy Implementation
Strategy Evaluation

33. Management
Planning
 Beginning of management process
 Bridge between present & future
 Improves likelihood of attaining
desired results

34. Planning
Forecasting
Establishing objectives
Devising strategies
Developing policies
Setting goals
Management

35. Management
Organizing
 Achieves coordinated effort
 Defines task & authority relationships
 Departmentalization
 Delegation of authority

36. Organizing
Organizational design
Job specialization
Job descriptions
Job specifications
Span of control
Unity of command
Coordination
Job design
Job analysis
Management

37. Management
Motivating
 Influencing to accomplish specific
objectives
 Communication – major component

38. Motivating
Leadership
Communication
Work groups
Job enrichment
Job satisfaction
Needs fulfillment
Organizational change
Morale
Management

39. Management
Staffing
 Personnel management
 Human resources management

40. Staffing
Wage & salary admin.
Employee benefits
Interviewing
Hiring
Discharging
Training
Management development
Affirmative Action
EEO
Labor relations
Management

41. Management
Controlling
 Establishing performance standards
 Ensure actual operations conform to
planned operations
 Taking corrective actions

42. Controlling
Quality
Financial
Sales
Inventory
Expense
Analysis of variance
Rewards
Sanctions
Management

43. Management Audit Checklist
•Does the firm use strategic management
concepts?
•Are objectives/goals measurable? Well
communicated?
•Do managers at all levels plan
effectively?

44. Management Audit Checklist
•Do managers delegate well?
•Is the organization’s structure
appropriate?
•Are job descriptions clear?
•Are job specifications clear?
•Is employee morale high?

45. Management Audit Checklist
•Is employee absenteeism low?
•Is employee turnover low?
•Are the reward mechanisms effective?
•Are the organization’s control
mechanisms effective?

46. Marketing
Customer Needs/Wants for Products/Services
1. Defining
2. Anticipating
3. Creating
4. Fulfilling

47. Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis

48. Customer
Analysis
Customer surveys
Consumer information
Market positioning
strategies
Customer profiles
Market segmentation
strategies
Marketing

49. Advertising
Sales
Promotion
Publicity
Sales force management
Customer relations
Dealer relations
Marketing
Selling
Products/Services

50. Test marketing
Brand positioning
Devising warrantees
Packaging
Product features/options
Product style
Quality
Marketing
Planning
Product/Service

51. Forward integration
Discounts
Credit terms
Condition of sale
Markups
Costs
Unit pricing
Marketing
Pricing

52. Warehousing
Channels
Coverage
Retail site locations
Sales territories
Inventory levels
Transportation
Marketing
Distribution

53. Data collection
Data input
Data analysis
Support business functions
Marketing
Marketing Research

54. Assessing costs
Assessing benefits
Assessing risks
Cost/benefit/risk analysis
Marketing
Opportunity
Analysis

55. Marketing
Opportunity Analysis
1. Are markets segmented effectively?
2. Is the organization positioned well among
competitors?
3. Has the firm’s market share been
increasing?
4. Are the distribution channels reliable &
cost effective?
5. Is the sales force effective?

56. Marketing
Opportunity Analysis
6. Does the firm conduct market research?
7. Are product quality & customer service
good?
8. Are the firm’s products/services priced
appropriately?
9. Does the firm have effective promotion,
advertising, & publicity strategies?

57. Marketing
Opportunity Analysis
10.Are the marketing planning & budgeting
effective?
11.Do the firm’s marketing managers have
adequate experience and training?

58. Finance/Accounting
 Determining financial strengths &
weaknesses key to strategy
formation

59. Finance/Accounting
Finance/Accounting Functions
1. Investment decision (Capital budgeting)
2. Financing decision
3. Dividend decision

60. Firm’s ability to meet its
short-term obligations
Ratios
Current ratio
Quick (or acid test) ratio
Basic Financial Ratios
Liquidity Ratios

61. Extent of debt financing
Ratios
Debt-to-total assets
Debt-to-equity
Long-term debt-to-equity
Times-interest earned
Basic Financial Ratios
Leverage Ratios

62. Effective use of firm’s
resources
Ratios
Inventory-turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Basic Financial Ratios
Activity Ratios

63. Effectiveness shown by
returns on sales &
investment
Ratios
Gross profit margin
Operating profit margin
Net profit margin
Return on total assets (ROA)
Basic Financial Ratios
Profitability Ratios

64. Effectiveness shown by
returns on sales &
investment
Ratios
Return on stockholders equity
(ROE)
Earnings per share
Price-earnings ratio
Basic Financial Ratios
Profitability Ratios
(cont’d)

65. Firm’s ability to maintain
economic position
Ratios
Sales
Net income
Earnings per share
Dividends per share
Basic Financial Ratios
Growth Ratios

66. Finance/Accounting Audit
•Where is the firm strong/weak as
indicated by financial ratio analysis?
•Can the firm raise short-term capital as
needed?
•Can the firm raise long-term capital as
needed through debt and/or equity?

