03 external envt.ppt

7/27/2019 03 external envt.ppt

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2001 Prentice Hall

Ch. 3-1

Strategic ManagementConcepts & Cases

8thedition

Fred R. David

Chapter 3:The External Assessment

PowerPoint Slides By:

Anthony F. Chelte

Western New England College


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2001 Prentice Hall

Ch. 3-2

Comprehensive Strategic Management Model

Vision

&MissionStatements

Chapter 2

External

Audit

Chapter 3

Internal

Audit

Chapter 4

Long-Term

Objectives

Chapter 5

Generate,

Evaluate,Select

Strategies

Chapter6

Implement

Strategies:Mgmt Issues

Chapter 7

Implement

Strategies:Marketing,Fin/Acct,R&D, CIS

Chapter 8

Measure &

EvaluatePerformance

Chapter 9


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2001 Prentice Hall

Ch. 3-3

External Assessment

If you're not faster than your competitor,youre in a tenuous position, and ifyoure only half as fast, youre terminal.

George Salk


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Ch. 3-4

External Assessment (Contd)

The idea is to concentrate our strengthagainst our competitors relativeweakness.

Bruce Henderson


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2001 Prentice Hall

Ch. 3-5


External Strategic-Management Audit

Industry analysis

Environmental scanning


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2001 Prentice Hall

Ch. 3-6


External audit:

Focuses on identifying &

evaluating events beyond theimmediate control of the firm


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2001 Prentice Hall

Ch. 3-7


External audit focuses on:

Increased foreign competition

Population shifts

Demographics (e.g., aging population)

Information technology


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2001 Prentice Hall

Ch. 3-8


External audit reveals:

Key opportunities

Key threats

Managers then formulate strategies:

Take advantage of opportunities

Avoid/reduce impact of threats


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Ch. 3-9


External Audit

Aimed at identifying key variables thatofferactionableresponses


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Ch. 3-10


Key External Forces

Five (5) broad categories:

Economic forces

Social, cultural, demographic, &environmental forces


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Ch. 3-11


Key External Forces (Contd)

Five (5) broad categories:

Political, governmental, & legal forces

Technological forces

Competitive forces


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2001 Prentice Hall

Ch. 3-12


Key

ExternalForces

CompetitorsSuppliers

DistributorsCreditors

CustomersEmployees

CommunitiesManagers

StockholdersLabor UnionsSpecial Interest Groups

ProductsServices

Opportunities

&Threats


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Ch. 3-13


Process of External Audit:

Involve as many managers & employees as possible

Gather competitive intelligence

Information about social, demographic, cultural,environmental, etc.

Monitor sources of information (key magazines,articles, etc.)

Utilization of Internet

Suppliers, distributors, customers as sources ofinformation


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Ch. 3-14


Key External Factors:

Vary over time

&

Vary by industry


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Ch. 3-15


Key External Factors:

Important to achieving long-term

objectives

Measurable

Applicable to all competing firms

Hierarchical


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Ch. 3-16


Examples of Key External Factors:

Market share

Breadth of competing products World economies

Proprietary & key account advantages

Price competitiveness Technological advancements

Interest rates


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Ch. 3-17

Economic Forces

Monitor Key Economic Variables:

Availability of credit

Level of disposable income Interest rates

Inflation rates

Money market rates

Federal government budget deficits Gross domestic product trend

Consumption patterns


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Ch. 3-18

Economic Forces (Contd)

Monitor Key Economic Variables: (Contd)

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


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Ch. 3-19

Economic Forces (Contd)

Monitor Key Economic Variables: (Contd)

Price fluctuations

Exportation of labor & capital

Monetary policies

Fiscal policies

Tax rates

ECC policies OPEC policies

LDC policies


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Ch. 3-20

Social & Environmental Forces

Social, cultural, demographic, andenvironmental changes:

Major impact on:Products

Services

Markets

Customers


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Ch. 3-21

Social & Environmental Forces(Contd)

World population > 6 billion

U.S. population < 300 millionGreat potential for domestic production

expansion to other markets

Domestic only is a risky strategy


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Ch. 3-22


53.3346 m30 mOceania

28.52392 m305 mNorth America

16.08729 m628 mEurope

60.52809 m504 mLatin America

140.321.8 b749 mAfrica

47.225.3 b3.6 bAsia

% Increase20501998Country


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Ch. 3-23


E-commerce Perspective

Question:

Is the Internet Revolution BypassingPoor, Minorities?

