The External Assessment
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The document summarizes key concepts from Chapter 3 of a strategic management textbook. It outlines the external assessment process, including analyzing industrial organization forces, social/demographic trends, economic/political factors, technological changes, and competitive forces using models like Porter's Five Forces. Key steps are identifying opportunities/threats, performing an external audit using various sources, and creating matrices like the EFE and CPM to evaluate external factors and competitors.
The External Assessment
- 1. Chapter 3 The External Assessment Strategic Management: Concepts & Cases 10 th Edition Fred David PowerPoint Slides by Anthony F. Chelte Western New England College
- 2. Chapter Outline The Nature of the External Audit The Industrial Organization (I/O) View Social, Cultural, Demographic & Environmental Forces
- 3. Chapter Outline ( cont’d ) Political, Governmental, and Legal Forces Technological Forces Competitive Forces
- 4. Chapter Outline ( cont’d ) Porter’s Five-Forces Model Sources of External Information Forecasting Tools & Techniques
- 5. Chapter Outline ( cont’d ) Global Challenge The External Factor Evaluation (EFE) Matrix Competitive Profile Matrix (CPM)
- 6. 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
- 7. -- Environmental Scanning -- Industry Analysis External Strategic Management Audit
- 8. Identify & Evaluate factors beyond the control of a single firm Increased foreign competition Population shifts Information technology External Strategic Management Audit
- 9. Purpose of External Audit Identify Opportunities Threats External Strategic Management Audit
- 10. Key External Forces Economic forces Social, cultural, demographic & environmental forces Political, governmental & legal forces Technological forces Competitive forces
- 11. Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products Services Key External Forces Opportunities & Threats Key External Forces & the Organization
- 12. Gather competitive intelligence – Social Cultural Demographic Environmental Economic Political, legal governmental Technological External Audit
- 13. External Audit – Sources of Information Internet Libraries Suppliers Distributors Customers Competition
- 14. -- Key Factors Vary over time Vary by industry Performing External Audit
- 15. Performing External Audit -- Variables Market share Breadth of competing products World economies Foreign affiliates Proprietary account advantages
- 16. Performing External Audit -- Variables Price competitiveness Technological advancements Interest rates Pollution abatement
- 17. Performing External Audit External Factors Measurable Long-term orientation Applicable to competing firms Hierarchical
- 18. Industrial Organization (I/O) View -- Industry factors more important than internal factors Performance determined by industry forces
- 19. Economies of Scale Industry Properties Barriers to market entry Product differentiation Level of competitiveness I/O Perspective Firm Performance
- 20. Economic Forces Availability of credit Level of disposable income Interest rtes Inflation rates
- 21. Economic Forces Money market rates Fed Gov’t deficits GDP trend Consumption patterns
- 22. Key Economic Variables Value of the dollar in world markets Worker productivity levels Stock market trends Foreign economic conditions Unemployment trends
- 23. Key Economic Variables Income differences by region/customer Demand shifts for goods/services Price fluctuations Exportation of labor and capital Import/Export factors
- 24. Key Economic Variables Tax rates Fiscal policies OPEC policies ECC policies Monetary policies
- 25. Social, Cultural, Demographic & Environmental Forces Major Impact – Products Services Markets Customers
- 26. Social, Cultural, Demographic & 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
- 27. Social, Cultural, Demographic & Environmental Forces Facts World population > 6 billion U.S. population < 300 million
- 28. Social, Cultural, Demographic & Environmental Forces Population characteristics require global strategies
- 29. Social, Cultural, Demographic & Environmental Forces Global trends 2003 – China largest exporter to U.S. 2003 Asia receives highest foreign direct investment
- 30. Global trends China’s labor rates less than Mexico China provides more site location incentives than Mexico Social, Cultural, Demographic & Environmental Forces
- 31. Export Trends Mexico-exports to U.S. 1.2% growth (2002) China-exports to U.S. 19% growth (2002) Social, Cultural, Demographic & Environmental Forces
