Copyright 2005 Prentice Hall1 Bus 411 Day 4

Copyright 2005 Prentice Hall Ch 3 -2 Agenda Assignment # 1 Due  All submitted on time Disney SWOT (group Work) Discussion on External Assessment  Opportunities and threats Assignment #2 assigned today  Due Feb 13 (Friday the 13 th )

Copyright 2005 Prentice Hall Ch 3 -3 Disney SWOT The purpose of this exercise is to give students experience identifying an organization’s opportunities, threats, strengths, and weaknesses. INSTRUCTIONS:  Join in a group of 2-4 students  Identify Disney major opportunities, threats, strengths, and weaknesses. List these under separate headings. You should have a least 4 items in each section  In class discussion, compare lists of external and internal factors. From the discussion, students should add to their lists. Save this information for use in later exercises during the term.

Copyright 2005 Prentice Hall Ch 3 -4 Strategic Management Process Model

Ch 3 -5 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter 3 The External Assessment Strategic Management: Concepts & Cases 12 th Edition Fred David

Ch 3 -6 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Outline The Nature of the External Audit The Industrial Organization (I/O) View Social, Cultural, Demographic, and Environmental Forces

Ch 3 -7 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Outline ( cont’d ) Political, Governmental, and Legal Forces Technological Forces Competitive Forces

Ch 3 -8 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Outline ( cont’d ) Porter’s Five-Forces Model Sources of External Information Forecasting Tools & Techniques

Ch 3 -9 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Outline ( cont’d ) Global Challenge The External Factor Evaluation (EFE) Matrix Competitive Profile Matrix (CPM)

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall “ 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

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall External Strategic Management Audit – Environmental Scanning – Industry Analysis

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Purpose of External Audit  Identify Opportunities Threats External Strategic Management Audit

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Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Gather competitive intelligence – Social Cultural Demographic Environmental Governmental Legal Technological External Audit

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall External Audit – Sources of Information Internet Libraries Suppliers Distributors Salespersons Customers Competition

Copyright 2005 Prentice Hall Ch Internet Resources online.wsj.com cbs.marketwatch.com finance.yahoo.com

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Performing External Audit Key Factors – Vary over time Vary by industry

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Performing External Audit – Variables Market share Breadth of competing products World economies Foreign affiliates Proprietary account advantages

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Performing External Audit – Variables Price competitiveness Technological advancements Interest rates Pollution abatement

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Performing External Audit External Factors Measurable Long-term Orientation Applicable to Competing Firms Hierarchical

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Industrial Organization (I/O) View – Industry factors more important than internal factors Performance determined by industry forces

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Economies of Scale Industry Properties Barriers to Market Entry Product Differentiation Level of Competitiveness I/O Perspective Firm Performance

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Research Findings “Approximately 20% of a firm’s profitability can be explained by the industry, whereas 36% of the variance in profitability is attributed to the firm’s internal factors”

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Economic Forces Trends in the dollar’s value European Union Layoffs Economic standard of living

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Copyright 2005 Prentice Hall Ch Finding Economic Data

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Social, Cultural, Demographic, and Environmental Forces Major Impact – Products Services Markets Customers

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Social, Cultural, Demographic, and 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 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall States with the Highest Percentage of Minorities 1. Nevada 2. Arizona 3. Georgia 4. Florida 5. Idaho 6. North Carolina 7. Colorado

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Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Social, Cultural, Demographic, and Environmental Forces Facts World population approaching 7 billion World population = 8 billion by 2028 World population = 9 billion by 2054 U.S. population < 300 million

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Trends  More American households with people living alone  Aging Americans – affects all organizations  Population shift to the south and west  Decimation and degradation of the natural environment Social, Cultural, Demographic, and Environmental Forces

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Global trends China’s labor rates less than Mexico China provides more site location incentives than Mexico Social, Cultural, Demographic, and Environmental Forces

