Ch 3 -1 Copyright 2007 Prentice Hall Chapter 3 The External Assessment Strategic Management: Concepts & Cases 11 th Edition Fred David

Ch 3 -2 Copyright 2007 Prentice Hall Identify & Evaluate factors beyond the control of a single firm –Increased foreign competition –Population shifts –Information technology External Strategic Management Audit

Ch 3 -3 Copyright 2007 Prentice Hall Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products Services Key External Forces Opportunities & Threats Key External Forces & the Organization Beyond control of organization!

Ch 3 -4 Copyright 2007 Prentice Hall Performing External Audit External Factors Measurable Long-term orientation Applicable to competing firms Hierarchical

Ch 3 -5 Copyright 2007 Prentice Hall Economies of Scale Industry Properties Barriers to market entry Product differentiation Level of competitiveness I/O Perspective Firm Performance

Ch 3 -6 Copyright 2007 Prentice Hall Ch 6 -6 Potential development of substitute products Rivalry among competing firms Bargaining power of suppliers Potential entry of new competitors Bargaining power of consumers Porter’s Five Forces

Ch 3 -7 Copyright 2007 Prentice Hall 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

Ch 3 -8 Copyright 2007 Prentice Hall Key Social, Cultural, Demographic & Environmental Variables Number of marriages & divorces Number of special interest groups Number of births & deaths Immigration & emigration rates Childbearing rates

Ch 3 -9 Copyright 2007 Prentice Hall Political, Government & Legal Forces Worldwide trend toward similar consumption patterns Global buyers and sellers E-commerce Technology for instant currency transfers Globalization of Industry

Ch Copyright 2007 Prentice Hall Competitive Forces Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies Identifying Rival Firms

Ch Copyright 2007 Prentice Hall Competitive Forces 1. Market share matters 2. Understand what business you are in 3. Broke or not, fix it 4. Innovate or evaporate 7 Characteristics of most Competitive U.S. Firms:

Ch Copyright 2007 Prentice Hall Competitive Forces 5. Acquisition is essential to growth 6. People make a difference 7. No substitute for quality 7 Characteristics of most Competitive U.S. Firms:

Ch Copyright 2007 Prentice Hall The Five-Forces Model of Competition (Porter) Potential development of substitute products Rivalry among competing firms Bargaining power of suppliers Potential entry of new competitors Bargaining power of consumers

Ch Copyright 2007 Prentice Hall The Global Challenge Faced by U.S. Firms -- Gain & maintain exports to other nations Defend domestic markets against imported goods

Ch Copyright 2007 Prentice Hall Industry Analysis: The External Factor Evaluation (EFE) Matrix CompetitivePoliticalCultural TechnologicalEnvironmentalSocial GovernmentalDemographicEconomic Summarize & Evaluate

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Ch Copyright 2007 Prentice Hall External Factors It’s hard to write them! Weekend Exercise for IntuitWeekend Exercise Intuit

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Ch Copyright 2007 Prentice Hall 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

Ch Copyright 2007 Prentice Hall Industry Analysis: Competitive Profile Matrix (CPM) Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions

Ch Copyright 2007 Prentice Hall GatewayAppleDell CSF’s WtRatingWt’d Score Ratin g Wt’d Score RatingWt’d Score Market share Inventory sys Fin. position Prod. Quality Cons. Loyalty Sales Distr Global Exp Org. Structure

Ch Copyright 2007 Prentice Hall GatewayAppleDell CSF’s (cont’d) WtRatingWt’d Score Ratin g Wt’d Score RatingWt’d Score Prod. Capacity E-commerce Customer Serv Price competitive Mgt. experience Total

Ch Copyright 2007 Prentice Hall Ch Clinton Administration Bad media exposure from FDA Smokeless market SE region U.S Production limits on tobacco Legislation against the tobacco industry Threats More social pressure to quit smoking TOTAL Pinkerton leader in discount market.051 Astronomical Internet growth Increased demand.151 Global markets untapped Weighted score RatingWeight UST—Key External Factors Opportunities

Ch Copyright 2007 Prentice Hall Ch (CPM) Procter Avon L’Oreal & Gamble Total Market Share Global Expansion Customer Loyalty Financial Position Management Price Competition Product Quality Advertising ScoreRatingScoreRatingScoreRatingWeight Critical Success Factor

Ch Copyright 2007 Prentice Hall Mission Statement (proposed) Our mission is to provide cruise and travel services (2) to travelers worldwide (1, 3), to develop household name brand awareness, to respect and protect the earth and seas on which we sail (6), to serve the communities in which our consumers and employees reside (8,9), and to stay an innovator by bringing cutting edge technology and research for our consumer’s benefit (4). We recognize that we must stay financially solvent and must make those decisions that will capitalize on opportunities for growth and longevity (5). We believe we must exceed every consumer’s expectations, supplying lasting memories, and enticing repeat business all at a fair value. We recruit, compensate and retain the best staff and ship employees in the business (7, 9).

Ch Copyright 2007 Prentice Hall Competitive Profile Matrix – Royal Caribbean

Ch Copyright 2007 Prentice Hall EFE Matrix