Comprehensive Strategic Management Model External Assessment External Audit Vision & Mission Statements Chapter Chapter 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 It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. Charles Darwin Internal Audit Chapter Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map. Wayne Calloway, Former CEO, PepsiCo Ch - Copyright 007 Prentice Hall Ch - External Strategic-Management Audit Also called: Industry analysis al scanning Key External Forces Competitors Suppliers Distributors Creditors Customers Employees Communities Stockholders Labor Unions Special Interest Groups Products Services Opportunities & s Ch - Ch - External audit reveals: Key opportunities Key threats Managers then formulate strategies: Take advantage of opportunities Avoid/reduce impact of threats Key External Factors: Vary over time & Vary by industry Ch -5 Ch -6
Industrial Organization (I/O) View I/O Perspective Firm Performance Industry Properties -- Industry factors more important than internal factors Performance determined by industry forces Economies of Scale Barriers to market entry Product differentiation Level of competitiveness Ch -7 Ch -8 Performing External Audit External Factors Long-term orientation Measurable Applicable to competing firms External Audit Aimed at identifying key variables that offer actionable responses Hierarchical Ch -9 Ch -0 External al Analysis The external environmental analysis process should be conducted on a continuous basis. This process includes four activities: Identifying early signals of environmental Scanning changes and trends Monitoring Detecting meaning through ongoing observations of environmental changes and trends Developing projections of anticipated outcomes Forecasting based on monitored changes and trends Determining the timing and importance of Assessing environmental changes and trends for firms' strategies and their management Ch - HOW DO YOU DO AN EXTERNAL ANALYSIS? External al Sectors Specific environment External sectors that directly impact decisions and actions by opening up opportunities or threats General environment External sectors that indirectly affect the decisions and actions and may pose opportunities or threats Ch -
HOW DO YOU DO AN EXTERNAL ANALYSIS? An Organization s External Technological Substitute Products Bargaining Power of Suppliers Political-Legal General Industry-Competitors Organization Bargaining Power of Buyers Sociocultural Potential Entrants Current Rivalry Economic Demographic Ch - Porter s Five Forces Model Bargaining Power of Suppliers Suppliers Potential Entrants of New Entrants Industry Competitors Rivalry Among Existing Firms of Substitute Products or Services Substitutes Bargaining Power of Buyers Buyers Ch - Evaluating the Five Forces (from Table -) Current Rivalry among Existing Firms Numerous competitors Equally balanced competitors Industry sales growth slowing High fixed or inventory storage costs No differentiation or no switching costs Large capacity increments required Diverse competitors High strategic risks High exit barriers Few competitors One or a few strong competitors Industry sales growth strong fixed or inventory storage costs Significant differentiation or switching costs Minimal capacity increments required Similar competitors strategic risks Minimal exit barriers Evaluating the Five Forces (from Table -) Potential Entrants No or low economies of scale No other potential cost disadvantages Weak product differentiation Minimal capital requirements Minimal switching costs Open access to distribution channels No government policy protection Significant economies of scale Cost disadvantages from other aspects Strong product differentiation Huge capital requirements Significant switching costs Controlled access to distribution channels Government policy protection Ch -5 Ch -6 Evaluating the Five Forces (from Table -) Bargaining Power of Buyers Buyer purchases large volumes Buyer purchases small volumes Purchases standard or undifferentiated Purchases highly differentiated and unique Buyer faces few switching costs Buyer faces significant switching costs Buyer's profits are low Buyer's profits are strong Buyer can manufacture products Buyer can t manufacture products Industry's products aren't important Industry's products are important to quality of buyer's products to quality of buyer's products Buyers have full information Buyers have limited information Evaluating the Five Forces (from Table -) Bargaining Power of Suppliers Supplying industry has few companies Supplying industry has many companies and is more concentrated and is fragmented Supplier's products don t have substitutes Supplier's products do have substitutes Supplier's product is an important input Supplier's product isn t an important input Supplier's products are differentiated Supplier's products aren't differentiated Significant switching costs Minimal switching costs in supplier's products Supplier has ability to do Supplier doesn't have ability to do what buying industry does what buying industry does Ch -7 Ch -8
