the external forces

8/2/2019 The External Forces

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Chapter 3The External Assessment


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Identify & Evaluate factors beyond

the control of a single firm Increased foreign competition

Population shifts

Information technology

External StrategicManagement Audit


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Competitors

SuppliersDistributors

CreditorsCustomers

EmployeesCommunities

ManagersStockholdersLabor Unions

Special Interest GroupsProductsServices

Key

ExternalForces

Opportunities&Threats

Key External Forces & the Organization


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Performing External Audit

ExternalFactors

Measurable

Long-term orientation

Applicable tocompeting firms

Hierarchical


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Economies of Scale

Industry Properties

Barriers to market entry

Product differentiation

Level of competitiveness

I/O Perspective Firm Performance


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Social, Cultural, Demographic& Environmental Forces

U.S. Facts

Aging population

Less Caucasian

Widening gap between rich & poor

2025 = 18.5% population >65 years2075 = no ethnic or racial majority


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Key Social, Cultural, Demographic &Environmental Variables

Number of marriages & divorces

Number of special interest groups

Number of births & deaths

Immigration & emigration rates

Childbearing rates


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Political, Government & LegalForces

Worldwide trend toward similarconsumption patterns

Global buyers and sellers

E-commerce

Technology for instant currency transfers

Globalization of Industry


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Competitive Forces

Strengths

Weaknesses

Capabilities

Opportunities

Threats

Objectives

Strategies

Identifying Rival Firms


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Competitive Forces

1. Market share matters2. Understand what business you are in

3. Broke or not, fix it

4. Innovate or evaporate

7 Characteristics of mostCompetitive U.S. Firms:


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Competitive Forces

5. Acquisition is essential to growth6. People make a difference

7. No substitute for quality

7 Characteristics of mostCompetitive U.S. Firms:


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The Five-Forces Model of Competition

Potential developmentof substitute products

Rivalry amongcompeting firms

Bargaining powerof suppliers

Potential entry of newcompetitors

Bargaining powerof consumers


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The Global Challenge

Faced by U.S. Firms --

Gain & maintain exports to other

nations

Defend domestic markets againstimported goods


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Industry Analysis: The External FactorEvaluation (EFE) Matrix

CompetitivePoliticalCultural

TechnologicalEnvironmentalSocial

GovernmentalDemographicEconomic

Summarize & Evaluate


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EFE Gateway Computers (2003)

Key External Factors Weight Rating WtdScore

Opportunities

1. Global PC market expected to grow

20% in 20040.10 3 0.30

2. Cost of PC component partsexpected to decrease 10% - 2004

0.10 3 0.30

3. Internet use growing rapidly 0.05 2 0.10

4. China entered WTO; lowered taxesfor importing PCs

0.10 1 0.10

5. The average income for PC workerhas declined from $40K/yr to $30k/yr

0.05 3 0.15


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EFEGateway Computers (2003) (contd)


Opportunities (contd)

6. Modernization of business firms and

government agencies0.05 2 0.10

7. U.S. (& world) economies recovering 0.05 3 0.15

8. 30% of Chinese population canafford a PC; only 10% of homes have a

PC

0.05 1 0.05

Threats 0.10 1 0.10

1. Intense rivalry in industry 0.10 1 0.05


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Threats (contd)

2. Severe price cutting in PC industry 0.10 2 0.20

3. Different countries have differentregs and infrastructure for PCs

0.05 1 0.05

4. Palm & PDA becoming substitutes 0.05 3 0.15

5. Demand exceeds supply ofexperienced PC workers

0.05 4 0.20

6. Birth rate in U.S. declining annually 0.05 3 0.15


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Key External Factors Weight RatingWtd

Score

Threats (contd)

7. U.s. consumers and businessesdelaying purchase of PCs

0.05 2 0.10

8. PC firms diversifying into consumerelectronics

0.05 3 0.15

Total 1.00 2.40


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Total weighted score of 4.0 Organization response is outstanding to threats

and weaknesses

Industry Analysis EFE

Total weighted score of 1.0 Firms strategies not capitalizing on opportunities

or avoiding threats


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Industry Analysis: Competitive ProfileMatrix (CPM)

Identifies firms major competitors

and their strengths & weaknessesin relation to a sample firms

strategic positions


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Gateway Apple Dell

CSFs Wt Rating WtdScore

Rating

WtdScore

Rating WtdScore

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 0.30Prod. 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


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Gateway Apple Dell

CSFs (contd) Wt Rating WtdScore

Rating

WtdScore

Rating WtdScore

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 0.40Pricecompetitive

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

the external forces

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