The External Assessment

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Chapter 3

• The External Assessment

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External Assessment

• If you're not faster than your competitor, youre
  in a tenuous position, and if youre only half as
  fast, youre terminal.
• George Salk

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External Strategic-Management Audit

• External audit
• Focuses on identifying evaluating events beyond
  the immediate control of the firm such as

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• Increased foreign competition
• Population shifts
• Demographics (e.g., aging population)
• Information technology

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• External audit reveals
• Key opportunities
• Key threats
• Managers then formulate strategies
• Take advantage of opportunities
• Avoid/reduce impact of threats

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Key External Forces

• Five (5) broad categories
• Economic forces
• Social, cultural, demographic, environmental
  forces
• Political, governmental, legal forces
• Technological forces
• Competitive forces

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Process 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

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• Key External Factors
• Vary over time
• Vary by industry

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• Important to achieving long-term objectives
• Measurable
• Applicable to all competing firms
• Hierarchical

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Examples of Key External Factors

• Market share
• Breadth of competing products
• World economies
• Proprietary key account advantages
• Price competitiveness
• Technological advancements
• Interest rates

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Monitor 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

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• 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

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• Price fluctuations
• Exportation of labor capital
• Monetary policies
• Fiscal policies
• Tax rates
• ECC policies
• OPEC policies
• LDC policies

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Social Environmental Forces

• Social, cultural, demographic, and environmental
  changes
• Major impact on
• Products
• Services
• Markets
• Customers

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• World population gt 6 billion
• U.S. population lt 300 million
• Great potential for domestic production expansion
  to other markets
• Domestic only is a risky strategy

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Key social, cultural, demographic,
environmental variables

• Childbearing rates
• Number of special-interest groups
• Number of marriages
• Number of divorces
• Number of births
• Number of deaths
• Immigration emigration rates

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• Life expectancy rates
• Per capita income
• Attitudes toward business
• Average disposable income
• Buying habits
• Ethical concerns
• Attitudes toward saving

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• Racial equality
• Average level of education
• Government regulation
• Attitudes toward customer service
• Attitudes toward product quality
• Energy conservation
• Social responsibility

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• Value placed on leisure time
• Recycling
• Waste management
• Air water pollution
• Ozone depletion
• Endangered species

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Political, Govt., Legal Forces

• Government Regulation
• Key opportunities key threats
• Antitrust legislation (Microsoft)
• Tax rates
• Lobbying efforts
• Patent laws

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Increasing Global Interdependence

• Impact of political variables
• Formulation of strategies
• Implementation of strategies
• Strategists in a global economy
• Forecast political climates
• Legalistic skills
• Diverse world cultures

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Globalization of Industry

• Worldwide trend toward similar consumption
  patterns
• Global buyers sellers
• E-commerce
• Instant transmission of money information
  across continents

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• 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

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• Environmental protection laws
• Equal employment legislation
• Level of government subsidies
• Antitrust legislation/enforcement
• Sino-American relationships
• Russian-American relationships
• European-American relationships

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• 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

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Technological Forces

• Technological Change
• Dramatic effect on business
• Fiber optics
• Biometrics
• EFT
• Computer engineering
• Superconductivity advancements

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Internet impact on opportunities threats

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

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• Altering economies of scale
• Changing entry barriers
• Redefining relationships
• Industries suppliers, creditors, customers, and
  competitors

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Competitive Forces

• External Audit Competing Firms
• Identifying rival firms
• Strengths
• Weaknesses
• Capabilities
• Opportunities
• Threats
• Objectives
• Strategies

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Competitor Information

• Sources
• Moodys Manuals
• Standard Corporation Descriptions
• Value Line Investment Surveys
• Duns Business Rankings
• Standard Poors Industry Surveys
• Industry Week
• Forbes, Fortune, Business Week

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Most competitive firms in America

• Seven Characteristics
• Market share matters
• Understand 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

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Competitive Analysis Porters Five-Forces Model
Potential development of substitute products
Rivalry among competing firms
Bargaining power of suppliers
Bargaining power of consumers
Potential entry of new competitors
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Global Challenge Differences U.S. and MNCs

• Affect strategic management
• Language
• Culture
• Politics
• Economy
• Government interference
• Labor relations
• Trade barriers

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Industry Analysis (EFE)

• External Factor Evaluation Matrix
• Summarize evaluate

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• Total weighted score of 4.0
• Organization response is outstanding to threats
  weaknesses
• Total weighted score of 1.0
• Firms strategies not capitalizing on
  opportunities or avoiding threats

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• 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.

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

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Industry Analysis (CPM)

• Competitive Profile Matrix
• Identifies firms major competitors and their
  strengths weaknesses in relation to a sample
  firms strategic position

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(CPM) Procter
Avon LOreal Gamble