The External Assessment Chapter 3: Fred R. David 8 … · The External Assessment PowerPoint Slides...
Transcript of The External Assessment Chapter 3: Fred R. David 8 … · The External Assessment PowerPoint Slides...
© 2001 Prentice Hall
Ch. 3-1
Strategic ManagementStrategic ManagementConcepts & CasesConcepts & Cases
8th editionFred R. David
Chapter 3:The External Assessment
PowerPoint Slides By:
Anthony F. Chelte
Western New England College
© 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,
SelectStrategies
Chapter 6
ImplementStrategies:
Mgmt Issues
Chapter 7
ImplementStrategies:Marketing,Fin/Acct,R&D, CISChapter 8
Measure &Evaluate
Performance
Chapter 9
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Ch. 3-3
External AssessmentExternal Assessment
“If you're not faster than your competitor, you’re in a tenuous position, and if you’re only half as fast, you’re terminal.”
—George Salk—
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Ch. 3-4
External Assessment External Assessment (Cont’d)(Cont’d)
“The idea is to concentrate our strength against our competitor’s relative weakness.”
—Bruce Henderson—
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Ch. 3-5
External Assessment (Cont’d)External Assessment (Cont’d)
External StrategicExternal Strategic--Management AuditManagement Audit
• Industry analysis• Environmental scanning
© 2001 Prentice Hall
Ch. 3-6
External Assessment External Assessment (Cont’d)(Cont’d)
External audit:External audit:
Focuses on identifying & evaluating events beyond the immediate control of the firm
© 2001 Prentice Hall
Ch. 3-7
External Assessment External Assessment (Cont’d)(Cont’d)
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 Assessment External Assessment (Cont’d)(Cont’d)
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 Assessment External Assessment (Cont’d)(Cont’d)
External AuditExternal Audit
Aimed at identifying key variables that offer actionableactionable responses
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Ch. 3-10
External Assessment External Assessment (Cont’d)(Cont’d)
Key External ForcesKey External Forces
Five (5) broad categories:
• Economic forces
• Social, cultural, demographic, & environmental forces
© 2001 Prentice Hall
Ch. 3-11
External Assessment External Assessment (Cont’d)(Cont’d)
Key External Forces Key External Forces (Cont’d)(Cont’d)
Five (5) broad categories:
• Political, governmental, & legal forces
• Technological forces
• Competitive forces
© 2001 Prentice Hall
Ch. 3-12
External Assessment External Assessment (Cont’d)(Cont’d)
KeyExternalForces
CompetitorsSuppliers
DistributorsCreditors
CustomersEmployees
CommunitiesManagers
StockholdersLabor Unions
Special Interest GroupsProductsServices
Opportunities&
Threats
© 2001 Prentice Hall
Ch. 3-13
External Assessment External Assessment (Cont’d)(Cont’d)
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 of
information
© 2001 Prentice Hall
Ch. 3-14
External Assessment External Assessment (Cont’d)(Cont’d)
Key External FactorsKey External Factors:
Vary over time&
Vary by industry
© 2001 Prentice Hall
Ch. 3-15
External Assessment External Assessment (Cont’d)(Cont’d)
Key External FactorsKey External Factors::
• Important to achieving long-term objectives
• Measurable• Applicable to all competing firms• Hierarchical
© 2001 Prentice Hall
Ch. 3-16
External Assessment External Assessment (Cont’d)(Cont’d)
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
© 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
© 2001 Prentice Hall
Ch. 3-18
Economic Forces Economic Forces (Cont’d)(Cont’d)
Monitor Key Economic VariablesMonitor Key Economic Variables: : (Cont’d)(Cont’d)
� 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
© 2001 Prentice Hall
Ch. 3-19
Economic Forces Economic Forces (Cont’d)(Cont’d)
Monitor Key Economic VariablesMonitor Key Economic Variables: : (Cont’d)(Cont’d)
� Price fluctuations� Exportation of labor & capital� Monetary policies� Fiscal policies� Tax rates� ECC policies� OPEC policies� LDC policies
© 2001 Prentice Hall
Ch. 3-20
Social & Environmental Forces Social & Environmental Forces
• Social, cultural, demographic, and environmental changes:
Major impact on:�Products�Services�Markets�Customers
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Ch. 3-21
Social & Environmental Forces Social & Environmental Forces (Cont’d)(Cont’d)
• World population > 6 billion
• U.S. population < 300 million�Great potential for domestic production
expansion to other markets
• Domestic only is a risky strategy
© 2001 Prentice Hall
Ch. 3-22
Social & Environmental Forces Social & Environmental Forces (Cont’d)(Cont’d)
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
© 2001 Prentice Hall
Ch. 3-23
Social & Environmental Forces Social & Environmental Forces (Cont’d)(Cont’d)
EE--commerce Perspectivecommerce Perspective
Question:“Is the Internet Revolution Bypassing
Poor, Minorities?”
Answer:Yes!
