PART 4: The External & Internal Assessment

PART 4: The External & Internal Assessment

The External Assessment

Main Learning Objectives: Describe 10 major external forces that affect organizations. Explain how to determine and prioritize firm’s internal strength and weaknesses. Discuss various external and internal assessment tools.

External Strategic Management Audit
Sometimes called -- Environmental Scanning OR…… -- Industry Analysis

Aimed at Identifying & Evaluating factors beyond the control of a single firm such as: Increased foreign competition Population shifts Aging society Fear of traveling Stock market volatility (spread ability) Aging الكبر (معدل ألاعمار اكبر) Volatility قابلية التطاي او الانتشار

Purpose of External Audit Identify Opportunities Threats Then to develop a finite list of opportunities that could benefit a firm and avoid threats.

Key External Forces Can be divided into: Economic forces Social, cultural, demographic & environmental forces Political, governmental & legal forces Technological forces Competitive forces

Special Interest Groups
Key External Forces & the Organization Competitors Suppliers Distributors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products Services Markets Natural Environment Key External Forces Opportunities & Threats Creditors دائنون

External Audit Gather competitive intelligence & information about:
Economic Social Cultural Demographic Environmental Political Governmental Legal Technological

External Audit Once information is gathered, it should be assimilated, evaluated, and prioritized. Key external factors should be: important to achieving long-term and annual objectives, measurable, applicable to all competing firms, and hierarchical in the sense that some will pertain to the overall company while others will be more narrowly focused.

External Audit – Sources of Information
Internet Libraries Suppliers Distributors Salespersons Customers Competition

Performing External Audit
-- Key Factors Vary over time Vary by industry

Performing External Audit -- Variables
Market share Breadth (range) of competing products World economies Foreign affiliates (subsidiary or branches) Proprietary (owners) account advantages Breadth اتساع

Performing External Audit -- Variables
Price competitiveness Technological advancements Interest rates Pollution abatement (reduction) Abatement الغاء , انقاص

Long-term orientation Applicable to competing firms
Performing External Audit Long-term orientation External Factors Measurable Applicable to competing firms Hierarchical متسلسلة هرميا Hierarchical

Industrial Organization (I/O) View
-- Industry factors more important than internal factors Performance determined by industry forces

I/O Perspective Firm Performance
Industry Properties Economies of Scale Barriers to market entry Product differentiation Differentiation تميز , مفاضلة Level of competitiveness

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”

Economic Forces Availability of credit Level of disposable income
Interest rates Inflation rates Disposable في متاول اليد

Social, Cultural, Demographic & Environmental Forces
Major Impact – Products Services Markets Customers

Childbearing (birth) rates
Key Social, Cultural, Demographic & Environmental Variables Childbearing (birth) rates Number of special interest groups Number of marriages & divorces Number of births & deaths Immigration & emigration rates

Actuarial (life expectancy) rates Monitor Key Variables Per capital income Attitudes toward business Average disposable income

Attitudes toward saving
Social, Cultural, Demographic & Environmental Forces Consumer behavior Monitor Key Variables Ethical concerns Attitudes toward saving Racial equality

Average educational level Monitor Key Variables Governmental regulation Attitudes toward customer service Attitudes toward quality

Social responsibility
Social, Cultural, Demographic & Environmental Forces Energy conservation Monitor Key Variables Social responsibility Leisure time values Conservation المحافظة على Recycling

Waste management Monitor Key Variables Air & water pollution Ozone depletion Depletion استـنـزاف Endangered species

Political, Government & Legal Forces
Government Regulation Key opportunities & threats Antitrust legislation Tax rates Lobbying efforts Patent laws Lobbying جماعة الظغـط

Increasing Global Interdependence Political variables impact – Formulation of strategies Implementation of strategies Interdependence توقف شي على اخر

Increasing Global Interdependence Strategists in a global economy – Forecast political climates Legalistic skills Diverse world cultures

Globalization of Industry Worldwide trend toward similar consumption patterns Global buyers and sellers E-commerce Technology for instant currency transfers

Regulation/deregulation
Key Political, Governmental, & Legal Variables Regulation/deregulation Tax law changes Special tariffs PAC’s ( Political Action Committees) Tariffs تعريفات , خاضع للتعرفة Voter participation rates

Environmental protection laws
Key Political, Governmental, & Legal Variables (cont’d) Number of patents Changes in patent laws Environmental protection laws Equal employment legislation Subsidies اعانات مالية Government subsidies (financial support)

Anti-trust enforcement
Key Political, Governmental, & Legal Variables (cont’d) Anti-trust enforcement Global relationships Import / export regulations Political conditions Location and severity of terrorist activity

Technological Forces Major Impact – Internet Communications
Semiconductors

Technological Forces Significance of IT
Chief Information Officer (CIO) Chief Technology Officer (CTO)

