impact where companies locate facilities and where people desire to live. Nine U.S. states, for example, have zero state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire, and Tennessee.
Governmental legislation can significantly impact where businesses sell their products. For example, rapidly developing shifts in legislation surrounding the legality of marijuana are open- ing new markets for investors. Nearly a decade ago, Colorado passed the world’s first legislation that would treat marijuana like alcohol, taxing and regulating its sales. U.S. consumers spent
$6.7 billion on legal marijuana in 2016; this number is expected to reach $208 billion in 2021.
Example categories of political, governmental, and legal variables that often yield AQCD opportunities and threats to organizations are provided in Table 3-3. Political, governmental, and legal factors must be stated in AQCD terms to the extent possible to be useful in strate- gic planning. Local, state, and federal laws, as well as regulatory agencies and special-interest groups, can have a major impact on the strategies of small, large, for-profit, and nonprofit orga- nizations. Many companies have altered or abandoned strategies in the past because of politi- cal or governmental actions. As indicated in Ethics Capsule 3, new pending federal legislation regarding Alaska oil drilling could create business opportunities and threats and present ethical dilemma issues.
TABLE 3-2 Key SCDE Variables
Population changes by race, age, and geographic area Attitudes toward retirement Regional changes in tastes and preferences Energy conservation
Number of marriages Attitudes toward product quality
Number of divorces Attitudes toward customer service
Number of births Pollution control
Number of deaths Attitudes toward foreign peoples
Immigration and emigration rates Energy conservation
Social Security programs Social programs
Life expectancy rates Number of places of worship
Per-capita income Number of religious members
Social-media pervasiveness Social responsibility issues
Technological Forces
A variety of new technologies such as the Internet of Things, three-dimensional (3D) printing, predictive analytics, quantum computing, robotics, and artificial intelligence are fueling innova- tion in many industries and impacting strategic-planning decisions. Businesses are using mobile technologies and applications to better determine customer trends and are employing advanced analytics to make enhanced strategy decisions. The vast increase in the amount of data coming from mobile devices and social-media sites is astonishing. A primary reason that Cisco Systems recently entered the data analytics business is that sales of hardware, software, and services con- nected to the Internet of Things is expected to increase to $7.1 billion by 2020 from approximately
$2.0 billion in 2015. A recent report by Cognizant Technology Solutions Corp., an IT services and consulting firm, predicts that more than 20 new job categories are soon to emerge from techno- logical advances.
Online retail is crushing traditional retail. Credit Suisse reports that more U.S. brick-and- mortar retail stores closed in 2017 than in the 2008 economic recession. U.S. online retail sales increased a whopping 24 percent in 2017, as consumers prefer having boxes delivered to their door.
This technological trend is so pervasive that Walmart Stores, Inc. in 2018 changed their name to Walmart, Inc.—removing the word stores. In fact, in terms of online selling of groceries, Walmart is the leader in China, even though there are more than four hundred Walmart stores in China.
Advances in technology impact the manufacturing labor market. Ben Pring, Director of Cogniant’s Center for the Future of Work estimates that nearly 19 million jobs in the United States will become obsolete or be replaced by automation in the next 15 years.4 In a dramatic shift from employing people with low wages outside of the United States, Adidas is shifting to produce footwear in developed countries using fully robotic plants called “speed-factories.”
Adidas’s speed- factories are now located across the world, including in Germany, the United States, France, China, and Japan. This shift from cheap manpower to complete automation is a technological revolution occurring in the footwear industry. Before new speed-factories, Adidas owned no factories, instead using more than one thousand suppliers that employ millions of people to assemble shoes at low-wage facilities globally. Adidas’ new strategy aims to eventually surpass its major rival Nike.
No company or industry today is insulated against emerging technological developments. In high- tech industries, identification and evaluation of key technological opportunities and threats can be the most important part of the external strategic-management audit. In performing an external assessment, technology-related factors must be stated in AQCD terms to the extent possible to be useful in strategic planning. Technological advancements impact firms in countless ways, such as the following:
1. They can dramatically affect organizations’ products, services, markets, suppliers, distribu- tors, competitors, customers, manufacturing processes, marketing practices, and competi- tive position.
