1. Strategy Analyzing & Preparation (part2)

2. Outline of the Lecture Input stage with three methods IFE EFE CPM
KuangChiu Huang

3. Strategy-Formulation Analytical Framework
Input stage
External Factor
Evaluation
(EFE)
Internal Factor
Evaluation
(IFE)
Competitive Profile
Matrix
(CPM)
Matching stage
SWOT
BCG
IEM
SPACE
GRAND
Decision stage
Quantitative Strategic
Planning Matrix
(QSPM)
KuangChiu Huang

4. Basic input information for the matching & decision stage matrices
Stage1: The Input Stage
Basic input information for the matching & decision stage matrices
Requires strategists to quantify subjectivity early in the process
Good intuitive judgment always needed
KuangChiu Huang

5. IF, EF and CF in Stage 1 Internal Factor Evaluation Matrix (IFE)
Stage 1: The Input Stage
External Factor Evaluation Matrix (EFE)
Competitive Profile Matrix (CPM)
KuangChiu Huang

6. Stage1: Internal Factor Evaluation
What: a strategic management tool for auditing major strengths and weaknesses in functional areas of a business
Why: subjective method but adding some numbers into the concept
How: Five Steps
KuangChiu Huang

7. Key internal factors: Weights: Rating: Multiply: Sum:
IEF: How (Five Steps)
Key internal factors:
Weights:
Rating:
Multiply:
Sum:
KuangChiu Huang

8. IFE: Step1 Key Internal Factors
Conduct internal audit
Identify both strengths and weaknesses
List 10~20 Key internal factors
The more the better
As objective as possible
KuangChiu Huang

9. IFE: Internal Audit (1)
The process of the internal audit provides a unique opportunity for the participants to more fully realize the importance of their work as well as that of their peers
the executive team the opportunity to fully access the strengths and weaknesses within their organization
KuangChiu Huang

10. IFE: Internal Audit (2) Core business The business culture
Distinctive competencies
Competitive advantages
Financial situation
Incentive & employee morale
Staffing level & productivity per employee
Products & service offering
KuangChiu Huang

11. IFE: Step 2 Weights
Assign a weight that ranges from 0.00 to 1.00 to each factor
Indicates the relative importance of the factor
factors with the greatest importance should be assigned the highest weights
The sum of all weights is equal to 1.00
KuangChiu Huang

12. IFE: Step 3 Rating Assign 1 to 4 for each factor
Rating = 1: major weakness
Rating = 2: minor weakness
Rating = 3: minor strength
Rating = 4: major strength
KuangChiu Huang

13. IFE: Step 4 Multiply & Step 5 Sum
Multiply each factor's weight by its rating
Provide a weighted score for each factor
Step 5:
sum the weighted scores for each factor
provides the total weighted score 
KuangChiu Huang

14. Example: IFE Matrix
KuangChiu Huang

15. Stage1: External Factor Evaluation
What: a strategic management tool for auditing major opportunities and threats in functional areas of a business
Why: subjective method but adding some numbers into the concept
How: Five Steps
KuangChiu Huang

16. Key external factors: Weights: Rating: Multiply: Sum:
EFE: How (Five Steps)
Key external factors:
Weights:
Rating:
Multiply:
Sum:
KuangChiu Huang

17. EFE: Step1 Key Internal Factors
Conduct external audit
Identify both strengths and weaknesses
List 10~20 Key external factors
The more the better
As objective as possible
KuangChiu Huang

18. EFE: External Audit
Purpose: develop a finite list of opportunities could benefit a firm and threats should be avoided
Five key external forces:
Economics page 79
Social, cultural, demographic & environmental Page 84
Political, legal, governmental page 87
Technological page 90
Competitive Porter’s Five Forces
KuangChiu Huang

19. EFE: External Audit Identify factors out of control from a single firm
Purpose: develop a finite list of opportunities could benefit a firm and threats should be avoided
Five key external forces
Relationship between external forces & an organization
Key factors:
Varying over time
Vary by industry
KuangChiu Huang

