Fred R. David Prentice Hall
Ch.3-1
Chapter 3
The External Assessment
Strategic Management:
Concepts and Cases
.
9
thedition
Fred R. David
PowerPoint Slides by Anthony F. Chelte
External Strategic Management Audit
Also called:
– Environmental scanning
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
Purpose:
– Development of Finite List:
• Opportunities
• Threats to be avoided
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
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 &
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
Performing an External Audit
Sources of information include:
– Internet
– Libraries (corporate, university, public)
– Suppliers
– Distributors
– Customers
Fred R. David Prentice Hall
Ch.3-9
Performing an External Audit
Key factors:
– Vary over time
Performing an External Audit
Variables include:
– Market share
– Breadth of competing products
– World economies
– Foreign affiliates
– Proprietary account advantages
– Price competitiveness
– Technological advancements
– Interest rates
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
Economic Forces
Monitor Key Economic Variables:
Availability of credit
Level of disposable income Interest rates
Inflation rates
Money market rates
Federal government budget deficits
Fred R. David Prentice Hall
Ch.3-13
Monitor Key Economic Variables:
• 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
Monitor Key Economic Variables:
• Price fluctuations
• Exportation of labor & capital
• Monetary policies
• Fiscal policies
• Tax rates
• ECC policies
• OPEC policies
Fred R. David Prentice Hall
Ch.3-15
Social, Cultural, Demographic &
Environmental Forces
Major impact on:
– Products
– Services
– Markets
Monitor Key Variables
•
Life expectancy rates
•
Per capita income
•
Attitudes toward business
•
Average disposable income
•
Buying habits
•
Ethical concerns
Fred R. David Prentice Hall
Ch.3-17
Monitor Key Variables
•
Racial equality
•
Average level of education
•
Government regulation
•
Attitudes toward customer service
•
Attitudes toward product quality
•
Energy conservation
Monitor Key Variables
•
Value placed on leisure time
•
Recycling
•
Waste management
•
Air & water pollution
•
Ozone depletion
Fred R. David Prentice Hall
Ch.3-19
Political, Govt., & Legal Forces
Government Regulation
•
Key opportunities & key threats
• Antitrust legislation (Microsoft)
• Tax rates
• Lobbying efforts
Political, Govt., & Legal Forces
Increasing Global Interdependence
•
Impact of political variables
– Formulation of Strategies
Fred R. David Prentice Hall
Ch.3-21
Political, Govt., & Legal Forces
Increasing Global Interdependence
•
Strategists in a global economy
• Forecast political climates
• Legalistic skills
Political, Govt., & Legal Forces
Globalization of Industry
• Worldwide trend toward similar consumption patterns
• Global buyers & sellers
• E-commerce
Fred R. David Prentice Hall
Ch.3-23
Political, Govt., & Legal Forces
Key Political, govt., & legal variables:
• Government regulation/deregulation
• Tax law changes
• Special tariffs
• Political Action Committees (PACs)
• Voter participation rates
• Number of patents
Technological Forces
Revolutionary technological forces:
•
Profound impact on organizations
• Internet
• Semiconductors
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
Competitive Forces
Fred R. David Prentice Hall
Ch.3-27
Competitive Forces
Competitive Forces
Identifying rival firms
• Strengths
• Weaknesses
• Capabilities
• Opportunities
• Threats
• Objectives
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
Industry Analysis (EFE)
External Factor Evaluation Matrix
Summarize & evaluate:
Competitive Political
Cultural
Technological Environmental
Social
Governmental Demographic
Fred R. David Prentice Hall
Ch.3-31
Industry Analysis (EFE)
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
Industry Analysis (EFE)
•
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
Fred R. David Prentice Hall
Ch.3-33
Industry Analysis (EFE)
Five-step process:
•
Sum the weighted scores for each
Determines the total weighted score
for the organization.
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
Fred R. David Prentice Hall
Ch.3-35
Industry Analysis (EFE)
Important
•
Understanding of the factors used in the
Industry Analysis (CPM)
Competitive Profile Matrix
•
Identifies firm’s major competitors
and their strengths & weaknesses
in relation to a sample firm’s
strategic position
Fred R. David Prentice Hall
Ch.3-37
(CPM) Procter