2. They can create new markets, result in a proliferation of new and improved products, change the relative competitive cost positions in an industry, and render existing products and services obsolete.
3. They can reduce or eliminate cost barriers between businesses, create shorter production runs, create shortages in technical skills, and result in changing values and expectations of employees, managers, and customers.
4. They can create new competitive advantages that are more powerful than existing advantages.
TABLE 3-3 Example Political, Governmental, and Legal Categories To Be Monitored Natural environmental regulations United States versus other country relationships Protectionist actions by countries Political conditions in countries
Changes in patent laws Global price of oil changes
Equal employment opportunity laws Local, state, and federal laws Level of defense expenditures Import–export regulations
Unionization trends Tariffs, particularly on steel and aluminum Antitrust legislation Local, state, and national elections
A chief information officer (CIO) and chief technology officer (CTO) are common positions in firms today, reflecting the growing importance of information technology (IT) in strategic management. A CIO and CTO work together to ensure that information needed to formulate, implement, and evaluate strategies is available on demand. The CIO is primarily a manager, managing the firm’s relationship with stakeholders; the CTO is primarily a technician, focusing on technical issues such as data acquisition, data processing, decision-support systems, and software and hardware acquisition.
Monitoring online reviews for businesses, large or small, has become a burdensome but essential task, especially given social-media channels, such as Twitter, that empowers opinionated customers. Benign neglect of a company’s online reputation can quickly hurt sales, especially given the new normal behavior of customers consulting their smartphones for even the smallest of purchases.
Competitive Forces
Arguably the most important part of an external audit is identifying rival firms and deter- mining their strengths, weaknesses, capabilities, objectives, and strategies. George Salk stated, “If you’re not faster than your competitor, you’re in a tenuous position, and if you’re only half as fast, you’re terminal.” As indicated in Global Capsule 3, Netflix is faster than its rival firms but staying ahead requires constant monitoring of what those firms are doing and why. Go to www.owler.com for information about competitors.
Competition in virtually all industries is intense—and sometimes cutthroat. Within the smartphone and personal tech industry, for example, GoPro Inc. is struggling to maintain market share. To differentiate its offerings from the latest smartphone camera technologies offered by Apple and Samsung, GoPro developed a new product called Fusion that features a 360-degree spherical camera with a unique Over-Capture capability, enabling users to capture pictures from every angle simultaneously.
Addressing questions about competitors, such as those presented in Table 3-4, is essential in performing an external audit. Competitive intelligence (CI), as formally defined by the Society of Competitive Intelligence Professionals (SCIP), is a systematic and ethical process for gather- ing and analyzing information about the competition’s activities and general business trends to further a business’s own goals (SCIP website). Quality competitive intelligence in business, as in the military, is one of the keys to success. Major competitors’ weaknesses can represent external opportunities; major competitors’ strengths may represent key threats.
Various legal and ethical ways to obtain competitive intelligence include the following:
• Reverse-engineer rival firms’ products.
• Use surveys and interviews of customers, suppliers, and distributors of rival firms.
• Analyze rival firm’s Form 10-K.
• Conduct fly-over and drive-by visits to rival firm operations.
• Search online databases and websites such as www.owler.com.
• Contact government agencies for public information about rival firms.
TABLE 3-4 Key Questions about Competitors
1. What are the strengths and weaknesses of our major competitors?
2. What products and services do we offer that are unique in the industry?
3. What are the objectives and strategies of our major competitors?
4. How will our major competitors most likely respond to current economic, SCDE, political, govern- mental, legal, technological, and competitive trends affecting our industry?
5. How vulnerable are our major competitors to our new strategies, products, and services?
6. How vulnerable is our firm to successful counterattack by our major competitors?
7. How does our firm compare to rivals in mastering the social-media conversation in this industry?
8. To what extent are new firms entering and old firms leaving this industry?
9. What key factors have resulted in our present competitive position in this industry?
10. How are supplier and distributor relationships changing in this industry?