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© 2001 Prentice Hall Ch. 3-1 Strategic Management Concepts & Cases Strategic Management Concepts & Cases 8 th edition Fred R. David Chapter 3: The External.

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Presentation on theme: "© 2001 Prentice Hall Ch. 3-1 Strategic Management Concepts & Cases Strategic Management Concepts & Cases 8 th edition Fred R. David Chapter 3: The External."— Presentation transcript:

1 © 2001 Prentice Hall Ch. 3-1 Strategic Management Concepts & Cases Strategic Management Concepts & Cases 8 th edition Fred R. David Chapter 3: The External Assessment PowerPoint Slides By: Anthony F. Chelte Western New England College

2 © 2001 Prentice Hall Ch. 3-2 Comprehensive Strategic Management Model Vision & Mission Statements Chapter 2 External Audit Chapter 3 Internal Audit Chapter 4 Long-Term Objectives Chapter 5 Generate, Evaluate, Select Strategies Chapter 6 Implement Strategies: Mgmt Issues Chapter 7 Implement Strategies: Marketing, Fin/Acct, R&D, CIS Chapter 8 Measure & Evaluate Performance Chapter 9

3 © 2001 Prentice Hall Ch. 3-3 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

4 © 2001 Prentice Hall Ch. 3-4 External Assessment (Contd) The idea is to concentrate our strength against our competitors relative weakness. Bruce Henderson

5 © 2001 Prentice Hall Ch. 3-5 External Assessment (Contd) External Strategic-Management Audit Industry analysis Environmental scanning

6 © 2001 Prentice Hall Ch. 3-6 External Assessment (Contd) External audit: Focuses on identifying & evaluatingevents beyond the immediate control of the firm

7 © 2001 Prentice Hall Ch. 3-7 External Assessment (Contd) External audit focuses on External audit focuses on : Increased foreign competition Population shifts Demographics (e.g., aging population) Information technology

8 © 2001 Prentice Hall Ch. 3-8 External Assessment (Contd) External audit reveals External audit reveals: Key opportunities Key threats Managers then formulate strategies: Take advantage of opportunities Avoid/reduce impact of threats

9 © 2001 Prentice Hall Ch. 3-9 External Assessment (Contd) External Audit actionable Aimed at identifying key variables that offer actionable responses

10 © 2001 Prentice Hall Ch. 3-10 External Assessment (Contd) Key External Forces Five (5) broad categories: Economic forces Social, cultural, demographic, & environmental forces

11 © 2001 Prentice Hall Ch. 3-11 External Assessment (Contd) Key External Forces (Contd) Five (5) broad categories: Political, governmental, & legal forces Technological forces Competitive forces

12 © 2001 Prentice Hall Ch. 3-12 External Assessment (Contd) Key External Forces Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products Services Opportunities & Threats

13 © 2001 Prentice Hall Ch. 3-13 External Assessment (Contd) Process of External Audit 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

14 © 2001 Prentice Hall Ch. 3-14 External Assessment (Contd) Key External Factors Key External Factors: Vary over time & Vary by industry

15 © 2001 Prentice Hall Ch. 3-15 External Assessment (Contd) Key External Factors : Important to achieving long-term objectives Measurable Applicable to all competing firms Hierarchical

16 © 2001 Prentice Hall Ch. 3-16 External Assessment (Contd) Examples of Key External Factors Examples of Key External Factors : Market share Breadth of competing products World economies Proprietary & key account advantages Price competitiveness Technological advancements Interest rates

17 © 2001 Prentice Hall Ch. 3-17 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

18 © 2001 Prentice Hall Ch. 3-18 Economic Forces (Contd) Monitor Key Economic Variables: (Contd) 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

19 © 2001 Prentice Hall Ch. 3-19 Economic Forces (Contd) Monitor Key Economic Variables: (Contd) Price fluctuations Exportation of labor & capital Monetary policies Fiscal policies Tax rates ECC policies OPEC policies LDC policies

