______________________________________________________Strategic Management

The External Assessment Chapter Outline

The Nature of the External Audit Economics Forces Social, Cultural, Demographic & Environmental Forces Political, Governmental, and Legal Forces Technological Forces Competitive Forces Porters Five-Forces Model Sources of External Information Forecasting Tools & Techniques The External Factor Evaluation (EFE) Matrix Competitive Profile Matrix (CPM)

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The Nature of the External Audit

Purpose of External Audit

Opportunities Threats

Key External Forces Economic forces Social, cultural, demographic & environmental forces Political, governmental & legal forces Technological forces Competitive forces Key External Forces & the Organization
Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products Services

Key External Forces

Opportunities & Threats

_________________________________________________________Facilitator by: Shahid Gul

______________________________________________________Strategic Management
External Audit Gather competitive intelligence Social Cultural Demographic Environmental Economic Political, legal governmental Technological External Audit Sources of Information Internet Libraries Suppliers Distributors Customers Competition Performing External Audit Key Factors Vary over time Vary by industry Performing External Audit -- Variables Market share Breadth of competing products World economies Foreign affiliates Price competitiveness Technological advancements Interest rates Pollution abatement Political, Government & Legal Forces Government Regulation (Key opportunities & threats) Tax rates Lobbying efforts Patent laws Key Political, Governmental, & Legal Variables Regulation/deregulation Tax law changes Special tariffs Voter participation rates Number of patents Changes in patent laws Environmental protection laws Equal employment legislation

_________________________________________________________Facilitator by: Shahid Gul

______________________________________________________Strategic Management
Government subsidies Global relationships Import/export regulations Political conditions

Technological Forces Internet Communications Technology-based issues: - Essential for nearly every strategic decision Competitive Forces: Collection & evaluation of data on competitors is essential for successful strategy formulation Identifying Rival Firms Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies Key Questions Concerning Competitors Their strengths Their weaknesses Their objectives and strategies Their responses to external variables Their vulnerability to our alternative strategies Our vulnerability to strategic counterattack Our product/service positioning Entry and exit of firms in the industry Key factors for our current position in industry Sales/profit rankings of competitors over time Nature of supplier & distributor relationships The threat of substitute products/services Should we keep our strategies secret from employees and stakeholders? Sources of Corporate Information Moodys Manuals Standard Corporation Descriptions Value Line Investment Surveys Duns Business Rankings Standard & Poors Industry Surveys Industry Week Forbes, Fortune, Business Week

_________________________________________________________Facilitator by: Shahid Gul

______________________________________________________Strategic Management
Porters Five-Forces Model of Competition
Potential development of substitute products

Bargaining power of suppliers

Rivalry among competing firms

Bargaining power of consumers

Potential entry of new competitors

1. Rivalry among Competing Firms Most powerful of the five forces Focus on competitive advantage of strategies 2. Potential Entry of New Competitors Barriers to entry are important Quality, pricing, and marketing can overcome barriers 3. Potential Development of Substitute Products Pressures increase when consumers switching costs decrease Firms plans for increased capacity & market penetration 4. Bargaining Power of Suppliers Large number of suppliers & few substitutes affects intensity of competition Backward integration can gain control or ownership of suppliers 5. Bargaining Power of Consumers Customers concentrated or buy in volume affects intensity of competition Consumer power is higher where products are standard or undifferentiated Industry Analysis: The External Factor Evaluation (EFE) Matrix Summarize & Evaluate

Economic Social Cultural

Demographic Environmental Political

Governmental Technological Competitive

_________________________________________________________Facilitator by: Shahid Gul

______________________________________________________Strategic Management

The External Factor Evaluation (EFE) Matrix EFE Gateway Computers (2003)
S/No. Key External Factor Opportunities Global PC market expected to grow 20% in 2004 Cost of PC component parts expected to decrease 10% - 2004 Internet use growing rapidly China entered WTO; lowered taxes for importing PCs The average income for PC worker has declined from $40K/yr to $30k/yr Modernization of business firms and government agencies U.S. (& world) economies recovering 30% of Chinese population can afford a PC; only 10% of homes have a PC Threats Intense rivalry in industry Severe price cutting in PC industry Different countries have different regs and infrastructure for PCs Palm & PDA becoming substitutes Demand exceeds supply of experienced PC workers Birth rate in U.S. declining annually U.s. consumers and businesses delaying purchase of PCs PC firms diversifying into consumer electronics Weight Rating Weighted Score

1 2 3 4 5 6 7 8

0.10 0.10 0.05 0.05 0.05 0.05 0.05 0.05 0.50 0.10 0.10 0.05 0.05 0.05 0.05 0.05 0.05 0.50 1.00

3 3 2 1 3 2 3 1

0.30 0.30 0.10 0.05 0.15 0.10 0.15 0.05 1.20 0.10 0.20 0.05 0.15 0.20 0.15 0.10 0.15 1.10 2.30

1 2 3 4 5 6 7 8

1 2 1 3 4 3 2 3

Total

_________________________________________________________Facilitator by: Shahid Gul

______________________________________________________Strategic Management Industry Analysis: Competitive Profile Matrix (CPM) Identifies firms major competitors and their strengths & weaknesses in relation to a sample firms strategic positions Competitive Profile Matrix (CPM)
Gateway Wt'd Rating Score 3 2 2 3 3 3 3 3 3 3 3 4 2 0.45 0.16 0.20 0.24 0.06 0.30 0.45 0.15 0.12 0.30 0.30 0.08 0.02 2.83 Apple Wt'd Rating Score 2 2 3 4 3 2 2 3 3 3 2 1 4 0.30 0.16 0.30 0.32 0.06 0.20 0.30 0.15 0.12 0.30 0.20 0.02 0.04 2.47 Dell Rating 4 4 3 3 4 3 4 3 3 3 4 3 2 Wt'd Score 0.60 0.32 0.30 0.24 0.08 0.30 0.60 0.15 0.12 0.30 0.40 0.06 0.02 3.49

Wt Market share Inventory sys Fin position Prod. Quality Cons. Loyalty Sales Distr Global Exp. Org. Structure Prod. Capacity E-commerce Customer Serv Price competitive Mgt. experience Total 0.15 0.08 0.10 0.08 0.02 0.10 0.15 0.05 0.04 0.10 0.10 0.02 0.01 1.00

_________________________________________________________Facilitator by: Shahid Gul