BUS 411 DAY 6

Agenda Question? Disney Assignment 2 Posted Vision and missions posted in Stuff S, W, O, and T (unedited) posted in SWOT folder Assignment 2 Posted Due Feb 10 (4 days from now) Requires completed SWOT BUS 411 Assignment 2 Sp14.pdf Assignment 3 will be posted soon Today Chap 3 The External Assessment

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 Walt Disney 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

Chapter Objectives Describe how to conduct an external strategic-management audit. Discuss 10 major external forces that affect organizations: economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive. Describe key sources of external information, including the Internet. Discuss important forecasting tools used in strategic management. Discuss the importance of monitoring external trends and events.

Chapter Objectives (cont.) Explain how to develop an EFE Matrix. Explain how to develop a Competitive Profile Matrix. Discuss the importance of gathering competitive intelligence. Describe the trend toward cooperation among competitors. Discuss market commonality and resource similarity in relation to competitive analysis.

Market Commonality and Resource Similarity the number and significance of markets that a firm competes in with rivals Example: Automotive Industry, Fast Food Resource similarity the extent to which the type and amount of a firm’s internal resources are comparable to a rival Example: Logistics (UPS and Fedex)

The Five-Forces Model of Competition

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 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 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

CSF’s Gateway Apple Dell Market share 0.15 3 0.45 2 0.30 4 0.60 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

Gateway Apple Dell CSF’s (cont’d) Prod. Capacity 0.04 3 0.12 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.

The Internal Assessment Chapter Four

Internal Assessment – Sun Tzu “Great spirits have always encountered violent opposition from mediocre minds.” – Albert Einstein “Weak leadership can wreck the soundest strategy.” – Sun Tzu

Chapter Objectives Describe how to perform an internal strategic-management audit. Discuss the Resource-Based View (RBV) in strategic management. Discuss key interrelationships among the functional areas of business. Identify the basic functions or activities that make up management, marketing, finance/accounting production/operations, research and development, and management information systems.

Chapter Objectives Explain how to determine and prioritize a firm’s internal strengths and weaknesses. Explain the importance of financial ratio analysis. Discuss the nature and role of management information systems in strategic management. Develop an Internal Factor Evaluation (IFE) Matrix. Explain cost/benefit analysis value chain analysis, and benchmarking as strategic-management tools.

A Comprehensive Strategic-Management Model

Key Internal Forces Distinctive competencies A firm’s strengths that cannot be easily matched or imitated by competitors Building competitive advantages involves taking advantage of distinctive competencies.

The Process of Performing an Internal Audit The internal audit Requires gathering and assimilating information about the firm’s management, marketing, finance/accounting, production/operations, research and development (R&D), and management information systems operations Provides more opportunity for participants to understand how their jobs, departments, and divisions fit into the whole organization

The Resource-Based View (RBV) The Resource-Based View (RBV) approach contends that internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage

The Resource-Based View (RBV) Proponents of the RBV contend that organizational performance will primarily be determined by internal resources that can be grouped into three all-encompassing categories: physical resources, human resources, and organizational resources Physical resources include all plant and equipment, location, technology, raw materials, machines; human resources include all employees, training, experience, intelligence, knowledge, skills, abilities; and organizational resources include firm structure, planning processes, information systems, patents, trademarks, copyrights, databases, and so on.

The Resource-Based View (RBV) For a resource to be valuable, it must be either (1) rare, (2) hard to imitate, or (3) not easily substitutable These three characteristics of resources enable a firm to implement strategies that improve its efficiency and effectiveness and lead to a sustainable competitive advantage

If I could pick two, I’d pick strategy and culture. The biggest levers you’ve got to change a company are strategy, structure, and culture. If I could pick two, I’d pick strategy and culture. Wayne Leonard, CEO, Entergy

Where would you work?

Organizational Culture Pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integration . . . is considered valid and taught to new members as the correct way to perceive, think, and feel

Integrating Strategy and Culture Organizational culture significantly affects business decisions and thus must be evaluated during an internal strategic-management audit. If strategies can capitalize on cultural strengths, such as a strong work ethic or highly ethical beliefs, then management often can swiftly and easily implement changes.

Example Cultural Products Defined

Management The functions of management consist of five basic activities: planning, organizing, motivating, staffing, and controlling. These activities are important to assess in strategic planning because an organization should continually capitalize on its management strengths and improve on its management weaknesses.

The Basic Functions of Management

Management Audit Checklist of Questions Does the firm use strategic-management concepts? Are company objectives and goals measurable and well communicated? Do managers at all hierarchical levels plan effectively? Do managers delegate authority well? Is the organization’s structure appropriate?

Management Audit Checklist of Questions (cont.) Are job descriptions and job specifications clear? Is employee morale high? Are employee turnover and absenteeism low? Are organizational reward and control mechanisms effective?

Marketing Marketing the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Functions of Marketing Customer analysis Selling products/services Product and service planning Pricing Distribution Marketing research Opportunity analysis

Marketing Customer analysis the examination and evaluation of consumer needs, desires, and wants involves administering customer surveys, analyzing consumer information, evaluating market positioning strategies, developing customer profiles, and determining optimal market segmentation strategies essential in developing an effective mission statement

Desirable Characteristics of Ads Today

Product and Service Planning includes activities such as test marketing; product and brand positioning; devising warranties; packaging; determining product options, features, style, and quality; deleting old products; and providing for customer service important when a company is pursuing product development or diversification

Pricing Five major stakeholders affect pricing decisions: consumers, governments, suppliers, distributors, and competitors Sometimes an organization will pursue a forward integration strategy primarily to gain better control over prices charged to consumers

Distribution Distribution includes warehousing, distribution channels, distribution coverage, retail site locations, sales territories, inventory levels and location, transportation carriers, wholesaling, and retailing especially important when a firm is striving to implement a market development or forward integration strategy

Marketing Research Marketing research the systematic gathering, recording, and analyzing of data about problems relating to the marketing of goods and services can uncover critical strengths and weaknesses

Cost/Benefit Analysis Three steps are required to perform a cost/benefit analysis: compute the total costs associated with a decision, estimate the total benefits from the decision, compare the total costs with the total benefits.