20 © 2001 Prentice Hall Ch. 3-20 Social & Environmental Forces Social, cultural, demographic, and environmental changes: Major impact on: Products Services Markets Customers

21 © 2001 Prentice Hall Ch. 3-21 Social & Environmental Forces (Contd) World population > 6 billion U.S. population < 300 million Great potential for domestic production expansion to other markets Domestic only is a risky strategy

22 © 2001 Prentice Hall Ch. 3-22 Social & Environmental Forces (Contd) 53.3346 m30 mOceania 28.52392 m305 mNorth America 16.08729 m628 mEurope 60.52809 m504 mLatin America 140.321.8 b749 mAfrica 47.225.3 b3.6 bAsia % Increase 20501998Country

23 © 2001 Prentice Hall Ch. 3-23 Social & Environmental Forces (Contd) E-commerce Perspective Question: Is the Internet Revolution Bypassing Poor, Minorities? Answer: Yes!

24 © 2001 Prentice Hall Ch. 3-24 Social & Environmental Forces (Contd) 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

25 © 2001 Prentice Hall Ch. 3-25 Social & Environmental Forces (Contd) 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

26 © 2001 Prentice Hall Ch. 3-26 Social & Environmental Forces (Contd) Key social, cultural, demographic, & environmental variables: 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

27 © 2001 Prentice Hall Ch. 3-27 Social & Environmental Forces (Contd) Key social, cultural, demographic, & environmental variables: (Contd) Life expectancy rates Per capita income Attitudes toward business Average disposable income Buying habits Ethical concerns Attitudes toward saving

28 © 2001 Prentice Hall Ch. 3-28 Social & Environmental Forces (Contd) Key social, cultural, demographic, & environmental variables: (Contd) Racial equality Average level of education Government regulation Attitudes toward customer service Attitudes toward product quality Energy conservation Social responsibility

29 © 2001 Prentice Hall Ch. 3-29 Social & Environmental Forces (Contd) Key social, cultural, demographic, & environmental variables: (Contd) Value placed on leisure time Recycling Waste management Air & water pollution Ozone depletion Endangered species

30 © 2001 Prentice Hall Ch. 3-30 Political, Govt., & Legal Forces Government Regulation Key opportunities & key threats Antitrust legislation (Microsoft) Tax rates Lobbying efforts Patent laws

31 © 2001 Prentice Hall Ch. 3-31 Political, Govt., & Legal Forces (Contd) Increasing Global Interdependence Impact of political variables Formulation of strategies Implementation of strategies

32 © 2001 Prentice Hall Ch. 3-32 Political, Govt., & Legal Forces (Contd) Increasing Global Interdependence Strategists in a global economy Forecast political climates Legalistic skills Diverse world cultures

33 © 2001 Prentice Hall Ch. 3-33 Political, Govt., & Legal Forces (Contd) Globalization of Industry Worldwide trend toward similar consumption patterns Global buyers & sellers E-commerce Instant transmission of money & information across continents

34 © 2001 Prentice Hall Ch. 3-34 Political, Govt., & Legal Forces (Contd) 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

35 © 2001 Prentice Hall Ch. 3-35 Political, Govt., & Legal Forces (Contd) Key Political, govt., Key Political, govt., & legal variables: (Contd) & legal variables: (Contd) Environmental protection laws Equal employment legislation Level of government subsidies Antitrust legislation/enforcement Sino-American relationships Russian-American relationships European-American relationships

36 © 2001 Prentice Hall Ch. 3-36 Political, Govt., & Legal Forces (Contd) Key Political, govt., Key Political, govt., & legal variables: (Contd) & legal variables: (Contd) 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

37 © 2001 Prentice Hall Ch. 3-37 Technological Forces Technological Change Dramatic effect on business Fiber optics Biometrics EFT Computer engineering Superconductivity advancements

38 © 2001 Prentice Hall Ch. 3-38 Technological Forces (Contd) Internet impact on opportunities & threats: Altering life cycles of products Increasing speed of distribution Creating new products & services Erasing limitations of traditional geographic markets