Answer:

Yes!


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Ch. 3-24


Internet revolution is widening the gapbetween rich & poor

42% U.S. households have personalcomputers

80% of them are in householdsw/family income > $75,000


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Ch. 3-25


Internet usage lowest (3%) amongAmericans earning $10K or less

26.7% of White Americans use Internetat home compared to 9.2% Blacks &8.8% of Hispanics

90% shares of common stock ofAmerican companies held by thewealthiest 10% of Americans


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Ch. 3-26


Key social, cultural, demographic, &environmental variables:

Childbearing rates Number of special-interest groups

Number of marriages

Number of divorces

Number of births

Number of deaths

Immigration & emigration rates


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Ch. 3-27


Key social, cultural, demographic, &environmental variables: (Contd)

Life expectancy rates Per capita income

Attitudes toward business

Average disposable income

Buying habits

Ethical concerns

Attitudes toward saving


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Ch. 3-28



Racial equality Average level of education

Government regulation

Attitudes toward customer service

Attitudes toward product quality

Energy conservation

Social responsibility


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Ch. 3-29



Value placed on leisure time

Recycling

Waste management

Air & water pollution

Ozone depletion

Endangered species


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Ch. 3-30

Political, Govt., & Legal Forces

Government Regulation

Key opportunities & key threats

Antitrust legislation (Microsoft)

Tax ratesLobbying efforts

Patent laws


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Ch. 3-31

Political, Govt., & Legal Forces(Contd)

Increasing Global Interdependence

Impact of political variables

Formulation of strategies

Implementation of strategies


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Ch. 3-32


Increasing Global Interdependence

Strategists in a global economy

Forecast political climates

Legalistic skillsDiverse world cultures


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Ch. 3-33


Globalization of Industry

Worldwide trend toward similar

consumption patterns

Global buyers & sellers

E-commerce

Instant transmission of money &information across continents


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Ch. 3-34


Key Political, govt., & legal variables:

Government regulation/deregulation

Tax law changes

Special tariffs

Political Action Committees (PACs)

Voter participation rates Number of patents

Changes in patent laws


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Ch. 3-35


Key Political, govt.,& legal variables: (Contd)

Environmental protection laws

Equal employment legislation

Level of government subsidies

Antitrust legislation/enforcement

Sino-American relationships

Russian-American relationships

European-American relationships


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Ch. 3-36


Key Political, govt.,& legal variables:(Contd)

African-American relationships

Import-export regulations

Monetary policy

Political conditions in other countries

Government budgets

World oil, currency, & labor markets

Location and severity of terrorist activities


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Ch. 3-37

Technological Forces

Technological Change

Dramatic effect on businessFiber optics

Biometrics

EFT

Computer engineering

Superconductivity advancements


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Ch. 3-38

Technological Forces (Contd)

Internet impact on opportunities & threats:

Altering life cycles of products

Increasing speed of distribution Creating new products & services

Erasing limitations of traditional

geographic markets


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Ch. 3-39


Internet impact on opportunities & threats:(Contd)

Altering economies of scale Changing entry barriers

Redefining relationships

Industries & suppliers, creditors,customers, and competitors


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Ch. 3-40


Capitalizing on Information Technology (IT)

Chief Information Officer (CIO)

Chief Technology Officer (CTO)


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Ch. 3-41

Competitive Forces

External Audit & Competing Firms

Identifying rival firms

StrengthsWeaknesses

Capabilities

Opportunities

ThreatsObjectives

Strategies


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Ch. 3-42

Competitive Forces (Contd)

Competitor Information Sources:

Moodys Manuals

Standard Corporation DescriptionsValue Line Investment Surveys

Duns Business Rankings

Standard & Poors Industry Surveys Industry Week

Forbes, Fortune, Business Week


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2001 Prentice Hall

Ch. 3-43


Most competitive firms in America Seven Characteristics

Market share matters

Understand what business youare in

Broke or not, fix itInnovate or evaporate


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Ch. 3-44


Most competitive firms in America(Contd)