CBA methods NPV  net present value PVB  present value of benefits PVC  present value of costs BCR  benefit cost ratio PVB/PVC Net Benefit  PVB – PVC NPV/k  where k is level of funds available

Marketing Audit Checklist of Questions Are markets segmented effectively? Is the organization positioned well among competitors? Has the firm’s market share been increasing? Are present channels of distribution reliable and cost effective? Does the firm have an effective sales organization? Does the firm conduct market research?

Marketing Audit Checklist of Questions Are product quality and customer service good? Are the firm’s products and services priced appropriately? Does the firm have an effective promotion, advertising, and publicity strategy? Are marketing, planning, and budgeting effective? Do the firm’s marketing managers have adequate experience and training? Is the firm’s Internet presence excellent as compared to rivals?

Finance/Accounting Functions The functions of finance/accounting comprise three decisions: the investment decision the financing decision the dividend decision

Finance/Accounting Functions Investment decision the allocation and reallocation of capital and resources to projects, products, assets, and divisions of an organization Financing decision determines the best capital structure for the firm and includes examining various methods by which the firm can raise capital

Finance/Accounting Functions Dividend decisions concern issues such as the percentage of earnings paid to stockholders, the stability of dividends paid over time, and the repurchase or issuance of stock determine the amount of funds that are retained in a firm compared to the amount paid out to stockholders

A Summary of Key Financial Ratios

A Summary of Key Financial Ratios Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

A Summary of Key Financial Ratios

A Summary of Key Financial Ratios

Finance/Accounting Functions How has each ratio changed over time? How does each ratio compare to industry norms? How does each ratio compare with key competitors?

Figure 4-3 page 109

Breakeven point = quantity of units that a firm must sell in order for total revenues to equal total costs

BE Chart.xlsx

Finance/Accounting Audit Checklist Where is the firm financially strong and weak as indicated by financial ratio analyses? Can the firm raise needed short-term capital? Can the firm raise needed long-term capital through debt and/or equity? Does the firm have sufficient working capital? Are capital budgeting procedures effective?

Finance/Accounting Audit Checklist Are dividend payout policies reasonable? Does the firm have good relations with its investors and stockholders? Are the firm’s financial managers experienced and well trained? Is the firm’s debt situation excellent?

Production/Operations Production/operations function consists of all those activities that transforms inputs into goods and services Production/operations management deals with inputs, transformations, and outputs that vary across industries and markets.

The Basic Functions (Decisions) Within Production/Operations

Implications of Various Strategies on Production/Operations Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Production/Operations Audit Checklist Are supplies of raw materials, parts, and subassemblies reliable and reasonable? Are facilities, equipment, machinery, and offices in good condition? Are inventory-control policies and procedures effective? Are quality-control policies and procedures effective? Are facilities, resources, and markets strategically located? Does the firm have technological competencies?

Research & Development Research & Development Functions Development of new products before competitors Improving product quality Improving manufacturing processes to reduce costs These functions can be done internally or externally

Research & Development Financing as many projects as possible Use percent-of-sales method Budgeting relative to competitors How many successful new products are needed R&D Budgets

Research and Development Audit Does the firm have R&D facilities? Are they adequate? If outside R&D firms are used, are they cost-effective? Are the organization’s R&D personnel well qualified? Are R&D resources allocated effectively? Are management information and computer systems adequate? Is communication between R&D and other organizational units effective? Are present products technologically competitive?

Management Information Systems A management information system’s purpose is to improve the performance of an enterprise by improving the quality of managerial decisions An effective information system thus collects, codes, stores, synthesizes, and presents information in such a manner that it answers important operating and strategic questions

Management Information Systems Audit Do all managers in the firm use the information system to make decisions? Is there a chief information officer or director of information systems position in the firm? Are data in the information system updated regularly? Do managers from all functional areas of the firm contribute input to the information system? Are there effective passwords for entry into the firm’s information system?

Management Information Systems Audit Are strategists of the firm familiar with the information systems of rival firms? Is the information system user-friendly? Do all users of the information system understand the competitive advantages that information can provide firms? Are computer training workshops provided for users of the information system? Is the firm’s information system continually being improved in content- and user-friendliness?

Value Chain Analysis (VCA) refers to the process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing product(s) to marketing those products aims to identify where low-cost advantages or disadvantages exist anywhere along the value chain from raw material to customer service activities

Benchmarking Benchmarking an analytical tool used to determine whether a firm’s value chain activities are competitive compared to rivals and thus conducive to winning in the marketplace entails measuring costs of value chain activities across an industry to determine “best practices”

Transforming Value Chain Activities into Sustained Competitive Advantage

The Internal Factor Evaluation (IFE) Matrix List key internal factors as identified in the internal-audit process Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to each factor Assign a 1-to-4 rating to each factor to indicate whether that factor represents a strength or weakness Multiply each factor’s weight by its rating to determine a weighted score for each variable Sum the weighted scores for each variable to determine the total weighted score for the organization

A Sample Internal Factor Evaluation Matrix for a Retail Computer Store

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall