© 2001 Prentice Hall Ch. 3-1 Strategic Management Concepts & Cases Strategic Management Concepts & Cases 8 th edition Fred R. David Chapter 3: The External.

© 2001 Prentice Hall

Ch. 3-1

Strategic ManagementStrategic ManagementConcepts & CasesConcepts & Cases

8th edition

Fred R. David

Chapter 3:The External Assessment

PowerPoint Slides By:

Anthony F. Chelte

Western New England College


Ch. 3-2

Comprehensive Strategic Management Comprehensive Strategic Management ModelModel

Vision &

Mission Statements

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


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—


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—


Ch. 3-5

External Assessment (Cont’d)External Assessment (Cont’d)

External Strategic-Management AuditExternal Strategic-Management Audit

• Industry analysis• Environmental scanning


Ch. 3-6


External audit:External audit:

Focuses on identifying & evaluatingevents beyond the immediate control of the firm


Ch. 3-7


External audit focuses onExternal audit focuses on:

Increased foreign competition Population shifts Demographics (e.g., aging

population) Information technology


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


Ch. 3-9


External AuditExternal Audit

Aimed at identifying key variables that offer actionableactionable responses


Ch. 3-10


Key External ForcesKey External Forces

Five (5) broad categories:

• Economic forces

• Social, cultural, demographic, & environmental forces


Ch. 3-11


Key External Forces Key External Forces (Cont’d)(Cont’d)

Five (5) broad categories:

• Political, governmental, & legal forces

• Technological forces

• Competitive forces


Ch. 3-12


Key External Forces

CompetitorsSuppliers

DistributorsCreditors

CustomersEmployees

CommunitiesManagers

StockholdersLabor Unions

Special Interest GroupsProductsServices

Opportunities&

Threats


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 of

information


Ch. 3-14


Key External FactorsKey External Factors:

Vary over time&

Vary by industry


Ch. 3-15


Key External FactorsKey External Factors::

• Important to achieving long-term objectives

• Measurable• Applicable to all competing firms• Hierarchical


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


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


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


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


Ch. 3-20

Social & Environmental Social & Environmental Forces Forces

• Social, cultural, demographic, and environmental changes:

Major impact on:ProductsServicesMarketsCustomers


Ch. 3-21

Social & Environmental Social & Environmental Forces Forces (Cont’d)(Cont’d)

• World population > 6 billion

• U.S. population < 300 millionGreat potential for domestic production

expansion to other markets

• Domestic only is a risky strategy


Ch. 3-22


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

% % IncreaseIncrease

2050205019981998CountryCountry


Ch. 3-23


E-commerce PerspectiveE-commerce Perspective

Question:“Is the Internet Revolution Bypassing Poor, Minorities?”

Answer:Yes!


Ch. 3-24


• 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


Ch. 3-25


• 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


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


Ch. 3-27


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


Ch. 3-28


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


Ch. 3-29


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


Ch. 3-30

Political, Govt., & Legal Political, Govt., & Legal Forces Forces

Government RegulationGovernment Regulation

• Key opportunities & key threats

Antitrust legislation (Microsoft)Tax ratesLobbying effortsPatent laws


Ch. 3-31

Political, Govt., & Legal Political, Govt., & Legal Forces Forces (Cont’d)(Cont’d)

Increasing Global Increasing Global InterdependenceInterdependence

• Impact of political variables

Formulation of strategiesImplementation of strategies


Ch. 3-32


Increasing Global Increasing Global InterdependenceInterdependence

• Strategists in a global economyForecast political climatesLegalistic skillsDiverse world cultures


Ch. 3-33


Globalization of IndustryGlobalization of Industry

• Worldwide trend toward similar consumption patterns

• Global buyers & sellers

• E-commerce

• Instant transmission of money & information across continents


Ch. 3-34


• 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


Ch. 3-35


• 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


Ch. 3-36


• 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


Ch. 3-37

Technological Forces Technological Forces

Technological ChangeTechnological Change

• Dramatic effect on businessFiber opticsBiometricsEFTComputer engineeringSuperconductivity

advancements


Ch. 3-38

Technological Forces Technological Forces (Cont’d)(Cont’d)

Internet impact on opportunities & Internet impact on opportunities & threats:threats:

