Copyright 2005 Prentice Hall1 Bus 411 Day 4. Copyright 2005 Prentice Hall Ch 3 -2 Agenda Assignment # 1 Due All submitted on time Disney SWOT (group.
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Copyright 2005 Prentice Hall 1
Bus 411
Day 4
Copyright 2005 Prentice Hall Ch 3 -2
Agenda
Assignment # 1 Due All submitted on time
Disney SWOT (group Work) Discussion on External Assessment
Opportunities and threats Assignment #2 assigned today
Due Feb 13 (Friday the 13th)
Copyright 2005 Prentice Hall Ch 3 -3
Disney SWOT
The purpose of this exercise is to give students experience identifying an organization’s opportunities, threats, strengths, and weaknesses.
INSTRUCTIONS: Join in a group of 2-4 students Identify Disney major opportunities, threats, strengths, and
weaknesses. List these under separate headings. You should have a least 4 items in each section
In class discussion, compare lists of external and internal factors. From the discussion, students should add to their lists. Save this information for use in later exercises during the term.
Copyright 2005 Prentice Hall Ch 3 -4
Strategic Management Process Model
Develop Mission and Vision Statements
Chap 2
Measure and Evaluate
PerformanceChap 9
Implement StrategiesManagement Issues
Chap 7
Generate, Evaluate and Select Strageies
Chap 6
Implement StrategiesMarketing, Finance, accounting, R&D,
MIS issuesChap 8
Perfrom External Audit
Chap 3
Establish Long-termObjectives
Chap 5
Perform Internal Audit
Chap 4
Ch 3 -5 Copyright © 2009 Pearson Education, Inc.
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Chapter 3 The External Assessment
Strategic Management: Concepts & Cases
12th Edition
Fred David
Ch 3 -6 Copyright © 2009 Pearson Education, Inc.
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Chapter Outline
The Nature of the External Audit
The Industrial Organization (I/O) View
Social, Cultural, Demographic, and Environmental Forces
Ch 3 -7 Copyright © 2009 Pearson Education, Inc.
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Chapter Outline (cont’d)
Political, Governmental, and Legal Forces
Technological Forces
Competitive Forces
Ch 3 -8 Copyright © 2009 Pearson Education, Inc.
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Chapter Outline (cont’d)
Porter’s Five-Forces Model
Sources of External Information
Forecasting Tools & Techniques
Ch 3 -9 Copyright © 2009 Pearson Education, Inc.
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Chapter Outline (cont’d)
Global Challenge
The External Factor Evaluation (EFE) Matrix
Competitive Profile Matrix (CPM)
Ch 3 -10 Copyright © 2009 Pearson Education, Inc.
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“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” – Charles Darwin
External Assessment
“Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map.”– Wayne Calloway, Former CEO, PepsiCo
Ch 3 -11 Copyright © 2009 Pearson Education, Inc.
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External Strategic Management Audit
– Environmental Scanning
– Industry Analysis
Ch 3 -12 Copyright © 2009 Pearson Education, Inc.
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Identify & evaluate factors beyond the control of a single firm Increased foreign competition Population shifts Aging society Fear of traveling Stock market volatility
External Strategic Management Audit
Ch 3 -13 Copyright © 2009 Pearson Education, Inc.
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Purpose of External Audit Identify
Opportunities Threats
External Strategic Management Audit
Ch 3 -14 Copyright © 2009 Pearson Education, Inc.
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Ch 3 -15 Copyright © 2009 Pearson Education, Inc.
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Gather competitive intelligence –
Social Cultural Demographic Environmental Governmental Legal Technological
External Audit
Ch 3 -16 Copyright © 2009 Pearson Education, Inc.