© 2001 Prentice Hall
Ch. 3-24
Social & Environmental Forces Social & Environmental Forces (Cont’d)(Cont’d)
• Internet revolution is widening the gap between rich & poor
• 42% U.S. households have personal computers
• 80% of them are in households w/family income > $75,000
© 2001 Prentice Hall
Ch. 3-25
Social & Environmental Forces Social & Environmental Forces (Cont’d)(Cont’d)
• Internet usage lowest (3%) among Americans earning $10K or less
• 26.7% of White Americans use Internet at home compared to 9.2% Blacks & 8.8% of Hispanics
• 90% shares of common stock of American companies held by the wealthiest 10% of Americans
© 2001 Prentice Hall
Ch. 3-26
Social & Environmental Forces Social & Environmental Forces (Cont’d)(Cont’d)
•• 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
© 2001 Prentice Hall
Ch. 3-27
Social & Environmental Forces Social & Environmental Forces (Cont’d)(Cont’d)
Key social, cultural, demographic, & Key social, cultural, demographic, & environmental variables: environmental variables: (Cont’d)(Cont’d)
� Life expectancy rates� Per capita income� Attitudes toward business� Average disposable income� Buying habits� Ethical concerns� Attitudes toward saving
© 2001 Prentice Hall
Ch. 3-28
Social & Environmental Forces Social & Environmental Forces (Cont’d)(Cont’d)
Key social, cultural, demographic, & Key social, cultural, demographic, & environmental variables: environmental variables: (Cont’d)(Cont’d)
� Racial equality� Average level of education� Government regulation� Attitudes toward customer service� Attitudes toward product quality� Energy conservation� Social responsibility
© 2001 Prentice Hall
Ch. 3-29
Social & Environmental Forces Social & Environmental Forces (Cont’d)(Cont’d)
Key social, cultural, demographic, & Key social, cultural, demographic, & environmental variables: environmental variables: (Cont’d)(Cont’d)
� Value placed on leisure time� Recycling� Waste management� Air & water pollution� Ozone depletion� Endangered species
© 2001 Prentice Hall
Ch. 3-30
Political, Govt., & Legal Forces Political, Govt., & Legal Forces
Government RegulationGovernment Regulation
• Key opportunities & key threats
�Antitrust legislation (Microsoft)�Tax rates�Lobbying efforts�Patent laws
© 2001 Prentice Hall
Ch. 3-31
Political, Govt., & Legal Forces Political, Govt., & Legal Forces (Cont’d)(Cont’d)
Increasing Global InterdependenceIncreasing Global Interdependence
• Impact of political variables
�Formulation of strategies�Implementation of strategies
© 2001 Prentice Hall
Ch. 3-32
Political, Govt., & Legal Forces Political, Govt., & Legal Forces (Cont’d)(Cont’d)
Increasing Global InterdependenceIncreasing Global Interdependence
• Strategists in a global economy�Forecast political climates�Legalistic skills�Diverse world cultures
© 2001 Prentice Hall
Ch. 3-33
Political, Govt., & Legal Forces Political, Govt., & Legal Forces (Cont’d)(Cont’d)
Globalization of IndustryGlobalization of Industry
• Worldwide trend toward similar consumption patterns
• Global buyers & sellers
• E-commerce
• Instant transmission of money & information across continents
© 2001 Prentice Hall
Ch. 3-34
Political, Govt., & Legal Forces Political, Govt., & Legal Forces (Cont’d)(Cont’d)
•• 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
© 2001 Prentice Hall
Ch. 3-35
Political, Govt., & Legal Forces Political, Govt., & Legal Forces (Cont’d)(Cont’d)
•• Key Political, govt., Key Political, govt., & legal variables: & legal variables: (Cont’d)(Cont’d)
� Environmental protection laws� Equal employment legislation� Level of government subsidies� Antitrust legislation/enforcement� Sino-American relationships� Russian-American relationships� European-American relationships
© 2001 Prentice Hall
Ch. 3-36
Political, Govt., & Legal Forces Political, Govt., & Legal Forces (Cont’d)(Cont’d)
•• Key Political, govt., Key Political, govt., & legal variables:& legal variables:(Cont’d)(Cont’d)
� 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
© 2001 Prentice Hall
Ch. 3-37
Technological Forces Technological Forces
Technological ChangeTechnological Change
• Dramatic effect on business�Fiber optics�Biometrics�EFT�Computer engineering�Superconductivity advancements
© 2001 Prentice Hall
Ch. 3-38
Technological Forces Technological Forces (Cont’d)(Cont’d)
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
© 2001 Prentice Hall
Ch. 3-39
Technological Forces Technological Forces (Cont’d)(Cont’d)
Internet impact on opportunities & threats: Internet impact on opportunities & threats: (Cont’d)(Cont’d)
• Altering economies of scale• Changing entry barriers• Redefining relationships
� Industries & suppliers, creditors, customers, and competitors
© 2001 Prentice Hall
Ch. 3-40
Technological Forces Technological Forces (Cont’d)(Cont’d)
Capitalizing on Information Technology (IT)
