External Analysis 11/19/2018 External Analysis 11/19/2018 c.a.simmers

External Analysis Monitoring, Evaluating, Forecasting, and Disseminating information from the external environment Management tool to: Avoid surprises Work to ensure long-term health Identify opportunities and threats 11/19/2018

OVERVIEW External Analyze Global Societal (Macro) Factors Analyze Global Task (Micro) Factors Industry Competitors 11/19/2018

SOCIETAL (MACRO) TECHNOLOGICAL TASK (MICRO) Industry ECONOMIC POLITICAL/ LEGAL INTERNAL Competitors SOCIOCULTURAL 11/19/2018

Macro (Societal) External Environment 11/19/2018

Economic Trends & Forecasts Gross National Product (GNP) Total market value all goods & services final consumption in nation Gross Domestic Product (GDP) Value all goods & services produced in nation Disposable Personal Income (DPI) Consumer Price Index (CPI) Interest Rates Import/Export Trends Unemployment Trends Inflation Rates 11/19/2018

Sociocultural Trends & Forecasts Demographic trends Life style changes Level of education Value placed on leisure time Social responsibility Environmental concerns Buying habits 11/19/2018

U.S. Sociocultural trends shaping future Increasing environmental awareness Growth of the seniors market New baby boomlet Decline of the mass market Pace and location of life Changing households 11/19/2018

Political/Legal Antitrust legislation Environmental laws Tax laws Trade regulations Political stability Contract laws Intellectual property 11/19/2018

Technological Variables New products and processes Automation Business-to-business 11/19/2018

Technological Variables Information Age Developments Selling on the Internet In just 3 years, 90 million people swap information or do deals on the Internet. It took 30 years for radio to reach 60 million It took 15 years for TV to reach 60 million 11/19/2018

Societal (Macro) External Environment Analysis WORKSHEETS Societal (Macro) External Environment Analysis 11/19/2018

Global Task (Micro) External Analysis 11/19/2018 Global Task (Micro) External Analysis 11/19/2018 c.a.simmers

SOCIETAL (MACRO) TECHNOLOGICAL TASK (MICRO) Industry ECONOMIC POLITICAL/ LEGAL INTERNAL Competitors SOCIOCULTURAL 11/19/2018

INDUSTRY Group of firms producing a similar product or service. Often defined by sources such as: government (SIC codes), analysts (Valueline,Investment Analysts, Standard & Poor’s). Trade Associations Multiple segments Worldwide, Global, Domestic 11/19/2018

Example of Importance of Industry Attractiveness Average return on investment 1988-1992 Source: Compustat and Michael Porter’s analysis 11/19/2018

Return on Investment = net income/average investment (long term 11/19/2018 Return on Investment = net income/average investment (long term debt+preferred stock+common equity+retained earnings)

Components of an Industry Analysis 11/19/2018

1. Market Share Analysis Definition of “market” Definition of competitors Share Trends - Past, Present, Future U.S. Widget Market 1993 U.S. Widget Market 1998 U.S. Widget Market 2003 11/19/2018

2. Industry Financial Analysis Sales Net Income Other Indicators Ratios 11/19/2018

3. Overall Assessment of Competitiveness Potential Entrants Five Forces Model Rivalry Among Firms Buyers Suppliers Substitutes 11/19/2018

COMPETITORS 11/19/2018

Positioning within Industries Trucking Industry ROI ‘88-92 Industry Average 5.1% 11/19/2018

Competitors Who? Product Form - brands that directly compete Product Category - products with similar characteristics Generic Competition - products that satisfy the same customer needs Budget Competition - products that compete for the customer’s budget 11/19/2018

Which Competitors to Analyze The market leader (largest share) The most profitable competitor The competitor most like us The fastest-growing competitor 11/19/2018

What to analyze Sales Profit Rankings Objectives Strategies Capabilities 11/19/2018

U.S. Restaurant Chain Industry Strategic Groups High Red Lobster Olive Garden Pizza Hut Chi-Chi’s IHOP Bob Evans Shoney’s Denny’s PRICE McDonald Burger King Wendy’s Low Limited Menu Full Menu 11/19/2018 Product-Line Breadth

Two Segment Questions External question: Internal question: What share of the total market do we have? Internal question: How much does that market contribute to our: Sales; Net Income; Assets 11/19/2018

Segments Geographic Segments Customer Segments Product Segments U.S.; Europe; Pacific, etc. Customer Segments home market; business market; government market. Product Segments fruit-beverage market alcoholic beverage market Business Segments Johnson Controls has 4 Auto; Controls; Plastic; Battery 11/19/2018

Concept: External Analysis Processes: Analyze Global Societal (Macro) Factors Analyze Global Task (Micro) Factors Industry Competitors Goal: To identify opportunities and threats. 11/19/2018