Technological Forces Technology-based issues
Essential for nearly every strategic decision

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

The Global Challenge Globalization Worldwide integration of: Strategy formulation Strategy implementation Strategy evaluation

The Global Challenge Globalization of Industries Similar consumption patterns Global buyers and sellers E-commerce Instant transmission of money & information

Industry Analysis: The External Factor Evaluation (EFE) Matrix
Summarize & Evaluate Competitive Political Cultural Technological Environmental Social Governmental Demographic Economic

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

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

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

CSF’s Gateway Apple Dell 0.15 3 0.45 2 0.30 4 0.60 0.08 0.16 0.32 0.10
Weight Rating Weighted Score Market share 0.15 3 0.45 2 0.30 4 0.60 Inventory system 0.08 0.16 0.32 Financial position 0.10 0.20 Product Quality 0.24 Consumer Loyalty 0.02 0.06 Sales Distribution Global Expansion Organization Structure 0.05

Gateway Apple Dell CSF’s (cont’d) 0.04 3 0.12 0.10 0.30 2 0.20 4 0.40
Weight Rating Weighted Score Production Capacity 0.04 3 0.12 E-commerce 0.10 0.30 Customer Service 2 0.20 4 0.40 Price competitive 0.02 0.08 1 0.06 Management experience 0.01 Total 1.00 2.83 2.47 3.49

Industry Analysis CPM Important -- Just because one firm receives a 3.49 rating and another receives a 2.83 rating, it does not follow that the first firm is 20 percent better than the second.

Industry Analysis CPM Important -- Note that Apple has the best product quality and management experience; Dell has the best market share and inventory system; and Gateway has the best price as indicated by the ratings

The Internal Assessment

Nature of an Internal Audit
All organizations have strengths and weaknesses in the …..Functional Areas of Business No enterprise is equally strong or weak in all areas.

Nature of an Internal Audit
Basis for Objectives & Strategies Internal strengths/weaknesses External opportunities/threats Clear statement of mission

Functional Business Areas:
Key Internal Forces Functional Business Areas: Vary by organization Divisions have differing strengths & weaknesses

Distinctive Competencies:
Key Internal Forces Distinctive Competencies: Firm’s strengths that cannot be easily matched or imitated by competitors

Key Internal Forces Distinctive Competencies: Building competitive advantage involves taking advantage of distinctive competencies

Key Internal Forces Distinctive Competencies: Strategies designed to improve on a firm’s weaknesses and turn to strengths

Internal Audit Parallels process of external audit
Performing an internal audit requires gathering, assimilating, and evaluating information about the firm’s operations including: Management Marketing Finance/Accounting Production/Operations Research & Development Management Information Systems (MIS)

Internal Audit Involvement in performing an internal strategic-management audit provides vehicle for understanding nature and effect of decisions in other functional business areas of the firm

Internal Audit Key to Organizational Success
Coordination & understanding among managers from all functional areas

Internal Audit Functional Relationships
Number and complexity increases relative to organization size

Internal Audit Financial Ratio Analysis
Exemplifies complexity of relationships among functional areas of the business Exemplifies يستخرج نسخة مصدقة

Resource Based View (RBV)
Approach to Competitive Advantage Internal resources are more important than external factors

3 All Encompassing Categories Physical resources Human resources Organizational resources Encompassing يشمل , يطوق

Empirical Indicators Resources are only valuable if they have one or more of the following characteristics: Rare Hard to imitate Not easily substitutable Empirical تجريبي

Integrating Strategy & Culture
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

Organizational Culture Resistant to change May represent: Strength Weakness

Values Beliefs Legends Heroes Rites Cultural Products Rites شعائر دينية Rituals طقوس Myths اساطير خرافية Legends اساطير Symbols Rituals Myths

Organizational Culture Can Inhibit Strategic Management Miss external changes due to strongly held beliefs Natural tendency to “hold the course” even during times of strategic change Inhibit يحبط

Snapping طقطقة Vulgar سوقي , عامي

Management Functions of Management Planning Organizing Motivating
Staffing Controlling

Stage When Most Important
Management Stage When Most Important Function Planning Strategy Formulation Organizing Strategy Implementation Motivating Strategy Implementation Staffing Strategy Implementation Controlling Strategy Evaluation

Management Planning Beginning of management process
Bridge between present & future Improves likelihood of attaining desired results Likelihood احتمال قوي

Establishing objectives
Management Forecasting Establishing objectives Devising strategies Developing policies Setting goals Planning Devising يخترع

Management Organizing Achieves coordinated effort
Defines task & authority relationships Departmentalization Delegation of authority Delegation تفويض

Organizational design
Management Organizational design Job specialization Job descriptions Job specifications Span of control Unity of command Coordination Job design Job analysis Organizing