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External Audit – Sources of Information•Internet
•Libraries
•Suppliers
•Distributors
•Salespersons
•Customers
•Competition
Copyright 2005 Prentice Hall Ch 3 -17
Internet Resources
www.redherring.com www.fastcompany.com www.business2.com online.wsj.com www.hoovers.com www.ecommercetimes.com www.businessplanarchive.org/ www.informationweek.com/ www.thestandard.com cbs.marketwatch.com www.morningstar.com finance.yahoo.com
Ch 3 -18 Copyright © 2009 Pearson Education, Inc.
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Performing External Audit
Key Factors – Vary over time Vary by industry
Ch 3 -19 Copyright © 2009 Pearson Education, Inc.
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Performing External Audit – Variables
•Market share
•Breadth of competing products
•World economies
•Foreign affiliates
•Proprietary account advantages
Ch 3 -20 Copyright © 2009 Pearson Education, Inc.
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Performing External Audit – Variables
•Price competitiveness
•Technological advancements
•Interest rates
•Pollution abatement
Ch 3 -21 Copyright © 2009 Pearson Education, Inc.
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Performing External Audit
External Factors
Measurable
Long-term Orientation
Applicable to Competing Firms
Hierarchical
Ch 3 -22 Copyright © 2009 Pearson Education, Inc.
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Industrial Organization (I/O) View
– Industry factors more important than internal factors
Performance determined by industry forces
Ch 3 -23 Copyright © 2009 Pearson Education, Inc.
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Economies of Scale
Industry Properties
Barriers to Market Entry
Product Differentiation
Level of Competitiveness
I/O Perspective Firm Performance
Ch 3 -24 Copyright © 2009 Pearson Education, Inc.
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Research Findings
“Approximately 20% of a firm’s profitability can be explained by the industry, whereas 36% of the variance in profitability is attributed to the firm’s internal factors”
Ch 3 -25 Copyright © 2009 Pearson Education, Inc.
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Economic Forces
Trends in the dollar’s value European Union Layoffs Economic standard of living
Ch 3 -26 Copyright © 2009 Pearson Education, Inc.
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Copyright 2005 Prentice Hall Ch 3 -27
Finding Economic Data
http://www.economagic.com/ http://www.econdata.net/ http://www.census.gov/econ/www/ http://www.bls.gov/home.htm http://bea.gov/
Ch 3 -28 Copyright © 2009 Pearson Education, Inc.
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Social, Cultural, Demographic, and Environmental Forces
Major Impact –
•Products
•Services
•Markets
•Customers
Ch 3 -29 Copyright © 2009 Pearson Education, Inc.
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Social, Cultural, Demographic, and Environmental Forces
U.S. Facts
•Aging population
•Less Caucasian
•Widening gap between rich & poor
•2025 = 18.5% population > 65 years
•2075 = no ethnic or racial majority
Ch 3 -30 Copyright © 2009 Pearson Education, Inc.
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States with the Highest Percentage of Minorities
1. Nevada
2. Arizona
3. Georgia
4. Florida
5. Idaho
6. North Carolina
7. Colorado
Ch 3 -31 Copyright © 2009 Pearson Education, Inc.
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Ch 3 -32 Copyright © 2009 Pearson Education, Inc.
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Social, Cultural, Demographic, and Environmental Forces
Facts
•World population approaching 7 billion
•World population = 8 billion by 2028
•World population = 9 billion by 2054
•U.S. population < 300 million
Ch 3 -33 Copyright © 2009 Pearson Education, Inc.
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Trends More American households with people living
alone Aging Americans – affects all organizations Population shift to the south and west Decimation and degradation of the natural
environment
Social, Cultural, Demographic, and Environmental Forces
Ch 3 -34 Copyright © 2009 Pearson Education, Inc.
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Global trends
•China’s labor rates less than Mexico
•China provides more site location incentives than Mexico
Social, Cultural, Demographic, and Environmental Forces
Ch 3 -35 Copyright © 2009 Pearson Education, Inc.