- 32. Export Trends Mexico-corporate income tax rate 34% China-corporate income tax rate 17% Social, Cultural, Demographic & Environmental Forces
- 33. Social, Cultural, Demographic & Environmental Forces More educated consumers Aging population Minorities more influential Local rather than federal solutions 21 st Century Trends
- 34. Social, Cultural, Demographic & Environmental Forces (cont’d) Fixation with youth decreasing Hispanics increase to 15% by 2021 African American increase to 14% by 2021 21 st Century Trends
- 35. Key Social, Cultural, Demographic & Environmental Variables Number of marriages & divorces Number of special interest groups Number of births & deaths Immigration & emigration rates Childbearing rates
- 36. Actuarial rates Monitor Key Variables Per capita income Attitudes toward business Avg. disposable income Social, Cultural, Demographic & Environmental Forces
- 37. Consumer behavior Monitor Key Variables Ethical concerns Attitudes toward saving Racial equality Social, Cultural, Demographic & Environmental Forces
- 38. Avg. educational level Monitor Key Variables Governmental regulation Attitudes toward customer service Attitudes toward quality Social, Cultural, Demographic & Environmental Forces
- 39. Energy conservation Monitor Key Variables Social responsibility Leisure time values Recycling Social, Cultural, Demographic & Environmental Forces
- 40. Waste management Monitor Key Variables Air & water pollution Ozone depletion Endangered species Social, Cultural, Demographic & Environmental Forces
- 41. Political, Government & Legal Forces Key opportunities & threats Antitrust legislation Tax rates Lobbying efforts Patent laws Government Regulation
- 42. Political, Government & Legal Forces Political variables impact – Formulation of strategies Implementation of strategies Increasing Global Interdependence
- 43. Political, Government & Legal Forces Strategists in a global economy -- Forecast political climates Legalistic skills Diverse world cultures Increasing Global Interdependence
- 44. Political, Government & Legal Forces Worldwide trend toward similar consumption patterns Global buyers and sellers E-commerce Technology for instant currency transfers Globalization of Industry
- 45. Key Political, Governmental, & Legal Variables Special tariffs Tax law changes PAC’s Voter participation rates Regulation/deregulation
- 46. Key Political, Governmental, & Legal Variables (cont’d) Environmental protection laws Changes in patent laws Equal employment legislation Government subsidies Number of patents
- 47. Key Political, Governmental, & Legal Variables (cont’d) Import/export regulations Global relationships Political conditions Location and severity of terrorist activity Anti-trust enforcement
- 48. Technological Forces Major Impact – Internet Communications Semiconductors
- 49. Technological Forces Significance of IT Chief Information Officer (CIO) Chief Technology Officer (CTO)
- 50. Technological Forces Essential for nearly every strategic decision Technology-based issues
- 51. Competitive Forces Collection & evaluation of data on competitors is essential for successful strategy formulation
- 52. Competitive Forces Competition on virtually all industries can be described as intense.
- 53. Competitive Forces Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies Identifying Rival Firms
- 54. Key Questions Concerning Competitors Their objectives and strategies Their weaknesses Their responses to external variables Their vulnerability to our alternative strategies Their strengths
- 55. 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
- 56. Key Questions Concerning Competitors (cont’d) The threat of substitute products/services Nature of supplier & distributor relationships Should we keep our strategies secret from employees and stakeholders?
- 57. 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, Business Week Sources of Corporate Information
- 58. Competitive Forces Market share matters Understand what business you are in Broke or not, fix it Innovate or evaporate 7 Characteristics of most Competitive U.S. Firms:
- 59. Competitive Forces Acquisition is essential to growth People make a difference No substitute for quality 7 Characteristics of most Competitive U.S. Firms:
- 60. The Five-Forces Model of Competition Potential development of substitute products Rivalry among competing firms Bargaining power of suppliers Potential entry of new competitors Bargaining power of consumers
- 61. The Five-Forces Model Most powerful of the five forces Focus on competitive advantage of strategies Rivalry Among Competing Firms