Management Motivating Influencing to accomplish specific objectives
Communication – major component

Organizational change
Management Leadership Communication Work groups Job enrichment Job satisfaction Needs fulfillment Organizational change Morale Motivating Fulfillment انجاز , تحقيق

Management Staffing Personnel management Human resources management

Management Wage & salary administration Employee benefits Interviewing
Hiring Discharging Training Management development Affirmative Action EEO (Equal Employment opportunity) Labor relations Staffing Affirmative أيجابي

Management Controlling Establishing performance standards
Ensure actual operations conform to planned operations Taking corrective actions

Management Quality Financial Sales Inventory Expense
Analysis of variance Rewards Sanctions Controlling

Management Audit Checklist
Does the firm use strategic management concepts? Are objectives/goals measurable? Well communicated? Do managers at all levels plan effectively?

Do managers delegate well? Is the organization’s structure appropriate? Are job descriptions clear? Are job specifications clear? Is employee morale high?

Is employee absenteeism low? Is employee turnover low? Are the reward mechanisms effective? Are the organization’s control mechanisms effective?

Marketing Customer Needs/Wants for Products/Services Defining
Anticipating Creating Fulfilling Anticipating تسبق الغير Fulfill تنجز

Marketing Marketing Functions 1. Customer analysis
2. Selling products/services 3. Product & service planning 4. Pricing 5. Distribution 6. Marketing research 7. Opportunity analysis

Market positioning strategies
Marketing Customer surveys Consumer information Market positioning strategies Customer profiles Market segmentation strategies Customer Analysis

Selling Products/Services
Marketing Advertising Sales Promotion Publicity Sales force management Customer relations Dealer relations Selling Products/Services Publicity شعبية

Planning Product/Service
Marketing Test marketing Brand positioning Devising warrantees Packaging Product features/options Product style Quality Planning Product/Service Warrantees ضمانات

Marketing Pricing Forward integration Discounts Credit terms
Condition of sale Markups Costs Unit pricing Pricing Markups رفع السعر

Marketing Warehousing Channels Coverage Retail site locations
Sales territories Inventory levels Transportation Distribution Retail البيع بالتجزئة

Support business functions
Marketing Data collection Data input Data analysis Support business functions Marketing Research

Cost / benefit / risk analysis
Marketing Assessing costs Assessing benefits Assessing risks Cost / benefit / risk analysis Opportunity Analysis

Marketing Opportunity Analysis 1. Are markets segmented effectively?
2. Is the organization positioned well among competitors? 3. Has the firm’s market share been increasing? 4. Are the distribution channels reliable & cost effective? 5. Is the sales force effective?

Marketing Opportunity Analysis
6. Does the firm conduct market research? 7. Are product quality & customer service good? 8. Are the firm’s products/services priced appropriately? 9. Does the firm have effective promotion, advertising, & publicity strategies?

Marketing Opportunity Analysis
10. Are the marketing planning & budgeting effective? 11. Do the firm’s marketing managers have adequate experience and training?

Production/Operations
Production/Operations Functions Process Capacity Inventory Workforce Quality

Facility design Technology selection Facility layout Process flow analysis Facility location Line balancing Process control Process

Forecasting Facilities planning Aggregate planning Scheduling Capacity planning Queuing analysis Capacity

Raw materials Work in process Finished goods Materials handling Inventory

Motivation techniques
Production/Operations Job design Work measurement Job enrichment Work standards Motivation techniques Workforce

Quality control Sampling Testing Quality assurance Cost Control Quality

Production/Operations Audit
Are suppliers of materials, parts, etc reliable and reasonable? Are facilities, equipment & machinery in good condition? Are inventory-control policies and procedures effective?

Production/Operations Audit
Are quality-control policies & 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

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 & Development Audit
Are the R&D facilities adequate? If R&D is outsourced, is it cost effective? Are the R&D personnel well qualified? Are R&D resources allocated effectively?

Research & Development Audit
Are MIS and computer systems adequate? Is communication between R&D & other organizational units effective? Are present products technologically competitive?

Management Information Systems (MIS)
Purpose Information ties all business functions together and provides the basis for all managerial decisions. Improve performance of an enterprise by improving the quality of managerial decisions.

Management Information Systems
CIO/CTO Security User-friendly E-commerce CIO = Chief Information Officer CTO = Chief Technology Officer

Management Information Systems Audit
Do managers use the information system to make decisions? Is there a CIO or Director of Information systems position in the firm? Is data updated regularly?

Do managers from all functional areas contribute input to the information system? Are there effective passwords for entry into the firm’s information system? Are strategists of the firm familiar with the information systems of rival firms?

Is the information system user-friendly? Do all users understand the competitive advantages that information can provide? Are computer training workshops provided for users? Is the firm’s system being improved?

PART 4: The External & Internal Assessment

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