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Natural Environment PerspectiveBusiness Leaders Pushing for Legislation on Climate Change 10 CEOs pressuring for caps on
greenhouse-gas omissions Desiring a single national
emissions cap Top 5 buyers of green power:
1. PepsiCo
2. Wells Fargo
3. Whole Foods
4. U.S. Air Force
5. Johnson & Johnson
Ch 3 -36 Copyright © 2009 Pearson Education, Inc.
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Social, Cultural, Demographic, and Environmental Forces
•More educated consumers
•Aging population
•Minorities more influential
•Local rather than federal solutions
21st Century Trends
Ch 3 -37 Copyright © 2009 Pearson Education, Inc.
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Social, Cultural, Demographic, and Environmental Forces (cont’d)
•Fixation with youth decreasing
•Hispanics increase to 15% by 2021
•African-American increase to 14% by 2021
21st Century Trends
Ch 3 -38 Copyright © 2009 Pearson Education, Inc.
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Key Social, Cultural, Demographic, and Environmental Variables
Number of marriages & divorces
Number of special interest groups
Number of births & deaths
Immigration & emigration rates
Childbearing rates
Ch 3 -39 Copyright © 2009 Pearson Education, Inc.
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Actuarial Rates
Monitor KeyVariables
Per Capita Income
Attitudes Toward Business
Avg. Disposable Income
Social, Cultural, Demographic, and Environmental Forces
Ch 3 -40 Copyright © 2009 Pearson Education, Inc.
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Consumer Behavior
Monitor KeyVariables
Ethical Concerns
Attitudes Toward Saving
Racial Equality
Social, Cultural, Demographic, and Environmental Forces
Ch 3 -41 Copyright © 2009 Pearson Education, Inc.
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Avg. Educational Level
Monitor KeyVariables
Governmental Regulation
Attitudes Toward Customer Service
Attitudes Toward Quality
Social, Cultural, Demographic, and Environmental Forces
Ch 3 -42 Copyright © 2009 Pearson Education, Inc.
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Energy Conservation
Monitor KeyVariables
Social Responsibility
Leisure-Time Values
Recycling
Social, Cultural, Demographic, and Environmental Forces
Ch 3 -43 Copyright © 2009 Pearson Education, Inc.
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Waste Management
Monitor KeyVariables
Air & Water Pollution
Ozone Depletion
Endangered Species
Social, Cultural, Demographic, and Environmental Forces
Ch 3 -44 Copyright © 2009 Pearson Education, Inc.
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Political, Governmental, and Legal Forces
Key opportunities & threats Antitrust legislation Tax rates Lobbying efforts Patent laws
Government Regulation
Ch 3 -45 Copyright © 2009 Pearson Education, Inc.
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Political, Governmental, and Legal Forces
Political variables impact – Formulation of strategies Implementation of strategies
Increasing Global Interdependence
Ch 3 -46 Copyright © 2009 Pearson Education, Inc.
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Political, Governmental, and Legal Forces
Strategists in a global economy – Forecast political climates Legalistic skills Diverse world cultures
Increasing Global Interdependence
Ch 3 -47 Copyright © 2009 Pearson Education, Inc.
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Political, Governmental, and Legal Forces
Worldwide trend toward similarconsumption patterns
Global buyers and sellers E-commerce Technology for instant currency transfers
Globalization of Industry
Ch 3 -48 Copyright © 2009 Pearson Education, Inc.
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Key Political, Governmental, and Legal Variables
Special tariffs
Tax law changes
PAC’s
Voter participation rates
Regulation/deregulation
Ch 3 -49 Copyright © 2009 Pearson Education, Inc.
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Key Political, Governmental, and Legal Variables (cont’d)
Environmental protection laws
Changes in patent laws
Equal employment legislation
Government subsidies
Number of patents
Ch 3 -50 Copyright © 2009 Pearson Education, Inc.
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Key Political, Governmental, and Legal Variables (cont’d)
Import/export regulations
Global relationships
Political conditions
Location and severity of terrorist activity
Anti-trust enforcement
Ch 3 -51 Copyright © 2009 Pearson Education, Inc.