General Evaluating the Five Forces (from Table -) Substitute Products There are few good substitutes There are several not-so-good substitutes There are no good substitutes Demographic Sociocultural Economic Political-Legal Technical Sources of External Influence Ch -9 Ch -0 The Role of General Political and Legal Demographic Supplier power Potential competitors Rivalry Substitutes Buyer power Technological Macro-Economic General Economic All the macroeconomic data, current statistics, trends, and changes Interest rates Monetary exchange rates Budget deficit-surplus Trade deficit-surplus Inflation rates GNP or GDP Consumer income, spending, and debt levels Unemployment levels Workforce productivity Doç.Dr.Mustafa Social KILIÇ Ch - Ch - General Demographics Current statistical data and trends in population characteristics Gender Age Income levels Ethnic makeup Education Family composition Geographic location Birth rates Employment status General Sociocultural Country's culture Society's Traditions Values Attitudes Beliefs Tastes Patterns of behavior Ch - Ch -
General Political-Legal Laws Regulations Judicial decisions Political forces General Technical Improvements, advancements, and innovations that create opportunities and threats Communications Computing Transportation Manufacturing Robotics Biotechnology Medicine and medical Telecommunications Consumer electronics Ch -5 Ch -7 External External Issues Matrix Identify likely trends: Societal and task environments Strategic environmental issues Assess probability of trends occurring to High Ascertain likely impact of trends on the corporation to High Ch -8 Ch -9 Issues Matrix External Probable Impact on Corporation External Strategic Factors High Medium Probability of Occurrence Medium High High High Medium High Medium Medium Factors influencing the choice: Personal values of managers Functional experience of managers Success of current strategies Strategic myopia Willingness to reject unfamiliar as well as negative information Ch -0 Ch - 5
Finding Information on the External and Evaluating It To find information look for Specific data Statistics Analyses Trends Predictions Forecasts Inferences Statements made by experts What's happening or predicted to happen in external sectors Evaluate whether this information is good or bad Finding Information on the External and Evaluating It 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 Ch - Ch - Industry Analysis (EFE) External Factor Evaluation Matrix Summarize & evaluate: Five-Step process: Economic Demographic Governmental List key external factors (0-0) Opportunities & threats Social Cultural al Political Technological Competitive Assign weight to each (0 to.0) Sum of all weights =.0 Ch - Ch -5 Five-step process: Five-step process: Assign - rating to each factor Firm s current strategies response to the factor Multiply each factor s weight by its rating Produces a weighted score Sum the weighted scores for each Determines the total weighted score for the organization. Highest possible weighted score for the organization is.0; the lowest,.0. Average =.5 Ch -6 Ch -7 6
UST Key External Factors Opportunities Weight Rating Weighted score Global markets untapped.5.5 Increased demand Astronomical Internet growth Pinkerton leader in discount market More social pressure to quit smoking s.5.0.5.60.0 Total weighted score of.0 = Organization response is outstanding to threats & weaknesses Legislation against the tobacco industry Production limits on tobacco.0.0.5 Total weighted score of.0 = Smokeless market SE region U.S. Bad media exposure from FDA Clinton Administration.0.0.0.0.0 Firm s strategies not capitalizing on opportunities or avoiding threats TOTAL.00.0 Ch -8 Ch -9 UST (in the previous example), has a total weighted score of.0 indicating that the firm is below average in its effort to pursue strategies that capitalize on external opportunities and avoid threats. Important Understanding of the factors used in the EFE Matrix is more important than the actual weights and ratings assigned. Ch -0 Ch - Industry Analysis (CPM) Competitive Forces Competitive Profile Matrix Identifies firm s major competitors and their strengths & weaknesses in relation to a sample firm s strategic position Collection & evaluation of data on competitors is essential for successful strategy formulation Ch - Ch - 7
Competitive Forces Competitive Forces Identifying Rival Firms Competition on virtually all industries can be described as intense. Strengths Weaknesses Capabilities Opportunities s Objectives Strategies Ch - Ch -5 Key Questions Concerning Competitors Key Questions Concerning Competitors (cont d) Their strengths Our vulnerability to strategic counterattack Their weaknesses Our product/service positioning Their objectives and strategies Entry and exit of firms in the industry Their responses to external variables Their vulnerability to our alternative strategies Key factors for our current position in industry Sales/profit rankings of competitors over time Ch -6 Ch -7 Key Questions Concerning Competitors (cont d) Nature of supplier & distributor relationships The threat of substitute products/services Should we keep our strategies secret from employees and stakeholders? Ch -8 (CPM) Critical Success Weight Factor Advertising 0.0 Product Quality 0.0 Price Competition 0.0 Management 0.0 Financial Position 0.5 Customer Loyalty 0.0 Global Expansion 0.0 Market Share 0 Total.00 Procter Avon L Oreal & Gamble Rating Score 0.0 0.0 0.0 0.0 0.60 0.0 0.80 0.5 Rating Score 0.80 0.0 0.0 0.0 0.5 0.0 0.0 0.0.5 Rating Score 0.60 0.0 0.0 0.0 0.5 0.0 0.0 0.5.80 Ch -9 8
Competitive Forces Competitive Forces 7 Characteristics of most Competitive U.S. Firms: 7 Characteristics of most Competitive U.S. Firms:. Market share matters 5. Acquisition is essential to growth. Understand what business you are in 6. People make a difference. Broke or not, fix it 7. No substitute for quality. Innovate or evaporate Ch -5 Ch -5 9