67. Finance/Accounting Audit
•Does the firm have sufficient working
capital?
•Are capital budgeting procedures
effective?
•Are dividend payout policies reasonable?
•Are the firm’s financial managers
experienced & well trained?

68. Finance/Accounting Audit
Effective Financial Analysis Requires:
1. Analysis of how the ratios have
changed over time
2. How the ratios compare to industry
norms
3. How the ratios compare with key
competitors

69. Production/Operations
Production/Operations Functions
 Process
 Capacity
 Inventory
 Workforce
 Quality

70. Facility design
Technology selection
Facility layout
Process flow analysis
Facility location
Line balancing
Process control
Production/Operations
Process

71. Forecasting
Facilities planning
Aggregate planning
Scheduling
Capacity planning
Queuing analysis
Production/Operations
Capacity

72. Raw materials
Work in process
Finished goods
Materials handling
Production/Operations
Inventory

73. Job design
Work measurement
Job enrichment
Work standards
Motivation techniques
Production/Operations
Workforce

74. Quality control
Sampling
Testing
Quality assurance
Cost Control
Production/Operations
Quality

75. Production/Operations Audit
•Are suppliers of materials, parts, etc.
reliable and reasonable?
•Are facilities, equipment & machinery in
good condition?
•Are inventory-control policies and
procedures effective?

76. Production/Operations Audit
•Are quality-control policies & procedures
effective?
•Are facilities, resources, and markets
strategically located?
•Does the firm have technological
competencies?

77. Research & Development
Research & Development Functions
 Development of new products before
competitors
 Improving product quality
 Improving manufacturing processes to
reduce costs

78. Financing as many
projects as possible
Use percent-of-sales
method
Budgeting relative to
competitors
How many successful
new products are
needed
Research & Development
R&D Budgets

79. Research & Development Audit
•Are the R&D facilities adequate?
•If R&D is outsourced, is it cost effective?
•Are the R&D personnel well qualified?
•Are R&D resources allocated effectively?

80. Research & Development Audit
•Are MIS and computer systems
adequate?
•Is communication between R&D & other
organizational units effective?
•Are present products technologically
competitive?

81. Management Information Systems
Purpose
 Improve performance of an enterprise by
improving the quality of managerial
decisions.

82. Management Information Systems
 Information Systems
 CIO/CTO
 Security
 User-friendly
 E-commerce

83. Management Information Systems Audit
•Do managers use the information system
to make decisions?
•Is there a CIO or Director of Information
Systems position in the firm?
•Is data updated regularly?

84. Management Information Systems Audit…
•Do managers from all functional areas
contribute input to the information system?
•Are there effective passwords for entry
into the firm’s information system?
•Are strategists of the firm familiar with the
information systems of rival firms?

85. Management Information Systems Audit…
•Is the information system user-friendly?
•Do all users understand the competitive
advantages that information can provide?
•Are computer training workshops provided
for users?
•Is the firm’s system being improved?

86. End
 Chapter 4

87. Assurance of Learning Exercise
Strategic planning of JU
Purpose
 External and internal factors are the underlying bases of strategies formulated and
implemented by organizations. Your University or Jimma university faces numerous
external opportunities/threats and has many internal strengths/weaknesses. The purpose
of this exercise is to illustrate the process of identifying critical external and internal
factors.
 External influences include trends in the following areas: economic, social, cultural, demographic,
environmental, technological, political, legal, governmental, and competitive.
 External factors could include declining numbers of high school graduates; population shifts;
community relations; increased competitiveness among colleges and universities; rising numbers of
adults returning to college; decreased support from local, state, and federal agencies; increasing
numbers of foreign students attending JU.or colleges; and a rising number of Internet courses.

88. .Assurance of Learning Exercise …
 Internal factors of a college or university include faculty, students, staff, alumni,
athletic programs, physical plant, grounds and maintenance, student housing,
administration, fundraising, academic programs, food services, parking,
placement, clubs, fraternities, sororities, and public relations.
Instructions
Step 1 On a separate sheet of paper, write four headings: External Opportunities, External Threats,
Internal Strengths, and Internal Weaknesses.
Step 2 As related to your college or university, list five factors under each of the four headings.
Step 3 Discuss the factors as a group/class. Report the factors .
Step 4 What new things did you learn about your university or JU from the factors? How could this
type of factors benefit an organization?