1. Chapter 3 The External Assessment

2. Key External Forces Technological Economic Social Competitive Cultural
Legal
Political
Governmental
Demographic
Environmental
©1999 Prentice Hall

3. External Strategic Management Audit
Also called:
Environmental scanning
Industry analysis

4. External Strategic Management Audit
External Audit:
Identification and evaluation of trends and events beyond control of single firm
Examples:
Increased foreign competition
Populations shifts
Aging society
Information technology
Computer revolution

5. Nature of External Audit
Purpose:
Development of:
Opportunities
Threats to be avoided

6. Importance of External Environment on Firm Behavior
Changes in the External Environment
Changes in Consumer Demand
Changes in the Products and Services a Firm Offers
©1999 Prentice Hall

7. Relationship Between Key External Forces and an Organization
Competitors
Suppliers
Creditors
Customers
Employees
Communities
Managers
Stockholders
Labor unions
Governments
Trade associations
Special interest groups
Products
Services
Markets
Natural environment
Economic Forces
Social, cultural, demographic, and environmental forces
Technological forces
Competitive forces
AN ORGANIZATION’S OPPORTUNITIES AND THREATS
©1999 Prentice Hall

8. Economic Forces
Examples include interest rates, tax rates, inflation rates, consumption patterns, value of the dollar, etc.
What opportunities or threats might these provide? A

9. Social, Cultural, Demographic, and Environmental Forces
Examples include population, race, age, marriage/divorce rates, buying habits, ethical concerns, gender roles, social responsibility, pollution concerns, etc.
Affects the way we live, work, produce and consume.
Potential threats and opportunities?

10. Political, Governmental and Legal Forces
Government regulates, deregulates, subsidizes, employs and consumes.
Examples include tax, antitrust and patent legislation, lobbying activities, import-export regulations, fiscal and monetary policy, etc.
Any threats or opportunities?

11. Technological Forces Include advances and applications in technology.
Threats or opportunities resulting from these forces?

12. Competitive Forces
Understanding one’s competitors is a must.
Competitive intelligence
Systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’ own goals.
helps understand competition
helps develop strategy

13. Competitive Analysis: Porter’s 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

14. Key Questions About Competitors
Who are our
competitors?
What are
Competitors’
Objectives?
Where are our
competitors
located?
What are
Competitors’
Strengths?
What are
Competitors’
Weaknesses?
How Vulnerable
are we to our
Competitors’
Strategies?
©1999 Prentice Hall

15. Sources of Information About the Environment
Magazines, trade journals and newspapers
On-line databases and Web sites, libraries
Suppliers, distributors, salespeople, customers, competitors
Table 3-7 on pages could be very helpful

16. Forecasting Quantitative Qualitative regression models
trend extrapolation
Qualitative
salesforce estimates
juries of executive opinion
market research
scenario forecasts
brainstorming

17. External Factor Evaluation (EFE) Matrix
Allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information. Includes:
Factors (opportunities and threats)
Weights (indicates the factor’s importance to success in the firm’s industry)
Ratings (of how effectively the firm’s current strategy responds to the factor)

18. Competitive Profile Matrix (CPM)
Identifies a firm’s major competitors and their strengths and weaknesses in relation to a sample firm’s strategic positions. Includes:
Critical success factors (for competing)
Weights (relative importance of factor to success in industry)
Ratings (company’s strength/weakness regarding each success factor)