David sm13 ppt_03
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The document summarizes key concepts from Chapter 3 of the textbook Strategic Management: Concepts & Cases. It discusses performing an external assessment of the industry environment through an external audit. This involves analyzing factors such as economic, social, technological and competitive forces. Tools like the External Factor Evaluation Matrix and Competitive Profile Matrix are presented to help evaluate opportunities and threats in the external environment. The five forces model of competition is also introduced to analyze industry rivalry, potential new entrants, substitute products, supplier power and buyer power.
David sm13 ppt_03
- 1. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -1 Chapter 3 The External Assessment Strategic Management: Concepts & Cases 13th Edition Fred David
- 2. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -2
- 3. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -3 “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” – Charles Darwin External Assessment “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
- 4. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -4 External Strategic Management Audit – Environmental Scanning – Industry Analysis
- 5. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -5 Identify & evaluate factors beyond the control of a single firm Increased foreign competition Population shifts Aging society Fear of traveling Stock market volatility External Strategic Management Audit
- 6. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -6 Purpose of an External Audit Develop a finite list of opportunities that could benefit a firm threats that should be avoided External Strategic Management Audit
- 7. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -7
- 8. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -8 Gather competitive intelligence Assimilate information Evaluate Resulting in a list of the most important key external factors External Audit
- 9. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -9 Performing External Audit External Factors Measurable Long-term Orientation Applicable to Competing Firms Hierarchical
- 10. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -10 Industrial Organization (I/O) View Industry factors are more important than internal factors Performance determined by industry forces
- 11. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -11 Economies of Scale Industry Properties Barriers to Market Entry Product Differentiation The Economy I/O Perspective Firm Performance Level of Competitiveness
- 12. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -12 Economic Forces GDP Trends in the dollar’s value Unemployment rates
- 13. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -13
- 14. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -14 Social, Cultural, Demographic, and Natural Environmental Forces Major Impact – •Products •Services •Markets •Customers
- 15. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -15 Social, Cultural, Demographic, and Natural Environmental Forces US Facts Aging population Less White Widening gap between rich & poor 2025 = 18.5% population > 65 years 2075 = no ethnic or racial majority
- 16. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -16 Social, Cultural, Demographic, and Natural Environmental Forces Facts World population 7 billion World population = 8 billion by 2028 World population = 9 billion by 2054 U.S. population > 310 million
- 17. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -17 Trends More American households with people living alone Aging Americans – affects all organizations Social, Cultural, Demographic, and Natural Environmental Forces
- 18. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -18 Political, Governmental, and Legal Forces Key opportunities & threats Antitrust legislation Tax rates Lobbying activities Patent laws Government Regulation
- 19. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -19 Political, Governmental, and Legal Forces Protectionist policies Governments taking equity stakes in companies
- 20. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -20 Technological Forces Major Impact – •Internet
- 21. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -21 Technological Forces Significance of IT •Chief Information Officer (CIO) •Chief Technology Officer (CTO)
- 22. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -22 Technological Forces Essential for nearly every strategic decision
- 23. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -23 Competitive Forces Collection & evaluation of data on competitors is essential for successful strategy formulation
- 24. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -24 Competitive Forces •Strengths •Weaknesses •Capabilities •Opportunities •Threats •Objectives •Strategies Identify Rival Firms’
- 25. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -25 Competitive Forces Competition in virtually all industries can be described as intense
- 26. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -26 Key Questions Concerning Competitors Their strengths Their weaknesses Their objectives and strategies Their responses to external variables Their vulnerability to our alternative strategies Our vulnerability to strategic counterattack
- 27. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -27 Key Questions Concerning Competitors Our product/service positioning Entry and exit of firms in the industry Key factors for our current position in industry Sales/profit ranking of competitors over time Nature of supplier and distributor relationships The threat of substitute products/services
- 28. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -28 Competitive Forces 7 characteristics of most competitive firms Market share matters Understanding what business you are in Broke or not, fix it Innovate or evaporate Acquisition is essential to growth People make a difference No substitute for quality
- 29. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -29 Competitive Intelligence A systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’s own goals
- 30. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -30 Sources of Competitive Intelligence Internet Employees Managers Suppliers Distributors Customers Creditors Consultants Trade journals Want ads Newspaper articles Government filings Competitors