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Technological Forces
Major Impact –
•Internet
•Communications
•Semiconductors
Ch 3 -52 Copyright © 2009 Pearson Education, Inc.
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Technological Forces
Significance of IT
•Chief Information Officer (CIO)
•Chief Technology Officer (CTO)
Ch 3 -53 Copyright © 2009 Pearson Education, Inc.
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Technological Forces
Essential for nearly every strategic decision
Technology-based issues
Ch 3 -54 Copyright © 2009 Pearson Education, Inc.
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Competitive Forces
Collection & evaluation of data on competitors is essential for successful strategy formulation
Ch 3 -55 Copyright © 2009 Pearson Education, Inc.
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Competitive Forces
Competition on virtually all industries can be described as intense
Ch 3 -56 Copyright © 2009 Pearson Education, Inc.
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Competitive Forces
•Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies
Identifying Rival Firms
Ch 3 -57 Copyright © 2009 Pearson Education, Inc.
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Key Questions Concerning Competitors
Their objectives and strategies
Their weaknesses
Their responses to external variables
Their vulnerability to our alternative strategies
Their strengths
Ch 3 -58 Copyright © 2009 Pearson Education, Inc.
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Key Questions Concerning Competitors (cont’d)
Entry and exit of firms in the industry
Our product/service positioning
Key factors for our current position in industry
Sales/profit rankings of competitors over time
Our vulnerability to strategic counterattack
Ch 3 -59 Copyright © 2009 Pearson Education, Inc.
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Key Questions Concerning Competitors (cont’d)
The threat of substitute products/services
Nature of supplier & distributor relationships
Should we keep our strategies secret fromemployees and stakeholders?
Ch 3 -60 Copyright © 2009 Pearson Education, Inc.
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Competitive Forces
•Moody’s Manuals
•Standard Corporation Descriptions
•Value Line Investment Surveys
•Dun’s Business Rankings
•Standard & Poor’s Industry Surveys
•Industry Week
•Forbes, Fortune, BusinessWeek
Sources of Corporate Information
Ch 3 -61 Copyright © 2009 Pearson Education, Inc.
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Competitive Forces
1. Market share matters
2. Understand what business you are in
3. Broke or not, fix it
4. Innovate or evaporate
7 Characteristics of Most Competitive U.S. Firms:
Ch 3 -62 Copyright © 2009 Pearson Education, Inc.
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Competitive Forces
5. Acquisition is essential to growth
6. People make a difference
7. No substitute for quality
7 Characteristics of Most Competitive U.S. Firms:
Ch 3 -63 Copyright © 2009 Pearson Education, Inc.
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The Five-Forces Model of Competition
Ch 3 -64 Copyright © 2009 Pearson Education, Inc.
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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
Ch 3 -65 Copyright © 2009 Pearson Education, Inc.
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The Five-Forces Model
Most powerful of the five forces Focus on competitive advantage of
strategies
Rivalry Among Competing Firms
Ch 3 -66 Copyright © 2009 Pearson Education, Inc.
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The Five-Forces Model
Barriers to entry are important Quality, pricing, and marketing can
overcome barriers
Potential Entry of New Competitors
Ch 3 -67 Copyright © 2009 Pearson Education, Inc.
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The Five-Forces Model
Pressures increase when consumers’ switching costs decrease
Firm’s plans for increased capacity & market penetration
Potential Development of Substitute Products
Ch 3 -68 Copyright © 2009 Pearson Education, Inc.
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The Five-Forces Model
Large number of suppliers & few substitutes affects intensity of competition
Backward integration can gain control or ownership of suppliers
Bargaining Power of Suppliers
Ch 3 -69 Copyright © 2009 Pearson Education, Inc.
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The Five-Forces Model
Customers concentrated or buying in volume affects intensity of competition
Consumer power is higher where products are standard or undifferentiated
Bargaining Power of Consumers
Ch 3 -70 Copyright © 2009 Pearson Education, Inc.
