Strategic Management Chapter 03

7/29/2019 Strategic Management Chapter 03

1/58

Copyright 2011 Pearson Education, Inc.Publishing as Prentice Hall

Ch 3 -1

Chapter 3

The External Assessment

Strategic Management:Concepts & Cases

13th Edition

Fred David


2/58


Ch 3 -2


3/58


Ch 3 -3

It is not the strongest of the species thatsurvive, nor the most intelligent, but the onemost responsive to change.

Charles Darwin

External Assessment

Nothing focuses the mind better than the

constant sight of a competitor who wants towipe you off the map.

Wayne Calloway, Former CEO, PepsiCo


4/58


Ch 3 -4

External StrategicManagement Audit

Environmental Scanning

Industry Analysis


5/58


Ch 3 -5

Identify & evaluate factors beyond the

control of a single firm Increased foreign competition

Population shifts

Aging society

Fear of traveling

Stock market volatility



6/58


Ch 3 -6

Purpose of an External Audit

Develop a finite list of

opportunities that could benefit a firm

threats that should be avoided



7/58


Ch 3 -7


8/58


Ch 3 -8

Gather competitive intelligence

Assimilate information

Evaluate

Resulting in a list of the most

important key external factors

External Audit


9/58


Ch 3 -9

Performing External Audit

ExternalFactors

Measurable

Long-term Orientation

Applicable toCompeting Firms

Hierarchical


10/58


Ch 3 -10

Industrial Organization(I/O) View

Industry factors are more importantthan internal factors

Performance determined by industryforces


11/58


Ch 3 -11

Economies of Scale

IndustryProperties

Barriers to Market Entry

Product Differentiation

The Economy

I/O Perspective Firm Performance

Level of Competitiveness


12/58


Ch 3 -12

Economic Forces

GDP

Trends in the dollars value

Unemployment rates


13/58


Ch 3 -13


14/58


Ch 3 -14

Social, Cultural, Demographic, andNatural Environmental Forces

Major Impact

Products

Services

Markets

Customers


15/58


Ch 3 -15

Social, Cultural, Demographic, andNatural Environmental Forces US Facts

Aging population Less White

Widening gap between rich & poor

2025 = 18.5% population > 65 years 2075 = no ethnic or racial majority


16/58


Ch 3 -16

Social, Cultural, Demographic, andNatural Environmental Forces Facts

World population 7 billion World population = 8 billion by 2028

World population = 9 billion by 2054

U.S. population > 310 million


17/58


Ch 3 -17

Trends

More American households with

people living alone

Aging Americans affects all

organizations

Social, Cultural, Demographic, andNatural Environmental Forces


18/58

Copyright 2011 Pearson Education, Inc.

Publishing as Prentice HallCh 3 -18

Political, Governmental, andLegal Forces

Key opportunities & threats Antitrust legislation

Tax rates

Lobbying activities Patent laws

Government Regulation


19/58



Political, Governmental, andLegal Forces Protectionist policies

Governments taking equity stakes

in companies


20/58



Technological Forces

Major Impact

Internet


21/58




Significance of IT

Chief Information Officer (CIO)

Chief Technology Officer (CTO)


