bus 411 day 5 copyright 2005 prentice hall1. ch 1 -2 agenda question? assignment 1 corrected 3...
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Bus 411
Day 5
Copyright 2005 Prentice Hall 1
Copyright 2005 Prentice Hall Ch 1 -2
Agenda Question? Assignment 1 Corrected
3 A’s, 2 B’s, 3 C’s & 1 D We will be working a collective SWOT for McDonald’s
during this class to be used for the next two assignments Assignment 2 posted
Due Feb 9 EFE and CPM for McDonald's
Assignment 3 will be assigned soon and due right after Winter break
Finish Discussion on The External Assessment
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Ch 2 -3
Chapter 2The Business Vision & Mission
Strategic Management: Concepts & Cases
13th Edition
Fred David
McDonald's SWOTStrengths Weaknesses
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Ch 2 -4
McDonald's SWOTOpportunities Threats
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Ch 2 -5
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Ch 3 -6
Chapter 3 The External Assessment
Strategic Management: Concepts & Cases
13th Edition
Fred David
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Ch 3 -7
Key external forces
1. Economic
2. Social, cultural, demographic, and natural environment
3. Political, government, and legal
4. Technology
5. Competition
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Ch 2 -8
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Ch 3 -9
Trends More American households with people
living alone More DINKs (Dual income families with no
kids) especially in Urban Areas Aging Americans – affects all organizations
Social, Cultural, Demographic, and Natural Environmental Forces
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Ch 3 -10
Political, Governmental, and Legal Forces
Key opportunities & threats Antitrust legislation Tax rates Lobbying activities Patent laws
Government Regulation
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Ch 3 -11
Political, Governmental, and Legal Forces
Protectionist policies Tariffs vs. Free Trade
Governments taking equity stakes in companies Auto & Financial bailout in US
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Ch 3 -12
Technological Forces
Major Impact –
•Internet
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Ch 3 -13
Technological Forces
Significance of IT
•Chief Information Officer (CIO)
•Chief Technology Officer (CTO)
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Ch 3 -14
Technological Forces
Essential for nearly every strategic decision
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Ch 3 -15
Competitive Forces
Collection & evaluation of data on competitors is essential for successful strategy formulation
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Ch 3 -16
Competitive Forces
•Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies
Identify Rival Firms’
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Ch 3 -17
Competitive Forces
Competition in virtually all industries can be described as intense
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Ch 3 -18
Key Questions Concerning Competitors Their strengths Their weaknesses Their objectives and strategies Their responses to external variables Their vulnerability to our alternative
strategies Our vulnerability to strategic counterattack
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Ch 3 -19
Key Questions Concerning Competitors Our product/service positioning Entry and exit of firms in the industry Key factors for our current position in industry Sales/profit ranking of competitors over time Nature of supplier and distributor
relationships The threat of substitute products/services
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Ch 3 -20
Competitive Forces
7 characteristics of most competitive firms Market share matters Understanding what business you are in Broke or not, fix it Innovate or evaporate Acquisition is essential to growth People make a difference No substitute for quality
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Ch 3 -21
Competitive Intelligence
A systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’s own goals
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Ch 3 -22
Sources of Competitive Intelligence
Internet Employees Managers Suppliers Distributors Customers Creditors
Consultants Trade journals Want ads Newspaper articles Government filings Competitors
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Ch 3 -23
Objectives of Competitive Intelligence Provide a general understanding of industry
and competitors Identify areas where competitors are
vulnerable and assess impact of actions on competitors
Identify potential moves that a competitor might make
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Ch 3 -24
Market Commonality
The number and significance of markets that a firm competes in with rivals
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Ch 3 -25
Resource Similarity
Extent to which the type and amount of a firm’s internal resources are comparable to a rival
Media Monitoring
Companies that gather competitive intelligence for a fee http://www.burrellesluce.com/ http://www.vocus.com/content/index.asp http://www.metromonitor.com/
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Ch 2 -26
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Ch 3 -27
The Five-Forces Model of Competition
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Ch 3 -28
Steps to Determine if an Acceptable Profit Can Be Earned
1. Identify key aspects or elements of each competitive force
2. Evaluate how strong and important each element is for the firm
3. Decide whether the collective strength of the elements is worth the firm entering or staying in the industry
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Ch 3 -29
The Five-Forces Model
Rivalry among competing firms Most powerful of the five forces Focus on competitive advantage of
strategies over other firms
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Ch 3 -30
Conditions that Cause High Rivalry Among Competing Firms
High number of competing firms Similar size of firms competing Similar capability of firms competing Falling demand for the industry’s products Falling product/service prices in the
industry