20. Identify Factors Out of Control
Increased foreign competition
Population shifts
Aging society
Stock market volatility
Technology standardization
Politics stability
KuangChiu Huang

21. Special Interest Groups
Relationship between Key External Forces, Stakeholders and a Organization
Competitors
Suppliers
Distributors
Creditors
Customers
Employees
Communities
Managers
Stockholders
Labor Unions
Special Interest Groups
Products
Services
Markets
Natural Environment
Key External Forces
1. Economics
2. Social, cultural,
demographic, & environmental
3. Political, legal, governmental
4. Technologic
5. Competitive
Opportunities
&
Threats
KuangChiu Huang

22. Economic Forces
KuangChiu Huang

23. Political, Legal, & Governmental Forces
Regulation/deregulation
Tax law changes
Special tariff
# of patents
Change in patent laws & IPR
Equal employment legislation
Government subsidy
Import/export regulations
KuangChiu Huang

24. Technological Forces Internet development
Next generation network installation
Semiconductor progress
Fiber communication
Wireless communication
E-Commerce
Compression capabilities
KuangChiu Huang

25. Competitive Forces: Porter’s Five Forces
The Purpose of Porter’s Five Forces Analysis
The five forces are environmental forces that impact on a company’s ability to compete in a given market
To diagnose the principal competitive pressures in a market and assess how strong and important each one is
KuangChiu Huang

26. The Purpose of Porter’s Five Forces Analysis
The five forces are environmental forces that impact on a company’s ability to compete in a given market
To diagnose the principal competitive pressures in a market and assess how strong and important each one is
KuangChiu Huang

27. Bargaining Power of Suppliers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Threat of Substitute Products
KuangChiu Huang 23

28. Porter’s Five Forces Model of Competition
Threat of New Entrants
KuangChiu Huang 11

29. Threat of New Entrants Barriers to Entry Economies of Scale
Product Differentiation
Barriers to Entry
Capital Requirements
Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent of Scale
Government Policy
Expected Retaliation
KuangChiu Huang 12

30. Bargaining Power of Suppliers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Suppliers
KuangChiu Huang 14

31. Bargaining Power of Suppliers
Suppliers are likely to be powerful if:
Suppliers exert power in the industry by:
Supplier industry is dominated by a few firms
* Threatening to raise
Suppliers’ products have few substitutes
Buyer is not an important customer to supplier
Suppliers’ product is an important input to buyers’ product
prices or
to reduce quality
Suppliers’ products are differentiated
Suppliers’ products have high switching costs
Supplier poses credible threat of forward integration
KuangChiu Huang 15

32. Bargaining Power of Buyers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Buyers
Bargaining Power of Suppliers
KuangChiu Huang 17

33. Bargaining Power of Buyers
Buyer groups are likely to be powerful if:
Buyers compete with the supplying industry by:
* Bargaining down prices
* Forcing higher quality
* Playing firms off of each other
Buyers are concentrated or purchases are large relative to seller’s sales
Purchase accounts for a significant fraction of supplier’s sales
Products are undifferentiated
Buyers face few switching costs
Buyers’ industry earns low profits
Buyer presents a credible threat of backward integration
Product unimportant to quality
KuangChiu Huang
Buyer has full information 18

34. Bargaining Power of Suppliers Bargaining Power of Buyers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitute Products
KuangChiu Huang 20

35. Threat of Substitute Products
Products with similar function limit the prices firms can charge
Keys to evaluate substitute products:
Products with improving price/performance tradeoffs relative to present industry products
Example:
Cable modem/DSL, IPTV/cable TV VoIP/traditional voice
3G/WiMAX/LTE
Fax machines can replace some part of overnight mail delivery
KuangChiu Huang 21

36. Porter’s Five Forces Model of Competition
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Rivalry Among Competing Firms in Industry
Threat of Substitute Products
KuangChiu Huang 23

37. Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:
Jockeying for strategic position
Using price competition
Staging advertising battles
Increasing consumer warranties or service
Making new product introductions
KuangChiu Huang 25

38. Rivalry Among Existing Competitors
Occurs when a firm is pressured or sees an opportunity
Price competition often leaves the entire industry worse off
Advertising battles may increase total industry demand, but may be costly to smaller competitors
KuangChiu Huang 25

39. Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur when:
Numerous or equally balanced competitors
Slow growth industry
High fixed costs
High storage costs
Lack of differentiation or switching costs
Capacity added in large increments
Diverse competitors
High strategic stakes
High exit barriers
KuangChiu Huang 26

40. The Five Forces are Unique to Telecom Industry
Five-Forces Analysis is a framework for analyzing a particular industry.
How could we apply the Porter’s Five Forces Analysis to Taiwan Telecom mobile communications industry?
KuangChiu Huang

41. EFE: Step 2 Weights
Assign a weight that ranges from 0.00 to 1.00 to each factor
Indicates the relative importance of the factor
factors with the greatest importance should be assigned the highest weights
Usually opportunities receives higher weights
The sum of all weights is equal to 1.00
KuangChiu Huang

42. EFE: Step 3 Rating Assign 1 to 4 for each factor
Rating = 1: response is poor
Rating = 2: response is average
Rating = 3: response is above average
Rating = 4: response is superior
KuangChiu Huang

43. IEF: Step 4 Multiply & Step 5 Sum
Multiply each factor's weight by its rating
Provide a weighted score for each factor
Step 5:
sum the weighted scores for each factor
provides the total weighted score 
KuangChiu Huang

44. Example: EFE Matrix Opportunities
KuangChiu Huang

45. Example: EFE Matrix Threats
KuangChiu Huang

46. Stage1: Competitive Profile Matrix
Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions
Assign 1 to 4 for each factor
Rating = 1: major weakness
Rating = 2: minor weakness
Rating = 3: minor strength
Rating = 4: major strength
KuangChiu Huang

47. Stage1: Competitive Profile Matrix
Weight, rating and score as same as IFE & EFE
CSF: critical success factor
KuangChiu Huang

48. Example: Competitive Profile Matrix 1
Gateway
Apple
Dell
CSF’s 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
KuangChiu Huang

49. Example: Competitive Profile Matrix 2
Gateway
Apple
Dell
CSF’s (cont’d) 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
KuangChiu Huang

50. Example: Competitive Profile Matrix 3
CHT TM
FET
A.P.
Vibo
CSF’s Wt
Rating
Wt’d Score
Market Share/Maturity 15 4
0.6 3
0.45 2
0.3
Service Quality 10
0.40
0.43 1
0.1
Sales Distribution
7.5
0.225
Consumer Loyalty
(Switching Cost)
0.2
Cooperation with
Foreign Operator
0.15
Organization Structure
3.75
0.075
0.1125
0.0375
Finance 6
0.24
0.12
0.18
0.06
Network Coverage
0.4
Company Image
(Culture)
Price Competition
Management
Experience
0.16
Service Scope
2.25
0.0675
0.09
Training 7
0.21
0.28
0.07
Total
100
3.2425
3.1675
3.15
2.385
2.76
KuangChiu Huang

51. Example: Competitive Profile Matrix 4
Verizon
AT&T
CSF’s
Wt(%)
Rating
Wt’d Score
Market Share/Maturity 15 3
0.45 4
0.6
Service Quality 10 1
0.1125
Sales Distribution
7.5
0.225
Consumer Loyalty
(Switching Cost)
0.3375 2
Cooperation
(Foreign Operator)
0.15
0.3
Organization Structure
3.75
0.075
Financial strength 6
0.06
0.24
Network Coverage
Company Image
(Culture)
Price Competition
Management Experience
0.18
Service Scope
2.25
0.09
Training 7
Total
100
2.955
3.06
KuangChiu Huang

52. Thank You! My contact information: Office: R62509 Telephone number:
KuangChiu Huang