Seven Characteristics

Acquisition is essential to growth

People make a difference

No substitute for quality


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Ch. 3-45

Competitive Analysis: Porters Five-Forces Model

Potential development

of substitute products

Rivalry amongcompeting firms

Bargaining powerof suppliers

Potential entry of newcompetitors

Bargaining powerof consumers


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Ch. 3-46

Global Challenge

Differences U.S. and MNCs

Affect strategic management:

LanguageCulture

Politics

Economy

Government interferenceLabor relations

Trade barriers


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Ch. 3-47

Industry Analysis (EFE)

External Factor Evaluation MatrixSummarize & evaluate:

CompetitivePoliticalCultural

TechnologicalEnvironmentalSocial

GovernmentalDemographicEconomic


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Ch. 3-48

Industry Analysis (EFE)(Contd)

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


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Ch. 3-49


Five-step process:

Assign 1-4 rating to each factor

Firms current strategies response to thefactor

Multiply each factors weight by itsrating

Produces a weighted score

I d t A l i (EFE)


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Ch. 3-50


Five-step process:

Sum the weighted scores for eachDetermines the total weighted score

for the organization.

Highest possible weighted score forthe organization is 4.0; the lowest,1.0. Average = 2.5


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Ch. 3-51

.201.20Clinton Administration

.202.10Bad media exposure from FDA

.102.05Smokeless market SE region U.S.

.153.05Production limits on tobacco

.202.10Legislation against the tobacco industry

Threats.303.10More social pressure to quit smoking

2.101.00TOTAL

.604.15Pinkerton leader in discount market

.051.05Astronomical Internet growth

.153.05Increased demand

.151.15Global markets untapped

Weighted

scoreRatingWeight

USTKey External Factors

Opportunities

I d A l i (EFE)


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Ch. 3-52


Total weighted score of 4.0 =

Organization response is outstanding to

threats & weaknesses

Total weighted score of 1.0 =

Firms strategies not capitalizing on

opportunities or avoiding threats

I d t A l i (EFE)


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Ch. 3-53


UST (in the previous example), has

a total weighted score of 2.10indicating that the firm is belowaverage in its effort to pursue

strategies that capitalize onexternal opportunities and avoidthreats.

I d t A l i (EFE)


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Ch. 3-54


Important

Understanding of the factors used in theEFE Matrix is more important than the

actual weights and ratings assigned.


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Ch. 3-55

Industry Analysis (CPM)

Competitive Profile Matrix

Identifies firms major competitorsand their strengths & weaknessesin relation to a sample firmsstrategic position

(CPM) Procter


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Ch. 3-56

(CPM) ProcterAvon LOreal & Gamble

2.803.253.151.00Total

0.1530.2040.0510.05Market Share0.4020.4020.8040.20Global Expansion

0.2020.4040.4040.10Customer Loyalty

0.4530.4530.6040.15Financial Position0.3030.3030.4040.10Management

0.4040.3030.3030.10Price Competition

0.3030.4040.4040.10Product Quality

0.6030.8040.2010.20Advertising

ScoreRatingScoreRatingScoreRatingWeightCritical SuccessFactor

K T & C t


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Ch. 3-57

Key Terms & Concepts

America Online Chief Information

Officer (CIO)

Chief Technology

Officer (CTO) Competitive advantages

Competitive analysis

Competitive intelligence

(CI) Competitive Profile

Matrix (CPM)

Critical success factors Cyberspace

Decruiting

Director of competitive

analysis Downsizing

Econometric models

Environmental scanning

External audit External Factor

Evaluation (EFE) Matrix

K T & C t (C td)


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Ch 3 58

Key Terms & Concepts (Contd)

External forces Industry analysis

Information Technology(IT)

Industrial policies Internet learning from

the partner

Linear regression

Lifecare facilities Porters Five-Forces

Model

Netscape

On-Line databases Rightsizing

Trend extrapolation

World Wide Web (www)

03 external envt.ppt

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