chap 03 david
TRANSCRIPT
© 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 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
© 2001 Prentice Hall
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—
© 2001 Prentice Hall
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—
© 2001 Prentice Hall
Ch. 3-5
External Assessment (Cont’d)External Assessment (Cont’d)
External Strategic-Management AuditExternal Strategic-Management 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 & evaluatingevents 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
© 2001 Prentice Hall
Ch. 3-9
External Assessment External Assessment (Cont’d)(Cont’d)
External AuditExternal Audit
Aimed at identifying key variables that offer actionableactionable responses
© 2001 Prentice Hall
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)
Key External Forces
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 ForcesMonitor 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 Social & Environmental Forces Forces
• Social, cultural, demographic, and environmental changes:
Major impact on:ProductsServicesMarketsCustomers
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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
© 2001 Prentice Hall
Ch. 3-22
Social & Environmental Social & Environmental Forces Forces (Cont’d)(Cont’d)
53.3346 m30 mOceania28.52392 m305 mNorth America16.08729 m628 mEurope60.52809 m504 mLatin America
140.321.8 b749 mAfrica47.225.3 b3.6 bAsia% %
IncreaseIncrease2050205019981998CountryCountry
© 2001 Prentice Hall
Ch. 3-23
Social & Environmental Social & Environmental Forces Forces (Cont’d)(Cont’d)
E-commerce PerspectiveE-commerce Perspective
Question:“Is the Internet Revolution Bypassing Poor, Minorities?”
Answer:Yes!
© 2001 Prentice Hall
Ch. 3-24
Social & Environmental Social & Environmental Forces 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 Social & Environmental Forces 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 Social & Environmental Forces 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 Social & Environmental Forces 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 Social & Environmental Forces 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 Social & Environmental Forces 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 Political, Govt., & Legal Forces Forces
Government RegulationGovernment Regulation
• Key opportunities & key threats
Antitrust legislation (Microsoft)Tax ratesLobbying effortsPatent laws
© 2001 Prentice Hall
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
© 2001 Prentice Hall
Ch. 3-32
Political, Govt., & Legal Political, Govt., & Legal Forces Forces (Cont’d)(Cont’d) Increasing Global Increasing Global
InterdependenceInterdependence
• Strategists in a global economyForecast political climatesLegalistic skillsDiverse world cultures
© 2001 Prentice Hall
Ch. 3-33
Political, Govt., & Legal Political, Govt., & Legal Forces 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 Political, Govt., & Legal Forces 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 Political, Govt., & Legal Forces 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 Political, Govt., & Legal Forces 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 businessFiber opticsBiometricsEFTComputer engineeringSuperconductivity advancements
© 2001 Prentice Hall
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
© 2001 Prentice Hall
Ch. 3-39
Technological Forces Technological Forces (Cont’d)(Cont’d)
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
© 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 firmsStrengthsWeaknessesCapabilitiesOpportunitiesThreatsObjectivesStrategies
© 2001 Prentice Hall
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
© 2001 Prentice Hall
Ch. 3-43
Competitive Forces Competitive Forces (Cont’d)(Cont’d)
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
© 2001 Prentice Hall
Ch. 3-44
Competitive Forces Competitive Forces (Cont’d)(Cont’d)
Most competitive firms in Most competitive firms in America America (Cont’d)(Cont’d)
• Seven CharacteristicsAcquisition is essential to growth
People make a differenceNo substitute for quality
© 2001 Prentice Hall
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
© 2001 Prentice Hall
Ch. 3-46
Global Challenge Global Challenge Differences U.S. and MNCs Differences U.S. and MNCs
• Affect strategic management:LanguageCulturePoliticsEconomyGovernment interferenceLabor relationsTrade barriers
© 2001 Prentice Hall
Ch. 3-47
Industry Analysis (EFE)Industry Analysis (EFE)External Factor Evaluation MatrixExternal Factor Evaluation Matrix
Summarize & evaluate:
CompetitivePoliticalCultural
Technological
EnvironmentalSocial
Governmental
DemographicEconomic
© 2001 Prentice Hall
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
© 2001 Prentice Hall
Ch. 3-49
Industry Analysis (EFE) Industry Analysis (EFE) (Cont’d)(Cont’d)
Five-step process:Five-step process:• Assign 1-4 rating to each factor
Firm’s current strategies response to the factor
• Multiply each factor’s weight by its ratingProduces a weighted score
© 2001 Prentice Hall
Ch. 3-50
Industry Analysis (EFE) Industry Analysis (EFE) (Cont’d)(Cont’d)
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
© 2001 Prentice Hall
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
© 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
2.803.25
3.15
1.00Total0.1530.2
040.0
510.05Market Share
0.4020.40
20.80
40.20Global Expansion0.2020.4
040.4
040.10Customer Loyalty
0.4530.45
30.60
40.15Financial Position0.3030.3
030.4
040.10Management
0.4040.30
30.30
30.10Price Competition0.3030.4
040.4
040.10Product Quality
0.6030.80
40.20
10.20Advertising
ScoreRating
Score
Rating
Score
Rating
Weight
Critical 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 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)