The%20External%20Assessment

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The External Assessment

• Strategic Management

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The External Assessment

• Prediction is very difficult, especially about
  the future.
• -- Neils Bohr

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External Strategic Management Audit

• Also called
• Environmental scanning
• Industry analysis

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External Strategic Management Audit

• External Audit
• Identification and evaluation of trends and
  events beyond control of single firm
• Increased foreign competition
• Populations shifts
• Aging society
• Information technology
• Computer revolution

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Nature of External Audit

• Purpose
• Development of Finite List
• Opportunities
• Threats to be avoided

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Key External Forces

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

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Relationships Between Key External Forces and an
Organization
Competitors Suppliers Distributors Creditors Custo
mers Employees Communities Managers Stockholders L
abor Unions Special Interest Groups Products Servi
ces
Key External Forces
Opportunities Threats
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Performing an External Audit

• Gather competitive intelligence on factors
• Social
• Cultural
• Demographic
• Environmental
• Economic
• Political, legal, governmental
• technological

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Performing an External Audit

• Sources of information include
• Internet
• Libraries (corporate, university, public)
• Suppliers
• Distributors
• Customers
• Competition

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Performing an External Audit

• Key factors
• Vary over time
• Vary by industry

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Performing an External Audit

• Variables include
• Market share
• Breadth of competing products
• World economies
• Foreign affiliates
• Proprietary account advantages
• Price competitiveness
• Technological advancements
• Interest rates
• Pollution abatement

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Key External Factors

• Key External Factors
• Oriented to long-term annual objectives
• Measurable
• Applicable to all competing firms
• Hierarchical
• Overall company
• Divisional or functional areas

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Economic Forces

• 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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Monitor Key Economic Variables

• 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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Monitor Key Economic Variables

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

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Social, Cultural, Demographic Environmental
Forces

• Major impact on
• Products
• Services
• Markets
• customers

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Social, Cultural, Demographic Environmental
Forces

• Consider
• United States
• Population growing older
• Less Caucasian
• Gap between rich and poor widening
• 65 and older will rise to 18.5 of population by
  2025
• By 2075, no racial or ethnic majority

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Social, Cultural, Demographic Environmental
Forces

• 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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Social, Cultural, Demographic Environmental
Forces

• NAFTA
• U.S. exports to Mexico increased 170
• 2000, U.S. trade deficits
• Mexico -- 25 billion
• China -- 84 billion
• Japan -- 81 billion
• 2001 Recession (U.S. and World)
• gt 60,000 laid off along Mexico Border with U.S.

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Social, Cultural, Demographic Environmental
Forces

• Trends for the 2000s
• More educated consumers
• Population aging
• Minorities more influential
• Local rather than federal solutions
• Fixation with youth decreasing
• Hispanics increase to 15 by 2021
• African Americans increase to 14 by 2021

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Social, Cultural, Demographic Environmental
Forces

• Key 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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Monitor Key Variables

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

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Monitor Key Variables

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

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Monitor Key Variables

• 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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Political, Govt., Legal Forces

• Increasing Global Interdependence
• Impact of political variables
• Formulation of Strategies
• Implementation of Strategies

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Political, Govt., Legal Forces

• Increasing Global Interdependence
• Strategists in a global economy
• Forecast political climates
• Legalistic skills
• Diverse world cultures

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Political, Govt., Legal Forces

• 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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Political, Govt., Legal Forces

• 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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Key Political, Government Legal Variables

• 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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Key Political, Government Legal Variables

• 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

• Revolutionary technological forces
• Profound impact on organizations
• Internet
• Semiconductors
• XML technologies
• UWB communications

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Technological Forces

• Internet changes the nature of opportunities and
  threats --
• Alters life cycle of products
• Increases speed of distribution
• Creates new products and services
• Eases limitations of geographic markets
• Alters economies of scale
• Changes entry barriers

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Technological Forces

• Capitalizing on Information Technology (IT)
• Chief Information Officer (CIO)
• Chief Technology Officer (CTO)

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Technological Forces

• Technology-based issues
• Underlie nearly every strategic decision

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Competitive Forces

• Collection and evaluation of information on
  competitors is essential for successful strategy
  formulation

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Competitive Forces

• Competition in virtually all industries can be
  described as intense.

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Competitive Forces

• Identifying rival firms
• Strengths
• Weaknesses
• Capabilities
• Opportunities
• Threats
• Objectives
• Strategies

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Competitive Forces

• Key Questions About Competitors
• Their strengths
• Their weaknesses
• Their objectives and strategies
• Their responses to all external variables (e.g.
  social, political, demographic, etc.)
• Their vulnerability to our alternative strategies

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Competitive Forces

• Key Questions About Competitors
• Our vulnerability to successful strategic
  counterattack
• Our product and service positioning relative to
  competitors
• Entry and exit of firms in the industry
• Key factors for our current position in industry

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Competitive Forces

• Key Questions About Competitors
• Sales and profit rankings of competitors over
  time
• Nature of supplier and distributor relationships
• The threat of substitute products or services

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Competitive Forces

• 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

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Competitive Forces

• 7 Characteristics of most competitive U.S. firms
• Market share matters
• Understand what business you are in
• Broke or not, fix it
• Innovate or evaporate

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Competitive Forces

• 7 Characteristics of most competitive U.S. firms
• Acquisition is essential to growth
• People make a difference
• No substitute for quality

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Competitive Forces

• Competitive Intelligence Programs
• Systematic and ethical process for gathering and
  analyzing information about the competitions
  activities and general business trends to further
  a business own goals.

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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

• International Challenge faced by U.S. firms
• How to gain and maintain exports to other nations
• How to defend domestic markets against imported
  goods

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Industry Analysis (EFE)

• External Factor Evaluation Matrix
• Summarize evaluate

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Industry Analysis (EFE)

• 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

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Industry Analysis (EFE)

• Five-step process
• Assign 1-4 rating to each factor
• Firms current strategies response to the factor
• Multiply each factors weight by its rating
• Produces a weighted score

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Industry Analysis (EFE)

• Five-step process
• Sum the weighted scores for each
• Determines the total weighted score for the
  organization.
• Highest possible weighted score for the
  organization is 4.0 the lowest, 1.0. Average
  2.5

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Industry Analysis (EFE)

• 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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Industry Analysis (EFE)

• 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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Industry Analysis (EFE)

• 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
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Key Terms

• America Online
• Chief Information Officer (CIO)
• Chief Technology Officer (CTO)
• Competitive advantages
• Competitive analysis
• Competitive intelligence (CI)
• Competitive Profile Matrix (CPM)

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Key Terms

• Critical success factors
• Cyberspace
• Decruiting
• Director of competitive analysis
• Downsizing
• Econometric models
• Environmental scanning
• External audit
• External Factor Evaluation (EFE) Matrix

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Key Terms

• External forces
• Industry analysis
• Information Technology (IT)
• Industrial policies
• Internet learning from the partner
• Linear regression

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Key Terms

• Porters Five-Forces Model
• Netscape
• On-Line databases
• Rightsizing
• Trend extrapolation
• World Wide Web (www)