Chapter 3 The External Assessment
External Strategic Management Audit
Identify & Evaluate factors beyond the control of a single firm
Increased foreign competition Population shifts Information technology
Key External Forces & the Organization
Key External Forces
Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products Services
Opportunities & Threats
Performing External Audit
Long-term orientation
External Factors
Measurable Applicable to competing firms Hierarchical
I/O Perspective Firm Performance
Industry Properties
Economies of Scale Barriers to market entry Product differentiation Level of competitiveness
Social, Cultural, Demographic & Environmental Forces
U.S. Facts
Aging population Less Caucasian
Widening gap between rich & poor
2025 = 18.5% population >65 years
2075 = no ethnic or racial majority
Key Social, Cultural, Demographic & Environmental Variables
Childbearing rates
Number of special interest groups
Number of marriages & divorces Number of births & deaths
Immigration & emigration rates
Political, Government & Legal Forces Globalization of Industry
Worldwide trend toward similar consumption patterns Global buyers and sellers E-commerce Technology for instant currency transfers
Competitive Forces
Identifying Rival Firms
Strengths
Weaknesses Capabilities
Opportunities
Threats Objectives Strategies
Competitive Forces
7 Characteristics of most Competitive U.S. Firms:
1. Market share matters 2. Understand what business you are in 3. Broke or not, fix it 4. Innovate or evaporate
Competitive Forces
7 Characteristics of most Competitive U.S. Firms:
5. Acquisition is essential to growth 6. People make a difference 7. No substitute for quality
The Five-Forces Model of Competition
Potential development of substitute products
Bargaining power of suppliers
Rivalry among competing firms
Bargaining power of consumers
Potential entry of new competitors
The Global Challenge
Faced by U.S. Firms --
Gain & maintain exports to other nations
Defend domestic markets against imported goods
Industry Analysis: The External Factor Evaluation (EFE) Matrix Summarize & Evaluate
Economic Social Cultural Demographic Environmental Political Governmental Technological Competitive
EFE Gateway Computers (2003) Key External Factors
Weight Rating Wtd Score
Opportunities
1. Global PC market expected to grow 20% in 2004 0.10 0.10 3 3 0.30 0.30
2. Cost of PC component parts expected to decrease 10% - 2004 3. Internet use growing rapidly
4. China entered WTO; lowered taxes for importing PCs 5. The average income for PC worker has declined from $40K/yr to $30k/yr
0.05
0.10 0.05
2
1 3
0.10
0.10 0.15
EFE Gateway Computers (2003) (contd) Key External Factors
Weight Rating Wtd Score
Opportunities (contd)
6. Modernization of business firms and government agencies
7. U.S. (& world) economies recovering 8. 30% of Chinese population can afford a PC; only 10% of homes have a PC
0.05
0.05
2
3
0.10
0.15
0.05
0.10 0.10
1
1 1
0.05
0.10 0.05
Threats
1. Intense rivalry in industry
EFE Gateway Computers (2003) (contd) Key External Factors
Weight Rating Wtd Score
Threats (contd)
2. Severe price cutting in PC industry
3. Different countries have different regs and infrastructure for PCs 4. Palm & PDA becoming substitutes 5. Demand exceeds supply of experienced PC workers 6. Birth rate in U.S. declining annually
0.10
0.05 0.05 0.05 0.05
2
1 3 4 3
0.20
0.05 0.15 0.20 0.15
EFE Gateway Computers (2003) (contd) Key External Factors
Weight Rating Wtd Score
Threats (contd)
7. U.s. consumers and businesses delaying purchase of PCs 8. PC firms diversifying into consumer electronics Total 0.05 2 0.10
0.05
0.15
1.00
2.40
Industry Analysis EFE Total weighted score of 4.0
Organization response is outstanding to threats and weaknesses
Total weighted score of 1.0
Firms strategies not capitalizing on opportunities or avoiding threats
Industry Analysis: Competitive Profile Matrix (CPM)
Identifies firms major competitors and their strengths & weaknesses in relation to a sample firms strategic positions
Gateway
Apple
Ratin g Wtd Score
Dell
Rating Wtd Score
CSFs
Market share
Wt
Rating
Wtd Score
0.15
0.45
0.30
0.60
Inventory sys
Fin position Prod. Quality
0.08
0.10 0.08
2
2 3
0.16
0.20 0.24
2
3 4
0.16
0.30 0.32
4
3 3
0.32
0.30 0.24
Cons. Loyalty
Sales Distr Global Exp. Org. Structure
0.02
0.10 0.15 0.05
3
3 3 3
0.06
0.30 0.45 0.15
3
2 2 3
0.06
0.20 0.30 0.15
4
3 4 3
0.08
0.30 0.60 0.15
Gateway CSFs (contd)
Prod. Capacity
Wt Rating Wtd Score
Apple
Ratin g Wtd Score
Dell
Rating Wtd Score
0.04
0.12
0.12
0.12
E-commerce
Price competitive Mgt. experience
0.10
3
3 4 2
0.30
0.30 0.08 0.02
3
2 1 4
0.30
0.20 0.02 0.04
3
4 3 2
0.30
0.40 0.06 0.02
Customer Serv 0.10 0.02 0.01
Total
1.00
2.83
2.47
3.49