22/58




Essential for nearly every

strategic decision


23/58



Competitive Forces

Collection & evaluation of data on

competitors is essential for successfulstrategy formulation


24/58



Competitive ForcesStrengths

Weaknesses

Capabilities

Opportunities

Threats

Objectives

Strategies

Identify Rival Firms


25/58



Competitive Forces

Competition in virtually all

industries can be described asintense


26/58



Key Questions ConcerningCompetitors

Their strengths

Their weaknesses

Their objectives and strategies Their responses to external variables

Their vulnerability to our alternative

strategies Our vulnerability to strategic counterattack


27/58



Key Questions ConcerningCompetitors

Our product/service positioning

Entry and exit of firms in the industry

Key factors for our current position in industry

Sales/profit ranking of competitors over time

Nature of supplier and distributorrelationships

The threat of substitute products/services


28/58



Competitive Forces 7 characteristics of most competitive firms

Market share matters

Understanding what business you are in

Broke or not, fix it

Innovate or evaporate

Acquisition is essential to growth

People make a difference

No substitute for quality


29/58


Publishing as Prentice Hall

Ch 3 -29

Competitive Intelligence

A systematic and ethical process for

gathering and analyzing informationabout the competitions activities and

general business trends to further a

businesss own goals


30/58



Ch 3 -30

Sources of Competitive Intelligence

Internet

Employees

Managers

Suppliers

Distributors

Customers

Creditors

Consultants

Trade journals

Want ads

Newspaper articles

Government filings

Competitors


31/58



Ch 3 -31

Objectives of Competitive Intelligence

Provide a general understanding of industryand competitors

Identify areas where competitors are

vulnerable and assess impact of actions oncompetitors

Identify potential moves that a competitor

might make


32/58



Ch 3 -32

Market Commonality

The number and significance of

markets that a firm competes inwith rivals


33/58



Ch 3 -33

Resource Similarity

Extent to which the type and

amount of a firms internalresources are comparable to arival


34/58



Ch 3 -34

The Five-Forces Model of Competition


35/58



Ch 3 -35

Steps to Determine if an Acceptable

Profit Can Be Earned

1. Identify key aspects or elements of eachcompetitive force

2. Evaluate how strong and important eachelement is for the firm

3. Decide whether the collective strength ofthe elements is worth the firm entering or

staying in the industry


36/58



Ch 3 -36

The Five-Forces Model

Rivalry among competing firms

Most powerful of the five forces Focus on competitive advantage of

strategies over other firms


37/58



Ch 3 -37

Conditions that Cause High RivalryAmong Competing Firms

High number of competing firms

Similar size of firms competing

Similar capability of firms competing Falling demand for the industrys products

Falling product/service prices in the

industry


38/58



Ch 3 -38


Consumers can switch brands easily

Barriers to leaving the market are high

Barriers to entering the market are low

Fixed costs are high among firmscompeting

The product is perishable


39/58



Ch 3 -39


Rivals have excess capacity

Consumer demand is falling

Rivals have excess inventory

Rivals sell similar products/services

Mergers are common in the industry


40/58



Ch 3 -40

The Five-Forces Model Potential Entry of New Competitors

Barriers to entry are important

Quality, pricing, and marketing canovercome barriers


41/58



Ch 3 -41


Potential development of substituteproducts

Pressure increases when: Prices of substitutes decrease

Consumers switching costs

decrease


42/58



Ch 3 -42


Bargaining Power of Suppliers is

increased when there are:

Large numbers of suppliers

Few substitutes

Costs of switching raw materials is high

Backward integration is gaining control orownership of suppliers


43/58



Ch 3 -43

The Five-Forces Model Bargaining power of consumers

Customers being concentrated or

buying in volume affects intensity ofcompetition

Consumer power is higher where

products are standard orundifferentiated


44/58



Ch 3 -44

Conditions Where Consumers Gain

Bargaining Power

If buyers can inexpensively switch

If buyers are particularly important

If sellers are struggling in the face of falling

consumer demand

If buyers are informed about sellers

products, prices, and costs

If buyers have discretion in whether andwhen they purchase the product


45/58



Ch 3 -45

Sources of External Information:Unpublished Sources

Customer surveys

Market research

Speeches at professional or shareholder

meetings

Television programs

Interviews and conversations with

stakeholders


46/58



Ch 3 -46

Sources of External Information:Published Sources

Periodicals

Journals

Reports

Government documents Abstracts

Books

Directories

Newspapers

Manuals


47/58



Ch 3 -47

Sources of External Information:Web Sites

http://marketwatch.multexinvestor.com

http://moneycentral.msn.com

http://finance.yahoo.com www.clearstation.com

https://us.etrade.com/e/t/invest/markets

www.hoovers.com
http://marketwatch.multexinvestor.com/http://moneycentral.msn.com/http://finance.yahoo.com/http://www.clearstation.com/https://us.etrade.com/e/t/invest/marketshttp://www.hoovers.com/http://www.hoovers.com/https://us.etrade.com/e/t/invest/marketshttp://www.clearstation.com/http://finance.yahoo.com/http://moneycentral.msn.com/http://marketwatch.multexinvestor.com/


48/58



Ch 3 -48

Forecasting Tools and Techniques

Forecasts are educated assumptions

about future trends and events

Quantitative techniques most

appropriate when historical data isavailable and there is a constantrelationship

Qualitative techniques


49/58



Ch 3 -49

Assumptions

Estimates of future events based

upon the best availableinformation in the present


50/58



Ch 3 -50

Industry Analysis: The ExternalFactor Evaluation (EFE) Matrix

Economic

Social

Cultural

Demographic

Environmental

Political

Governmental

Technological

Competitive

Legal


51/58



Ch 3 -51

EFE Matrix Steps

1. List key external factors

2. Weight from 0 to 1

3. Rate effectiveness of current strategies

4. Multiply weight * rating

5. Sum weighted scores


52/58



Ch 3 -52


53/58



Ch 3 -53


54/58



Ch 3 -54

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 opportunitiesor avoiding threats


55/58



Ch 3 -55

Industry Analysis: Competitive ProfileMatrix (CPM) Identifies firms major competitors and

their strengths & weaknesses in

relation to a sample firms strategic

positions

Critical success factors include

internal and external issues


56/58



Ch 3 -56


57/58



Ch 3 -57

Industry Analysis CPM

Just because one firm receives a 3.2 ratingand another receives a 2.8 rating, it does notfollow that the first firm is 20 percent better

than the second.

Important


58/58

Copyright 2011 Pearson Education, Inc. Ch 3 -58

All rights reserved. No part of this publication may be reproduced, stored in aretrieval system, or transmitted, in any form or by any means, electronic,

mechanical, photocopying, recording, or otherwise, without the prior writtenpermission of the publisher. Printed in the United States of America.

Strategic Management Chapter 03

Documents