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2001 Prentice Hall

Ch. 3-1

Strategic ManagementStrategic ManagementConcepts & CasesConcepts & Cases

8thedition

Fred R. David

Chapter 3:The External AssessmentPowerPoint Slides By:

Anthony F. Chelte

Western New England College

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2001 Prentice Hall

Ch. 3-2

Comprehensive Strategic Management ModelComprehensive Strategic Management Model

Vision&MissionStatements

Chapter 2

ExternalAudit

Chapter 3

InternalAudit

Chapter 4

Long-TermObjectives

Chapter 5

Generate,Evaluate,SelectStrategiesChapter 6

ImplementStrategies:Mgmt Issues

Chapter 7

ImplementStrategies:Marketing,Fin/Acct,R&D, CISChapter 8

Measure &EvaluatePerformance

Chapter 9

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Ch. 3-3

External AssessmentExternal 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 AssessmentExternal Assessment (Contd)(Contd)

The idea is to concentrate our strengthagainst our competitors relativeweakness.

Bruce Henderson

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Ch. 3-5

External Assessment (Contd)External Assessment (Contd)

External Strategic-Management AuditExternal Strategic-Management Audit

Industry analysis

Environmental scanning

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2001 Prentice Hall

Ch. 3-6


External audit:External audit:

Focuses on identifying &

evaluating events beyond theimmediate control of the firm

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Ch. 3-7


External audit focuses onExternal audit focuses on:

Increased foreign competition

Population shifts

Demographics (e.g., aging population)

Information technology

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Ch. 3-8


External audit revealsExternal audit reveals:

Key opportunities

Key threats

Managers then formulate strategies:Managers then formulate strategies:

Take advantage of opportunities

Avoid/reduce impact of threats

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Ch. 3-9


External AuditExternal Audit

Aimed at identifying key variables thatofferactionableactionableresponses

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Ch. 3-10


Key External ForcesKey External Forces

Five (5) broad categories:

Economic forces

Social, cultural, demographic, &environmental forces

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2001 Prentice Hall

Ch. 3-11


Key External ForcesKey External Forces (Contd)(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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2001 Prentice Hall

Ch. 3-13


Process of External AuditProcess 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 FactorsKey External Factors:

Vary over time

&

Vary by industry

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Ch. 3-15


Key External FactorsKey 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 FactorsExamples 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 ForcesEconomic Forces

Monitor Key Economic VariablesMonitor 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 ForcesEconomic Forces (Contd)(Contd)

Monitor Key Economic VariablesMonitor Key Economic Variables:: (Contd)(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 ForcesEconomic Forces (Contd)(Contd)

Monitor Key Economic VariablesMonitor Key Economic Variables:: (Contd)(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 ForcesSocial & Environmental Forces

Social, cultural, demographic, andenvironmental changes:

Major impact on:Products

Services

Markets

Customers

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Ch. 3-21


(Contd)(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

Social & Environmental ForcesSocial & Environmental Forces(Contd)(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

% Increase% Increase2050205019981998CountryCountry

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Ch. 3-23


(Contd)(Contd)E-commerce PerspectiveE-commerce Perspective

Question:

Is the Internet Revolution BypassingPoor, Minorities?

Answer:

Yes!

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Ch. 3-24


(Contd)(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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Ch. 3-25


(Contd)(Contd) Internet usage lowest (3%) among

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


Key social, cultural, demographic, &Key social, cultural, demographic, &environmental variables:environmental variables: (Contd)(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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Ch. 3-29


Key social, cultural, demographic, &Key social, cultural, demographic, &

environmental variables:environmental variables: (Contd)(Contd)

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 ForcesPolitical, Govt., & Legal Forces

Government RegulationGovernment Regulation

Key opportunities & key threats

Antitrust legislation (Microsoft)

Tax ratesLobbying effortsPatent laws

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Ch. 3-31


(Contd)(Contd)