- 62. The Five-Forces Model Barriers to entry are important Quality, pricing, and marketing can overcome barriers Potential Entry of New Competitors
- 63. The Five-Forces Model Pressures increase when consumer’s switching costs decrease Firm’s plans for increased capacity & market penetration Potential Development of Substitute Products
- 64. 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
- 65. The Five-Forces Model Customers concentrated or buy in volume affects intensity of competition Consumer power is higher where products are standard or undifferentiated Bargaining Power of Consumers
- 66. The Global Challenge Faced by U.S. Firms -- Gain & maintain exports to other nations Defend domestic markets against imported goods
- 67. The Global Challenge Simultaneously globally competitive & nationally responsive Multinational Corporations (MNC’s)
- 68. The Global Challenge Worldwide integration of: Strategy formulation Strategy implementation Strategy evaluation Globalization
- 69. The Global Challenge Similar consumption patterns Global buyers and sellers E-commerce Instant transmission of money & information Globalization of Industries
- 70. Industry Analysis: The External Factor Evaluation (EFE) Matrix Summarize & Evaluate Competitive Political Cultural Technological Environmental Social Governmental Demographic Economic
- 71. 0.15 3 0.05 5. The average income for PC worker has declined from $40K/yr to $30k/yr 0.10 1 0.10 4. China entered WTO; lowered taxes for importing PC’s 0.10 2 0.05 3. Internet use growing rapidly 0.30 3 0.10 2. Cost of PC component parts expected to decrease 10% - 2004 0.30 3 0.10 1. Global PC market expected to grow 20% in 2004 Opportunities Wtd Score Rating Weight Key External Factors EFE – Gateway Computers (2003)
- 72. 0.05 1 0.10 1. Intense rivalry in industry 0.10 1 0.10 Threats 0.05 1 0.05 8. 30% of Chinese population can afford a PC; only 10% of homes have a PC 0.15 3 0.05 7. U.S. (& world) economies recovering 0.10 2 0.05 6. Modernization of business firms and government agencies Opportunities (cont’d) Wtd Score Rating Weight Key External Factors EFE – Gateway Computers (2003) (cont’d)
- 73. 0.15 3 0.05 6. Birth rate in U.S. declining annually 0.20 4 0.05 5. Demand exceeds supply of experienced PC workers 0.15 3 0.05 4. Palm & PDA becoming substitutes 0.05 1 0.05 3. Different countries have different reg’s and infrastructure for PC’s 0.20 2 0.10 2. Severe price cutting in PC industry Threats (cont’d) Wtd Score Rating Weight Key External Factors EFE – Gateway Computers (2003) (cont’d)
- 74. 2.40 1.00 Total 0.15 3 0.05 8. PC firms diversifying into consumer electronics 0.10 2 0.05 7. U.s. consumers and businesses delaying purchase of PC’s Threats (cont’d) Wtd Score Rating Weight Key External Factors EFE – Gateway Computers (2003) (cont’d)
- 75. 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
- 76. Industry Analysis EFE Understanding the factors used in the EFE Matrix is more important than the actual weights and ratings assigned. Important --
- 77. Industry Analysis: Competitive Profile Matrix (CPM) Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions
- 78. 0.15 3 0.15 3 0.15 3 0.05 Org. Structure 0.60 4 0.30 2 0.45 3 0.15 Global Exp. 0.30 3 0.20 2 0.30 3 0.10 Sales Distr 0.08 4 0.06 3 0.06 3 0.02 Cons. Loyalty 0.24 3 0.32 4 0.24 3 0.08 Prod. Quality 0.30 3 0.30 3 0.20 2 0.10 Fin position 0.32 4 0.16 2 0.16 2 0.08 Inventory sys 0.60 4 0.30 2 0.45 3 0.15 Market share Wt’d Score Rating Wt’d Score Rating Wt’d Score Rating Wt CSF’s Dell Apple Gateway
- 79. 3.49 2.47 2.83 1.00 Total 0.02 2 0.04 4 0.02 2 0.01 Mgt. experience 0.06 3 0.02 1 0.08 4 0.02 Price competitive 0.40 4 0.20 2 0.30 3 0.10 Customer Serv 0.30 3 0.30 3 0.30 3 0.10 E-commerce 0.12 3 0.12 3 0.12 3 0.04 Prod. Capacity Wt’d Score Rating Wt’d Score Rating Wt’d Score Rating Wt CSF’s (cont’d) Dell Apple Gateway
- 80. 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 --
- 81. Key Terms & Concepts For Review (Chapter 3) AOL Competitive Analysis Chief Information Officer (CIO) Competitive Intelligence (CI) Chief Technology Officer (CTO) Competitive Profile Matrix (CPM) Competitive Advantage Decruiting
- 82. Key Terms & Concepts For Review (Chapter 3) Director of Competitive Analysis External Factor Evaluation Matrix (EFE) Downsizing External Forces Environmental Scanning Industry Analysis External Audit Industrial Organizational (I/O)
- 83. Key Terms & Concepts For Review (Chapter 3) Information Technology (IT) Lifecare Facilities Internet Porter’s Five-Forces Model Learning from the Partner Rightsizing Linear Regression World Wide Web
- 84. Key Terms & Concepts For Review (Chapter 3) Tax Harmonization Foreign Direct Investment