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Conditions Where Consumers GainBargaining Power
If they can inexpensively switch If they are particularly important If sellers are struggling in the face of falling
consumer demand If they are informed about sellers’ products,
prices, and costs If they have discretion in whether and when
they purchase the product
Ch 3 -71 Copyright © 2009 Pearson Education, Inc.
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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
Ch 3 -72 Copyright © 2009 Pearson Education, Inc.
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The Global Challenge
Faced by U.S. Firms –
•Gain & maintain exports to other nations
•Defend domestic markets against imported goods
Ch 3 -73 Copyright © 2009 Pearson Education, Inc.
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Global PerspectiveChina’s Automobile Producers Heading to the United States in 2008 China’s auto exports doubled in 2006 China produces more cars than Germany and is the
world’s third largest automobile producer Changfeng Group first Chinese automaker in the Detroit
Auto Show http://www.cfmotors.com/doce/product/product.asp
Ch 3 -74 Copyright © 2009 Pearson Education, Inc.
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The Global Challenge
Simultaneously globally competitive & nationally responsive
Multinational Corporations (MNCs)
Ch 3 -75 Copyright © 2009 Pearson Education, Inc.
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The Global Challenge
Worldwide integration of:
Strategy formulation
Strategy implementation
Strategy evaluation
Globalization
Ch 3 -76 Copyright © 2009 Pearson Education, Inc.
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The Global Challenge
Similar consumption patterns
Global buyers and sellers
E-commerce
Instant transmission of money & information
Globalization of Industries
Ch 3 -77 Copyright © 2009 Pearson Education, Inc.
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Industry Analysis: The External Factor Evaluation (EFE) Matrix
CompetitivePoliticalCultural
Technological
EnvironmentalSocial
Governmental
DemographicEconomic
Summarize & Evaluate
Copyright 2005 Prentice Hall Ch 3 -78
5 Steps (Page 93-95)
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
Ch 3 -79 Copyright © 2009 Pearson Education, Inc.
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Ch 3 -80 Copyright © 2009 Pearson Education, Inc.
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Ch 3 -81 Copyright © 2009 Pearson Education, Inc.
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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 Firm’s strategies not capitalizing on opportunities
or avoiding threats
Ch 3 -82 Copyright © 2009 Pearson Education, Inc.
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Industry Analysis EFE
Understanding the factors used in the EFE Matrix is more important than the actual weights and ratings assigned.
Important –
Ch 3 -83 Copyright © 2009 Pearson Education, Inc.
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Industry Analysis: Competitive Profile Matrix (CPM)
Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions
Copyright 2005 Prentice Hall Ch 3 -84
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 -85
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 -86
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
Ch 3 -87 Copyright © 2009 Pearson Education, Inc.
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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 –
Ch 3 -88 Copyright © 2009 Pearson Education, Inc.
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Key Terms & Concepts
For Review (Chapter 3)
AOL Competitive Analysis
Chief Information Officer (CIO)
Competitive Intelligence(CI)
Chief Technology Officer(CTO)
Competitive ProfileMatrix (CPM)
Competitive Advantage Decruiting
Ch 3 -89 Copyright © 2009 Pearson Education, Inc.
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Key Terms & Concepts
For Review (Chapter 3)
Director of CompetitiveAnalysis
External Factor EvaluationMatrix (EFE)
Downsizing External Forces
Environmental Scanning Industry Analysis
External AuditIndustrial Organization
(I/O)
Ch 3 -90 Copyright © 2009 Pearson Education, Inc.
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Key Terms & Concepts
For Review (Chapter 3)
Information Technology(IT)
Lifecare Facilities
InternetPorter’s Five-Forces
Model
Learning from the Partner
Rightsizing
Linear Regression World Wide Web
Ch 3 -91 Copyright © 2009 Pearson Education, Inc.
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Key Terms & Concepts
For Review (Chapter 3)
Tax Harmonization
Foreign Direct Investment
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