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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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2001 Prentice Hall
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 Assessment (Contd)
External Strategic-Management Audit
Industry analysis
Environmental scanning
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2001 Prentice Hall
Ch. 3-6
External Assessment (Contd)
External audit:
Focuses on identifying &
evaluating events beyond theimmediate control of the firm
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2001 Prentice Hall
Ch. 3-7
External Assessment (Contd)
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 Assessment (Contd)
External audit reveals:
Key opportunities
Key threats
Managers then formulate strategies:
Take advantage of opportunities
Avoid/reduce impact of threats
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2001 Prentice Hall
Ch. 3-9
External Assessment (Contd)
External Audit
Aimed at identifying key variables thatofferactionableresponses
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2001 Prentice Hall
Ch. 3-10
External Assessment (Contd)
Key External Forces
Five (5) broad categories:
Economic forces
Social, cultural, demographic, &environmental forces
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2001 Prentice Hall
Ch. 3-11
External Assessment (Contd)
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
External Assessment (Contd)
Key
ExternalForces
CompetitorsSuppliers
DistributorsCreditors
CustomersEmployees
CommunitiesManagers
StockholdersLabor UnionsSpecial Interest Groups
ProductsServices
Opportunities
&Threats
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2001 Prentice Hall
Ch. 3-13
External Assessment (Contd)
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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2001 Prentice Hall
Ch. 3-14
External Assessment (Contd)
Key External Factors:
Vary over time
&
Vary by industry
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2001 Prentice Hall
Ch. 3-15
External Assessment (Contd)
Key External Factors:
Important to achieving long-term
objectives
Measurable
Applicable to all competing firms
Hierarchical
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2001 Prentice Hall
Ch. 3-16
External Assessment (Contd)
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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2001 Prentice Hall
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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2001 Prentice Hall
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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2001 Prentice Hall
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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2001 Prentice Hall
Ch. 3-20
Social & Environmental Forces
Social, cultural, demographic, andenvironmental changes:
Major impact on:Products
Services
Markets
Customers
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2001 Prentice Hall
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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2001 Prentice Hall
Ch. 3-22
Social & Environmental Forces(Contd)
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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2001 Prentice Hall
Ch. 3-23
Social & Environmental Forces(Contd)
E-commerce Perspective
Question:
Is the Internet Revolution BypassingPoor, Minorities?
Answer:
Yes!
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2001 Prentice Hall
Ch. 3-24
Social & Environmental Forces(Contd)
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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2001 Prentice Hall
Ch. 3-25
Social & Environmental Forces(Contd)
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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2001 Prentice Hall
Ch. 3-26
Social & Environmental Forces(Contd)
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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2001 Prentice Hall
Ch. 3-27
Social & Environmental Forces(Contd)
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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2001 Prentice Hall
Ch. 3-28
Social & Environmental Forces(Contd)
Key social, cultural, demographic, &environmental variables: (Contd)
Racial equality Average level of education
Government regulation
Attitudes toward customer service
Attitudes toward product quality
Energy conservation
Social responsibility
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2001 Prentice Hall
Ch. 3-29
Social & Environmental Forces(Contd)
Key social, cultural, demographic, &environmental variables: (Contd)
Value placed on leisure time
Recycling
Waste management
Air & water pollution
Ozone depletion
Endangered species
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2001 Prentice Hall
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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2001 Prentice Hall
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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2001 Prentice Hall
Ch. 3-32
Political, Govt., & Legal Forces(Contd)
Increasing Global Interdependence
Strategists in a global economy
Forecast political climates
Legalistic skillsDiverse world cultures
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2001 Prentice Hall
Ch. 3-33
Political, Govt., & Legal Forces(Contd)
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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2001 Prentice Hall
Ch. 3-34
Political, Govt., & Legal Forces(Contd)
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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2001 Prentice Hall
Ch. 3-35
Political, Govt., & Legal Forces(Contd)
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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2001 Prentice Hall
Ch. 3-36
Political, Govt., & Legal Forces(Contd)
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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2001 Prentice Hall
Ch. 3-37
Technological Forces
Technological Change
Dramatic effect on businessFiber optics
Biometrics
EFT
Computer engineering
Superconductivity advancements
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2001 Prentice Hall
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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2001 Prentice Hall
Ch. 3-39
Technological Forces (Contd)
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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2001 Prentice Hall
Ch. 3-40
Technological Forces (Contd)
Capitalizing on Information Technology (IT)
Chief Information Officer (CIO)
Chief Technology Officer (CTO)
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2001 Prentice Hall
Ch. 3-41
Competitive Forces
External Audit & Competing Firms
Identifying rival firms
StrengthsWeaknesses
Capabilities
Opportunities
ThreatsObjectives
Strategies
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2001 Prentice Hall
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
Competitive Forces (Contd)
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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2001 Prentice Hall
Ch. 3-44
Competitive Forces (Contd)
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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2001 Prentice Hall
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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2001 Prentice Hall
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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2001 Prentice Hall
Ch. 3-47
Industry Analysis (EFE)
External Factor Evaluation MatrixSummarize & evaluate:
CompetitivePoliticalCultural
TechnologicalEnvironmentalSocial
GovernmentalDemographicEconomic
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2001 Prentice Hall
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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2001 Prentice Hall
Ch. 3-49
Industry Analysis (EFE)(Contd)
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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2001 Prentice Hall
Ch. 3-50
Industry Analysis (EFE)(Contd)
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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2001 Prentice Hall
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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2001 Prentice Hall
Ch. 3-52
Industry Analysis (EFE)(Contd)
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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2001 Prentice Hall
Ch. 3-53
Industry Analysis (EFE)(Contd)
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
Industry Analysis (EFE)(Contd)
Important
Understanding of the factors used in theEFE Matrix is more important than the
actual weights and ratings assigned.
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2001 Prentice Hall
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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2001 Prentice Hall
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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2001 Prentice Hall
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)