39 © 2001 Prentice Hall Ch. 3-39 Technological Forces (Contd) Internet impact on opportunities & threats: (Contd) Altering economies of scale Changing entry barriers Redefining relationships Industries & suppliers, creditors, customers, and competitors

40 © 2001 Prentice Hall Ch. 3-40 Technological Forces (Contd) Capitalizing on Information Technology (IT) Chief Information Officer (CIO) Chief Technology Officer (CTO)

41 © 2001 Prentice Hall Ch. 3-41 Competitive Forces External Audit & Competing Firms Identifying rival firms Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies

42 © 2001 Prentice Hall Ch. 3-42 Competitive Forces (Contd) 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

43 © 2001 Prentice Hall Ch. 3-43 Competitive Forces (Contd) Most competitive firms in America Seven Characteristics Market share matters Understand what business you are in Broke or not, fix it Innovate or evaporate

44 © 2001 Prentice Hall Ch. 3-44 Competitive Forces (Contd) Most competitive firms in America (Contd) Seven Characteristics Acquisition is essential to growth People make a difference No substitute for quality

45 © 2001 Prentice Hall Ch. 3-45 Competitive Analysis: Porters Five-Forces Model Potential development of substitute products Rivalry among competing firms Bargaining power of suppliers Potential entry of new competitors Bargaining power of consumers

46 © 2001 Prentice Hall Ch. 3-46 Global Challenge Differences U.S. and MNCs Affect strategic management: Language Culture Politics Economy Government interference Labor relations Trade barriers

47 © 2001 Prentice Hall Ch. 3-47 Industry Analysis (EFE) External Factor Evaluation Matrix Summarize & evaluate: CompetitivePoliticalCultural TechnologicalEnvironmentalSocial GovernmentalDemographic Economic

48 © 2001 Prentice Hall Ch. 3-48 Industry Analysis (EFE) (Contd) 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

49 © 2001 Prentice Hall Ch. 3-49 Industry Analysis (EFE) (Contd) 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

50 © 2001 Prentice Hall Ch. 3-50 Industry Analysis (EFE) (Contd) 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

51 © 2001 Prentice Hall Ch. 3-51.201 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 Astronomical Internet growth.153.05 Increased demand.151 Global markets untapped Weighted score RatingWeight USTKey External Factors Opportunities

52 © 2001 Prentice Hall Ch. 3-52 Industry Analysis (EFE) (Contd) 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

53 © 2001 Prentice Hall Ch. 3-53 Industry Analysis (EFE) (Contd) 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.

54 © 2001 Prentice Hall Ch. 3-54 Industry Analysis (EFE) (Contd) Important Understanding of the factors used in the EFE Matrix is more important than the actual weights and ratings assigned.

55 © 2001 Prentice Hall Ch. 3-55 Industry Analysis (CPM) Competitive Profile Matrix Identifies firms major competitors and their strengths & weaknesses in relation to a sample firms strategic position

56 © 2001 Prentice Hall Ch. 3-56 (CPM) Procter Avon LOreal & Gamble 2.803.253.151.00 Total 0.1530.20 4 0.05 1 Market Share 0.402 2 0.80 4 0.20 Global Expansion 0.2020.40 4 4 0.10 Customer Loyalty 0.453 3 0.60 4 0.15 Financial Position 0.303 3 0.40 4 0.10 Management 0.4040.30 3 3 0.10 Price Competition 0.3030.40 4 4 0.10 Product Quality 0.6030.80 4 0.20 1 Advertising ScoreRatingScoreRatingScoreRatingWeight Critical Success Factor

57 © 2001 Prentice Hall Ch. 3-57 Key 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

58 © 2001 Prentice Hall Ch. 3-58 Key Terms & Concepts (Contd) External forces Industry analysis Information Technology (IT) Industrial policies Internet learning from the partner Linear regression Lifecare facilities Porters Five-Forces Model Netscape On-Line databases Rightsizing Trend extrapolation World Wide Web (www)


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