BUS 411 DAY 5

Agenda Question? Finish Discussion on the External Assessment (15 mins) Assignment 1 We will develop a class wide SWOT this class for use in future assignments (1 hour) Will be graded by next class Assignment 2 posted Due Feb 15

Assignment 2 External Assessment: Developing an EFE Matrix and Competitive Profile Matrix for Walt Disney Using the information gathered in assignment 1 and the Walt Disney SWOT analysis prepared in class, develop an EFE matrix for Walt Disney (50 points) Using the information gathered in assignment 1, the McDonald’s SWOT analysis prepared in class, and additional research materials available for Time Warner, Inc and News Corporation develop a CPM matrix comparing Walt Disney, Time Warner, Inc and News Corporation (50 points) You may use the templates provided with this assignment or develop your own. Upload your completed matrixes.

The External Assessment Chapter Three

The Five-Forces Model of Competition Identify key aspects or elements of each competitive force that impact the firm. Evaluate how strong and important each element is for the firm. Decide whether the collective strength of the elements is worth the firm entering or staying in the industry.

The Five-Forces Model of Competition

The Five-Forces Model Rivalry among competing firms Most powerful of the five forces Focus on competitive advantage of strategies over other firms

The Five-Forces Model

The Five-Forces Model Potential Entry of New Competitors Barriers to entry are important Quality, pricing, and marketing can overcome barriers

Barriers to Entry Need to gain economies of scale quickly Need to gain technology and specialized know-how Lack of experience Strong customer loyalty Strong brand preferences Large capital requirements Lack of adequate distribution channels

Barriers to Entry Government regulatory policies Tariffs Lack of access to raw materials Possession of patents Undesirable locations Counterattack by entrenched firms Potential saturation of the market

The Five-Forces Model Potential development of substitute products Pressure increases when: Prices of substitutes decrease Consumers’ switching costs decrease

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

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 (commodity products)

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

Sources of External Information Unpublished sources include customer surveys, market research, speeches at professional and shareholders’ meetings, television programs, interviews, and conversations with stakeholders. Buy stock in competitors' companies Published sources of strategic information include periodicals, journals, reports, government documents, abstracts, books, directories, newspapers, and manuals.

Sources of External Information: Web Sites http://www.marketwatch.com/ http://moneycentral.msn.com http://finance.yahoo.com http://www.bloomberg.com/markets/ https://us.etrade.com/e/t/invest/markets www.hoovers.com UMFK Databases These are clickable links in slideshow mode.

Forecasting Tools and Techniques Forecasts educated assumptions about future trends and events quantitative, qualitative techniques Forecasting is complex because of factors such as technological innovation, cultural changes, new products, improved services, stronger competitors, shifts in government priorities, changing social values, unstable economic conditions, and unforeseen events

Making Assumptions Assumptions Document your assumptions Best present estimates of the impact of major external factors, over which the manager has little if any control, but which may exert a significant impact on performance or the ability to achieve desired results. Document your assumptions Will be tested by time and actual outcomes

Industry Analysis: The External Factor Evaluation (EFE) Matrix Economic Social Cultural Demographic Environmental Political Governmental Technological Competitive Legal EFE matrix.xlt

5 Steps (Page 80-82) List key external factors 10-20 (balanced 5&5  10&10) Opportunities then threats (from SWOT) Assign weights from 0.0 to 1.0 based on importance Sum of all weights across all factors = 1 Assign a rating from 1 to 4 for all factors where 4 = the firm’s response is superior 3 = the firm’s response is above avg 2 = the firm’s response is average 1 = the firm’s response is poor Multiply the rating by the weight Sum the weighted scores

Industry Analysis EFE Total weighted score of 4.0 Organization response is outstanding to threats and weaknesses Total weighted score of 1.0 Firm’s strategies not capitalizing on opportunities or avoiding threats Average is 2.5

Critical success factors include internal and external issues 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 CPM_matrix.XLT

Steps to a CPM Identify Critical Success Factors (CSF) Broad issues Internal and external (5 of each is a good mix) Assign a weight to each CSF Must add up to 1 Assign a rating for your firm and each of your competitors 4 = major strength 3 = minor strength 2 = minor weakness 1 = major weakness Multiply weight by rating Sum the weighted ratings and compare

Poor Example CSF’s Gateway Apple Dell Market share 0.15 3 0.45 2 0.30 Wt Rating Wt’d Score Market share 0.15 3 0.45 2 0.30 4 0.60 Inventory sys 0.08 0.16 0.32 Fin position 0.10 0.20 Prod. Quality 0.24 Cons. Loyalty 0.02 0.06 Sales Distr Global Exp. Org. Structure 0.05

Poor Example Gateway Apple Dell CSF’s (cont’d) Prod. Capacity 0.04 3 Wt Rating Wt’d Score Prod. Capacity 0.04 3 0.12 E-commerce 0.10 0.30 Customer Serv 2 0.20 4 0.40 Price competitive 0.02 0.08 1 0.06 Mgt. experience 0.01 Total 1.00 2.83 2.47 3.49

An Example Competitive Profile Matrix

Industry Analysis CPM Important – 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.

SWOT Group Process Entire process to be competed in one hour Work to be done in 3 groups (30 mins) Instructor acts as a facilitator Each group will For each category Collaboratively produce a list of 10-15 Strengths, Weakness Opportunities and Threats Work to be done by entire class (30 mins) In each category (S, W, O, & T) Role of instructor is to act as a consultant and facilitator Publish and distribute Final SWOT for use on future assignments Produce a master list in each category Merge the 3 lists of 10-15 factors IF there are 25 or more factors eliminate those that only one team selected If there are 10-24 factors Class wide vote on each factor (in or out) till we have between 5 and 10 factors Aggregate the remaining factors in the final SWOT

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