Lecture No 08

Lecture Outline Key Political, Government & Legal Variables Technological Forces Competitive Forces Porter’s Five-Forces Model Industry Analysis (EFE) Industry Analysis (CPM)

Key Political, Government & Legal Variables African-American relationships Import-export regulations Monetary policy Political conditions in other countries Government budgets World oil, currency, & labor markets Location and severity of terrorist activities

Technological Forces Revolutionary technological forces: Profound impact on organizations Internet Semiconductors XML technologies UWB communications

Technological Forces Internet changes the nature of opportunities and threats -- Alters life cycle of products Increases speed of distribution Creates new products and services Eases limitations of geographic markets Alters economies of scale Changes entry barriers

Technological Forces Capitalizing on Information Technology (IT) Chief Information Officer (CIO) Chief Technology Officer (CTO)

Technological Forces Technology-based issues – Underlie nearly every strategic decision

Competitive Forces Collection and evaluation of information on competitors is essential for successful strategy formulation

Competitive Forces Competition in virtually all industries can be described as intense.

Competitive Forces Identifying rival firms Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies

Competitive Forces Key Questions About Competitors: Their strengths Their weaknesses Their objectives and strategies Their responses to all external variables (e.g. social, political, demographic, etc.) Their vulnerability to our alternative strategies

Competitive Forces Key Questions About Competitors: Our vulnerability to successful strategic counterattack Our product and service positioning relative to competitors Entry and exit of firms in the industry Key factors for our current position in industry

Competitive Forces Key Questions About Competitors: Sales and profit rankings of competitors over time Nature of supplier and distributor relationships The threat of substitute products or services

Competitive Forces Sources of Corporate Information: Moody’s Manuals Standard Corporation Descriptions Value Line Investment Surveys Dun’s Business Rankings Standard & Poor’s Industry Surveys Industry Week Forbes, Fortune, Business Week

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

Competitive Forces Competitive Intelligence Programs: Systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’ own goals.

Competitive Analysis: Porter’s Five-Forces Model Potential development of substitute products Rivalry among competing firms Bargaining power of suppliers Potential entry of new competitors Bargaining power of consumers

Global Challenge International Challenge faced by U.S. firms: – How to gain and maintain exports to other nations – How to defend domestic markets against imported goods

Industry Analysis (EFE) External Factor Evaluation Matrix Summarize & evaluate: CompetitivePoliticalCultural TechnologicalEnvironmentalSocial GovernmentalDemographic Economic

Industry Analysis (EFE) Five-Step process: List key external factors (10-20)  Opportunities & threats Assign weight to each (0 to 1.0)  Sum of all weights = 1.0

Industry Analysis (EFE) Five-step process: Assign 1-4 rating to each factor Firm’s current strategies response to the factor Multiply each factor’s weight by its rating Produces a weighted score

Industry Analysis (EFE) Five-step process: Sum the weighted scores for each  Determines the total weighted score for the organization. Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5

.201 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

Industry Analysis (EFE) Total weighted score of 4.0 = Organization response is outstanding to threats & weaknesses Total weighted score of 1.0 = Firm’s strategies not capitalizing on opportunities or avoiding threats

Industry Analysis (EFE) UST (in the previous example), has a total weighted score of 2.10 indicating that the firm is below average in its effort to pursue strategies that capitalize on external opportunities and avoid threats.

Industry Analysis (EFE) Important Understanding of the factors used in the EFE Matrix is more important than the actual weights and ratings assigned.

Industry Analysis (CPM) Competitive Profile Matrix Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic position

(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

Key Terms America Online Chief Information Officer (CIO) Chief Technology Officer (CTO) Competitive advantages Competitive analysis Competitive intelligence (CI) Competitive Profile Matrix (CPM)

Key Terms Critical success factors Cyberspace Decruiting Director of competitive analysis Downsizing Econometric models Environmental scanning External audit External Factor Evaluation (EFE) Matrix

Key Terms External forces Industry analysis Information Technology (IT) Industrial policies Internet learning from the partner Linear regression

Key Terms Porter’s Five-Forces Model Netscape On-Line databases Rightsizing Trend extrapolation World Wide Web (www)

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