• Chief Information Officer (CIO)
• Chief Technology Officer (CTO)
© 2001 Prentice Hall
Ch. 3-41
Competitive Forces Competitive Forces External Audit & Competing FirmsExternal Audit & Competing Firms
• Identifying rival firms�Strengths�Weaknesses�Capabilities�Opportunities�Threats�Objectives�Strategies
© 2001 Prentice Hall
Ch. 3-42
Competitive Forces Competitive Forces (Cont’d)(Cont’d)
Competitor InformationCompetitor Information• Sources:
�Moody’s Manuals�Standard Corporation Descriptions�Value Line Investment Surveys�Dun’s Business Rankings�Standard & Poor’s Industry Surveys� Industry Week�Forbes, Fortune, Business Week
© 2001 Prentice Hall
Ch. 3-43
Competitive Forces Competitive Forces (Cont’d)(Cont’d)
Most competitive firms in AmericaMost competitive firms in America• Seven Characteristics
�Market share matters�Understand what business you are in
�Broke or not, fix it�Innovate or evaporate
© 2001 Prentice Hall
Ch. 3-44
Competitive Forces Competitive Forces (Cont’d)(Cont’d)
Most competitive firms in America Most competitive firms in America (Cont’d)(Cont’d)
• Seven Characteristics
�Acquisition is essential to growth�People make a difference�No substitute for quality
© 2001 Prentice Hall
Ch. 3-45
Competitive Analysis: Porter’s FiveCompetitive Analysis: Porter’s Five--Forces Forces ModelModel
Potential development of substitute products
Rivalry among competing firms
Bargaining power of suppliers
Potential entry of new competitors
Bargaining power of consumers
© 2001 Prentice Hall
Ch. 3-46
Global Challenge Global Challenge Differences U.S. and MNCs Differences U.S. and MNCs
• Affect strategic management:�Language�Culture�Politics�Economy�Government interference�Labor relations�Trade barriers
© 2001 Prentice Hall
Ch. 3-47
Industry Analysis (EFE)Industry Analysis (EFE)
External Factor Evaluation MatrixExternal Factor Evaluation MatrixSummarize & evaluate:
CompetitivePoliticalCultural
TechnologicalEnvironmentalSocial
GovernmentalDemographicEconomic
© 2001 Prentice Hall
Ch. 3-48
Industry Analysis (EFE) Industry Analysis (EFE) (Cont’d)(Cont’d)
FiveFive--Step process:Step process:
• List key external factors (10-20)�Opportunities & threats
• Assign weight to each (0 to 1.0)�Sum of all weights = 1.0
© 2001 Prentice Hall
Ch. 3-49
Industry Analysis (EFE) Industry Analysis (EFE) (Cont’d)(Cont’d)
FiveFive--step process:step process:
• Assign 1-4 rating to each factor�Firm’s current strategies response to the
factor
• Multiply each factor’s weight by its rating�Produces a weighted score
© 2001 Prentice Hall
Ch. 3-50
Industry Analysis (EFE) Industry Analysis (EFE) (Cont’d)(Cont’d)
FiveFive--step process:step process:
• Sum the weighted scores for each�Determines the total weighted score
for the organization.
• Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5
© 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
Weightedscore
RatingWeightUST—Key External Factors
Opportunities
© 2001 Prentice Hall
Ch. 3-52
Industry Analysis (EFE) Industry Analysis (EFE) (Cont’d)(Cont’d)
Total weighted score of 4.0 =Organization response is outstanding to threats & weaknesses
Total weighted score of 1.0 =Firm’s strategies not capitalizing on opportunities or avoiding threats
© 2001 Prentice Hall
Ch. 3-53
Industry Analysis (EFE) Industry Analysis (EFE) (Cont’d)(Cont’d)
UST (in the previous example), has a total weighted score of 2.10 indicating that the firm is below average in its effort to pursue strategies that capitalize on external opportunities and avoid threats.
© 2001 Prentice Hall
Ch. 3-54
Industry Analysis (EFE) Industry Analysis (EFE) (Cont’d)(Cont’d)
ImportantImportant
• Understanding of the factors used in the EFE Matrix is more important than the actual weights and ratings assigned.
© 2001 Prentice Hall
Ch. 3-55
Industry Analysis (CPM)Industry Analysis (CPM)
Competitive Profile MatrixCompetitive Profile Matrix
• Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic position
© 2001 Prentice Hall
Ch. 3-56
(CPM) Procter Avon L’Oreal & Gamble
2.803.253.151.00Total
0.1530.2040.0510.05Market Share
0.4020.4020.8040.20Global Expansion
0.2020.4040.4040.10Customer Loyalty
0.4530.4530.6040.15Financial Position
0.3030.3030.4040.10Management
0.4040.3030.3030.10Price Competition
0.3030.4040.4040.10Product Quality
0.6030.8040.2010.20Advertising
ScoreRatingScoreRatingScoreRatingWeightCritical Success Factor
© 2001 Prentice Hall
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
© 2001 Prentice Hall
Ch. 3-58
Key Terms & Concepts (Cont’d)Key Terms & Concepts (Cont’d)
• External forces• Industry analysis• Information Technology
(IT)• Industrial policies• Internet learning from
the partner• Linear regression
• Lifecare facilities• Porter’s Five-Forces
Model• Netscape• On-Line databases• Rightsizing• Trend extrapolation• World Wide Web (www)