- 31. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -31 Objectives of Competitive Intelligence Provide a general understanding of industry and competitors Identify areas where competitors are vulnerable and assess impact of actions on competitors Identify potential moves that a competitor might make
- 32. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -32 Market Commonality The number and significance of markets that a firm competes in with rivals
- 33. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -33 Resource Similarity Extent to which the type and amount of a firm’s internal resources are comparable to a rival
- 34. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -34 The Five-Forces Model of Competition
- 35. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -35 Steps to Determine if an Acceptable Profit Can Be Earned 1. Identify key aspects or elements of each competitive force 2. Evaluate how strong and important each element is for the firm 3. Decide whether the collective strength of the elements is worth the firm entering or staying in the industry
- 36. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -36 The Five-Forces Model Rivalry among competing firms Most powerful of the five forces Focus on competitive advantage of strategies over other firms
- 37. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -37 Conditions that Cause High Rivalry Among Competing Firms High number of competing firms Similar size of firms competing Similar capability of firms competing Falling demand for the industry’s products Falling product/service prices in the industry
- 38. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -38 Conditions that Cause High Rivalry Among Competing Firms Consumers can switch brands easily Barriers to leaving the market are high Barriers to entering the market are low Fixed costs are high among firms competing The product is perishable
- 39. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -39 Conditions that Cause High Rivalry Among Competing Firms Rivals have excess capacity Consumer demand is falling Rivals have excess inventory Rivals sell similar products/services Mergers are common in the industry
- 40. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -40 The Five-Forces Model Potential Entry of New Competitors Barriers to entry are important Quality, pricing, and marketing can overcome barriers
- 41. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -41 The Five-Forces Model Potential development of substitute products Pressure increases when: Prices of substitutes decrease Consumers’ switching costs decrease
- 42. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -42 The Five-Forces Model Bargaining Power of Suppliers is increased when there are: Large numbers of suppliers Few substitutes Costs of switching raw materials is high Backward integration is gaining control or ownership of suppliers
- 43. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -43 The Five-Forces Model Bargaining power of consumers Customers being concentrated or buying in volume affects intensity of competition Consumer power is higher where products are standard or undifferentiated
- 44. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -44 Conditions Where Consumers Gain Bargaining Power If buyers can inexpensively switch If buyers are particularly important If sellers are struggling in the face of falling consumer demand If buyers are informed about sellers’ products, prices, and costs If buyers have discretion in whether and when they purchase the product
- 45. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -45 Sources of External Information: Unpublished Sources Customer surveys Market research Speeches at professional or shareholder meetings Television programs Interviews and conversations with stakeholders
- 46. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -46 Sources of External Information: Published Sources Periodicals Journals Reports Government documents Abstracts Books Directories Newspapers Manuals
- 47. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -47 Sources of External Information: Web Sites http://marketwatch.multexinvestor.com http://moneycentral.msn.com http://finance.yahoo.com www.clearstation.com https://us.etrade.com/e/t/invest/markets www.hoovers.com
- 48. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -48 Forecasting Tools and Techniques Forecasts are educated assumptions about future trends and events Quantitative techniques – most appropriate when historical data is available and there is a constant relationship Qualitative techniques
- 49. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -49 Assumptions Estimates of future events based upon the best available information in the present
- 50. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -50 Industry Analysis: The External Factor Evaluation (EFE) Matrix Economic Social Cultural Demographic Environmental Political Governmental Technological Competitive Legal
- 51. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -51 EFE Matrix Steps 1. List key external factors 2. Weight from 0 to 1 3. Rate effectiveness of current strategies 4. Multiply weight * rating 5. Sum weighted scores
- 52. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -52
- 53. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -53
- 54. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -54 Total weighted score of 4.0 Organization response is outstanding to threats and weaknesses Industry Analysis EFE Total weighted score of 1.0 Firm’s strategies not capitalizing on opportunities or avoiding threats
- 55. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -55 Industry Analysis: Competitive Profile Matrix (CPM) Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions Critical success factors include internal and external issues
- 56. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -56
- 57. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -57 Industry Analysis CPM Just because one firm receives a 3.2 rating and another receives a 2.8 rating, it does not follow that the first firm is 20 percent better than the second. Important –
- 58. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 3 -58 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Editor's Notes
- #48: These are clickable links in slideshow mode.