• Altering life cycles of products• Increasing speed of distribution• Creating new products & services• Erasing limitations of traditional

geographic markets


Ch. 3-39


Internet impact on opportunities & Internet impact on opportunities & threats: threats: (Cont’d)(Cont’d)

• Altering economies of scale• Changing entry barriers• Redefining relationships

Industries & suppliers, creditors, customers, and competitors


Ch. 3-40


Capitalizing on Information Technology (IT)

• Chief Information Officer (CIO)

• Chief Technology Officer (CTO)


Ch. 3-41

Competitive Forces Competitive Forces External Audit & Competing FirmsExternal Audit & Competing Firms

• Identifying rival firmsStrengthsWeaknessesCapabilitiesOpportunitiesThreatsObjectivesStrategies


Ch. 3-42

Competitive Forces Competitive Forces (Cont’d)(Cont’d)

Competitor InformationCompetitor Information• Sources:

Moody’s ManualsStandard Corporation DescriptionsValue Line Investment SurveysDun’s Business RankingsStandard & Poor’s Industry Surveys Industry WeekForbes, Fortune, Business Week


Ch. 3-43


Most competitive firms in Most competitive firms in AmericaAmerica

• Seven CharacteristicsMarket share mattersUnderstand what business you are in

Broke or not, fix itInnovate or evaporate


Ch. 3-44


Most competitive firms in Most competitive firms in America America (Cont’d)(Cont’d)

• Seven Characteristics

Acquisition is essential to growth

People make a differenceNo substitute for quality


Ch. 3-45

Competitive Analysis: Porter’s Five-Forces Competitive Analysis: Porter’s Five-Forces ModelModel

Potential development of substitute products

Rivalry among competing firms

Bargaining power of suppliers

Potential entry of new competitors

Bargaining power of consumers


Ch. 3-46

Global Challenge Global Challenge Differences U.S. and MNCs Differences U.S. and MNCs

• Affect strategic management:LanguageCulturePoliticsEconomyGovernment interferenceLabor relationsTrade barriers


Ch. 3-47

Industry Analysis (EFE)Industry Analysis (EFE)

External Factor Evaluation MatrixExternal Factor Evaluation MatrixSummarize & evaluate:

CompetitivePoliticalCultural

Technological

EnvironmentalSocial

Governmental

DemographicEconomic


Ch. 3-48

Industry Analysis (EFE) Industry Analysis (EFE) (Cont’d)(Cont’d)

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


Ch. 3-49


Five-step process:Five-step process:

• Assign 1-4 rating to each factorFirm’s current strategies response to

the factor

• Multiply each factor’s weight by its ratingProduces a weighted score


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 for the organization is 4.0; the lowest, 1.0. Average = 2.5


Ch. 3-51

.201.20 Clinton Administration

.202.10 Bad media exposure from FDA

.102.05 Smokeless market SE region U.S.

.153.05 Production limits on tobacco

.202.10 Legislation against the tobacco industry

Threats

.303.10 More social pressure to quit smoking

2.101.00TOTAL

.604.15 Pinkerton leader in discount market

.051.05 Astronomical Internet growth

.153.05 Increased demand

.151.15 Global markets untapped

Weighted

scoreRatingWeight

UST—Key External FactorsOpportunities


Ch. 3-52


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


Ch. 3-53


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.


Ch. 3-54


ImportantImportant

• Understanding of the factors used in the EFE Matrix is more important than the actual weights and ratings assigned.


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


Ch. 3-56

(CPM) Procter Avon L’Oreal &

Gamble

2.803.25

3.15

1.00Total

0.1530.20

40.05

10.05Market Share

0.4020.40

20.80

40.20Global Expansion

0.2020.40

40.40

40.10Customer Loyalty

0.4530.45

30.60

40.15Financial Position

0.3030.30

30.40

40.10Management

0.4040.30

30.30

30.10Price Competition

0.3030.40

40.40

40.10Product Quality

0.6030.80

40.20

10.20Advertising

ScoreRating

Score

Rating

Score

Rating

Weight

Critical Success Factor


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


Ch. 3-58

Key Terms & Concepts Key Terms & Concepts (Cont’d)(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)

© 2001 Prentice Hall Ch. 3-1 Strategic Management Concepts & Cases Strategic Management Concepts & Cases 8 th edition Fred R. David Chapter 3: The External.

Documents

prentice hall

external audit chapter

external audit reveals

industry slide

regioncustomer slide

country slide

key variables

economic forces social