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Ch 3 -31
Conditions that Cause High Rivalry Among Competing Firms
Consumers can switch brands easily Barriers to leaving the market are high Barriers to entering the market are low Fixed costs are high among firms
competing The product is perishable
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Ch 3 -32
Conditions that Cause High Rivalry Among Competing Firms
Rivals have excess capacity Consumer demand is falling Rivals have excess inventory Rivals sell similar products/services Mergers are common in the industry
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Ch 3 -33
The Five-Forces Model
Potential Entry of New Competitors Barriers to entry are important Quality, pricing, and marketing can
overcome barriers
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Ch 3 -34
The Five-Forces Model
Potential development of substitute products Pressure increases when:
Prices of substitutes decrease Consumers’ switching costs
decrease
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Ch 3 -35
The Five-Forces Model
Bargaining Power of Suppliers is increased when there are: Large numbers of suppliers Few substitutes Costs of switching raw materials is high
Backward integration is gaining control or ownership of suppliers
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Ch 3 -36
The Five-Forces Model
Bargaining power of consumers Customers being concentrated or
buying in volume affects intensity of competition
Consumer power is higher where products are standard or undifferentiated
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Ch 3 -37
Conditions Where Consumers GainBargaining Power If buyers can inexpensively switch If buyers are particularly important If sellers are struggling in the face of falling
consumer demand If buyers are informed about sellers’
products, prices, and costs If buyers have discretion in whether and
when they purchase the product
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Ch 3 -38
Sources of External Information: Unpublished Sources Customer surveys Market research Speeches at professional or shareholder
meetings Television programs Interviews and conversations with
stakeholders
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Ch 3 -39
Sources of External Information: Published Sources Periodicals Journals Reports Government documents Abstracts Books Directories Newspapers Manuals
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Ch 3 -40
Sources of External Information: Web Sites
http://www.marketwatch.com/ http://moneycentral.msn.com http://finance.yahoo.com http://www.bloomberg.com/markets/ https://us.etrade.com/e/t/invest/markets www.hoovers.com UMFK Databases
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Ch 3 -41
Forecasting Tools and Techniques
Forecasts are educated assumptions about future trends and events Quantitative techniques – most
appropriate when historical data is available and there is a constant relationship
Qualitative techniques
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Ch 3 -42
Assumptions
Estimates of future events based upon the best available information in the present
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Ch 3 -43
Industry Analysis: The External Factor Evaluation (EFE) Matrix
Economic Social Cultural Demographic Environmental
Political Governmental Technological Competitive Legal
Copyright 2005 Prentice Hall Ch 3 -44
5 Steps (Page 80 & 81)
1. List key external factors10-20 (balanced 5&5 10&10)Opportunities then threats
Assign weights from 0.0 to 1.0 based on importanceSum of all weights across all factors = 1
Assign a rating from 1 to 4 for all factors where4 = the firm’s response is superior3 = the firm’s response is above avg2 = the firm’s response is average1 = the firm’s response is poor
1. Multiply the rating by the weight2. Sum the weighted scores
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 3 -45
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 3 -46
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 3 -47
Total weighted score of 4.0 Organization response is outstanding to threats
and weaknesses
Industry Analysis EFE
Total weighted score of 1.0 Firm’s strategies not capitalizing on opportunities
or avoiding threats
Average is 2.5
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Ch 3 -48
Industry Analysis: Competitive Profile Matrix (CPM) Identifies firm’s major competitors and
their strengths & weaknesses in relation to a sample firm’s strategic positions
Critical success factors include internal and external issues
Copyright 2005 Prentice Hall Ch 3 -49
Steps to a CPM
Identify Critical Success Factors (CSF) Broad issues Internal and external (5 of each is a good mix)
Assign a weight to each CSF Must add up to 1
Assign a rating for your firm and each of your competitors 4 = major strength 3 = minor strength 2 = minor weakness 1 = major weakness
Multiply weight by rating Sum the weighted ratings and compare
Copyright 2005 Prentice Hall Ch 3 -50
Gateway Apple Dell
CSF’s Wt Rating Wt’d Score
Rating Wt’d Score
Rating Wt’d Score
Market share 0.15 3 0.45 2 0.30 4 0.60
Inventory sys 0.08 2 0.16 2 0.16 4 0.32
Fin position 0.10 2 0.20 3 0.30 3 0.30
Prod. Quality 0.08 3 0.24 4 0.32 3 0.24
Cons. Loyalty 0.02 3 0.06 3 0.06 4 0.08
Sales Distr 0.10 3 0.30 2 0.20 3 0.30
Global Exp. 0.15 3 0.45 2 0.30 4 0.60
Org. Structure 0.05 3 0.15 3 0.15 3 0.15
Copyright 2005 Prentice Hall Ch 3 -51
Gateway Apple Dell
CSF’s (cont’d) Wt Rating Wt’d Score
Rating Wt’d Score
Rating Wt’d Score
Prod. Capacity 0.04 3 0.12 3 0.12 3 0.12
E-commerce 0.10 3 0.30 3 0.30 3 0.30
Customer Serv 0.10 3 0.30 2 0.20 4 0.40
Price competitive
0.02 4 0.08 1 0.02 3 0.06
Mgt. experience 0.01 2 0.02 4 0.04 2 0.02
Total 1.00 2.83 2.47 3.49
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Ch 3 -52
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 3 -53
Industry Analysis CPM
Just because one firm receives a 3.2 rating and another receives a 2.8 rating, it does not follow that the first firm is 20 percent better than the second.
Important –
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Ch 3 -54
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
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