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Natural Environment Perspective Business Leaders Pushing for Legislation on Climate Change 10 CEOs pressuring for caps on greenhouse-gas omissions Desiring a single national emissions cap Top 5 buyers of green power: 1. PepsiCo 2. Wells Fargo 3. Whole Foods 4. U.S. Air Force 5. Johnson & Johnson

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Social, Cultural, Demographic, and Environmental Forces More educated consumers Aging population Minorities more influential Local rather than federal solutions 21 st Century Trends

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Social, Cultural, Demographic, and Environmental Forces ( cont’d ) Fixation with youth decreasing Hispanics increase to 15% by 2021 African-American increase to 14% by st Century Trends

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Social, Cultural, Demographic, and Environmental Variables Number of marriages & divorces Number of special interest groups Number of births & deaths Immigration & emigration rates Childbearing rates

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Actuarial Rates Monitor Key Variables Per Capita Income Attitudes Toward Business Avg. Disposable Income Social, Cultural, Demographic, and Environmental Forces

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Consumer Behavior Monitor Key Variables Ethical Concerns Attitudes Toward Saving Racial Equality Social, Cultural, Demographic, and Environmental Forces

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Avg. Educational Level Monitor Key Variables Governmental Regulation Attitudes Toward Customer Service Attitudes Toward Quality Social, Cultural, Demographic, and Environmental Forces

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Energy Conservation Monitor Key Variables Social Responsibility Leisure-Time Values Recycling Social, Cultural, Demographic, and Environmental Forces

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Waste Management Monitor Key Variables Air & Water Pollution Ozone Depletion Endangered Species Social, Cultural, Demographic, and Environmental Forces

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Political, Governmental, and Legal Forces Key opportunities & threats Antitrust legislation Tax rates Lobbying efforts Patent laws Government Regulation

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Political, Governmental, and Legal Forces Political variables impact –  Formulation of strategies  Implementation of strategies Increasing Global Interdependence

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Political, Governmental, and Legal Forces Strategists in a global economy –  Forecast political climates  Legalistic skills  Diverse world cultures Increasing Global Interdependence

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Political, Governmental, and Legal Forces Worldwide trend toward similar consumption patterns Global buyers and sellers E-commerce Technology for instant currency transfers Globalization of Industry

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Political, Governmental, and Legal Variables Special tariffs Tax law changes PAC’s Voter participation rates Regulation/deregulation

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Political, Governmental, and Legal Variables (cont’d) Environmental protection laws Changes in patent laws Equal employment legislation Government subsidies Number of patents

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Political, Governmental, and Legal Variables (cont’d) Import/export regulations Global relationships Political conditions Location and severity of terrorist activity Anti-trust enforcement

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Technological Forces Major Impact – Internet Communications Semiconductors

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Technological Forces Significance of IT Chief Information Officer (CIO) Chief Technology Officer (CTO)

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Technological Forces Essential for nearly every strategic decision Technology-based issues

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Competitive Forces Collection & evaluation of data on competitors is essential for successful strategy formulation

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Competitive Forces Competition on virtually all industries can be described as intense

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Competitive Forces Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies Identifying Rival Firms

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Questions Concerning Competitors Their objectives and strategies Their weaknesses Their responses to external variables Their vulnerability to our alternative strategies Their strengths

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Questions Concerning Competitors (cont’d) Entry and exit of firms in the industry Our product/service positioning Key factors for our current position in industry Sales/profit rankings of competitors over time Our vulnerability to strategic counterattack

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Questions Concerning Competitors (cont’d) The threat of substitute products/services Nature of supplier & distributor relationships Should we keep our strategies secret from employees and stakeholders?