Increasing Global InterdependenceIncreasing Global Interdependence

Impact of political variables

Formulation of strategies

Implementation of strategies

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Ch. 3-32


(Contd)(Contd)

Increasing Global InterdependenceIncreasing Global Interdependence

Strategists in a global economyForecast political climates

Legalistic skillsDiverse world cultures

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Ch. 3-33


(Contd)(Contd)

Globalization of IndustryGlobalization 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

Political, Govt., & Legal ForcesPolitical, Govt., & Legal Forces(Contd)(Contd)

Key Political, govt., & legal variables: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.,Key Political, govt.,

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

& legal variables:& legal variables:(Contd)(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 ForcesTechnological Forces

Technological ChangeTechnological Change

Dramatic effect on businessFiber opticsBiometricsEFTComputer engineeringSuperconductivity advancements

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Ch. 3-38

Technological ForcesTechnological Forces (Contd)(Contd)

Internet impact on opportunities & threats: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:Internet impact on opportunities & threats:(Contd)(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 ForcesCompetitive Forces

External Audit & Competing FirmsExternal Audit & Competing Firms

Identifying rival firms

StrengthsWeaknessesCapabilitiesOpportunities

ThreatsObjectivesStrategies

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Ch. 3-42

Competitive ForcesCompetitive Forces (Contd)(Contd)

Competitor InformationCompetitor Information Sources:

Moodys Manuals

Standard Corporation DescriptionsValue Line Investment Surveys

Duns Business Rankings

Standard & Poors Industry SurveysIndustry Week

Forbes, Fortune, Business Week

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Ch. 3-43


Most competitive firms in AmericaMost competitive firms in America Seven Characteristics

Market share matters

Understand what business you arein

Broke or not, fix itInnovate or evaporate

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Ch. 3-44


Most competitive firms in AmericaMost competitive firms in America(Contd)(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 ModelCompetitive Analysis: Porters Five-Forces Model

Potential developmentof substitute products

Rivalry amongcompeting firmsBargaining powerof suppliers

Potential entry of newcompetitors

Bargaining powerof consumers

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Ch. 3-46

Global ChallengeGlobal Challenge

Differences U.S. and MNCsDifferences U.S. and MNCs

Affect strategic management:

LanguageCulturePoliticsEconomy

Government interferenceLabor relationsTrade barriers

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2001 Prentice Hall

Ch. 3-47

Industry Analysis (EFE)Industry Analysis (EFE)

External Factor Evaluation MatrixExternal Factor Evaluation MatrixSummarize & evaluate:

CompetitivePoliticalCultural

TechnologicalEnvironmentalSocial

GovernmentalDemographicEconomic

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Ch. 3-48

Industry Analysis (EFE)Industry Analysis (EFE)(Contd)(Contd)

Five-Step process: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:Five-step process:

Assign 1-4 rating to each factorFirms current strategies response to the

factor

Multiply each factors weight by itsratingProduces a weighted score

d l ( )I d t A l i (EFE)

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Ch. 3-50


Five-step process: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

Th rea t s .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

Oppo r t un i t i e s

d l i ( )

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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)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 on externalopportunities and avoid threats.

I d t A l i (EFE)I d t A l i (EFE)

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Ch. 3-54


ImportantImportant

Understanding of the factors used in theEFE Matrix is more important than theactual weights and ratings assigned.

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Ch. 3-55

Industry Analysis (CPM)Industry Analysis (CPM)

Competitive Profile MatrixCompetitive Profile Matrix

Identifies firms major competitorsand their strengths & weaknesses inrelation to a sample firms strategicposition

(CPM)

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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

ScoreRatingScoreRatingScoreRatingWeightrit ical SuccessFactor

K T & CK T & C t

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Ch. 3-57

Key Terms & ConceptsKey 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 (C d)K T & C t (C td)

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Ch 3 58

Key Terms & Concepts (Contd)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)

scmchap03

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