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Competitive Forces Moody’s Manuals Standard Corporation Descriptions Value Line Investment Surveys Dun’s Business Rankings Standard & Poor’s Industry Surveys Industry Week Forbes, Fortune, BusinessWeek Sources of Corporate Information

Ch Copyright © 2009 Pearson Education, Inc. Publishing as 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 © 2009 Pearson Education, Inc. Publishing as 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 © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Five-Forces Model of Competition

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Five-Forces Model Most powerful of the five forces Focus on competitive advantage of strategies Rivalry Among Competing Firms

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Five-Forces Model Barriers to entry are important Quality, pricing, and marketing can overcome barriers Potential Entry of New Competitors

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Five-Forces Model Pressures increase when consumers’ switching costs decrease Firm’s plans for increased capacity & market penetration Potential Development of Substitute Products

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Five-Forces Model Large number of suppliers & few substitutes affects intensity of competition Backward integration can gain control or ownership of suppliers Bargaining Power of Suppliers

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Five-Forces Model Customers concentrated or buying in volume affects intensity of competition Consumer power is higher where products are standard or undifferentiated Bargaining Power of Consumers

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Conditions Where Consumers Gain Bargaining Power If they can inexpensively switch If they are particularly important If sellers are struggling in the face of falling consumer demand If they are informed about sellers’ products, prices, and costs If they have discretion in whether and when they purchase the product

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Global Challenge Faced by U.S. Firms – Gain & maintain exports to other nations Defend domestic markets against imported goods

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Global Perspective China’s Automobile Producers Heading to the United States in 2008 China’s auto exports doubled in 2006 China produces more cars than Germany and is the world’s third largest automobile producer Changfeng Group first Chinese automaker in the Detroit Auto Show

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Global Challenge Simultaneously globally competitive & nationally responsive Multinational Corporations (MNCs)

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Global Challenge Worldwide integration of:  Strategy formulation  Strategy implementation  Strategy evaluation Globalization

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Global Challenge  Similar consumption patterns  Global buyers and sellers  E-commerce  Instant transmission of money & information Globalization of Industries

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Industry Analysis: The External Factor Evaluation (EFE) Matrix CompetitivePoliticalCultural TechnologicalEnvironmentalSocial GovernmentalDemographicEconomic Summarize & Evaluate

Copyright 2005 Prentice Hall Ch Steps (Page 93-95) 1.List key external factors (balanced 5&5  10&10) Opportunities then threats 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 1.Multiply the rating by the weight 2.Sum the weighted scores

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Ch Copyright © 2009 Pearson Education, Inc. Publishing as 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 © 2009 Pearson Education, Inc. Publishing as Prentice Hall Industry Analysis EFE Understanding the factors used in the EFE Matrix is more important than the actual weights and ratings assigned. Important –

Ch Copyright © 2009 Pearson Education, Inc. Publishing as 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

Copyright 2005 Prentice Hall Ch 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

Copyright 2005 Prentice Hall Ch GatewayAppleDell CSF’s WtRatingWt’d Score RatingWt’d Score RatingWt’d Score Market share Inventory sys Fin position Prod. Quality Cons. Loyalty Sales Distr Global Exp Org. Structure

Copyright 2005 Prentice Hall Ch GatewayAppleDell CSF’s (cont’d) WtRatingWt’d Score RatingWt’d Score RatingWt’d Score Prod. Capacity E-commerce Customer Serv Price competitive Mgt. experience Total

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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 –

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Terms & Concepts For Review (Chapter 3) AOLCompetitive Analysis Chief Information Officer (CIO) Competitive Intelligence (CI) Chief Technology Officer (CTO) Competitive Profile Matrix (CPM) Competitive AdvantageDecruiting

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Terms & Concepts For Review (Chapter 3) Director of Competitive Analysis External Factor Evaluation Matrix (EFE) DownsizingExternal Forces Environmental ScanningIndustry Analysis External Audit Industrial Organization (I/O)

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Terms & Concepts For Review (Chapter 3) Information Technology (IT) Lifecare Facilities Internet Porter’s Five-Forces Model Learning from the Partner Rightsizing Linear RegressionWorld Wide Web

Ch Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Terms & Concepts For Review (Chapter 3) Tax Harmonization Foreign Direct Investment