1. WEEK 3 The External Assessment

2. Comprehensive Strategic Management Model (External Assessment/Audit)
Vision
&
Mission
Long-Term
Objectives
Generate,
Evaluate,
Select
Strategies
Implement
Strategies:
Mgmt Issues
Implement
Strategies:
Marketing,
Fin/Acct,
R&D, CIS
Measure &
Evaluate
Performance
Internal
Audit

3. External Assessment
The purpose external assessment is to develop a finite list of opportunities that could benefit a firm and threats that should be avoided
Finite mean it is aimed at identifying key variables that offer actionable responses

4. Five Broad Category of External Forces
Economic forces
Social, culture, demographic and natural environment forces
Political, government and legal forces
Technology forces
Competitive forces

5. Special Interest Groups An Organization’s Opportunities
Key External Forces & the Organization
Competitors
Suppliers
Distributors
Creditors
Customers
Employees
Communities
Managers
Stockholders
Labor Unions
Special Interest Groups
Products
Services
Economic forces
Social, culture, demographic and natural environment forces
Political, government and legal forces
Technology forces
Competitive forces
An Organization’s Opportunities
& Threats

6. Important to achieve Long-term Applicable to competing firms
The process of Performing External Audit
Important to achieve Long-term
and annual objectives
External Factors
Measurable
Applicable to competing firms
Hierarchical

7. The Industry Organization (I/O) View
Advocate that external (industry) factors are more important than internal factors in a fir achieving competitive advantage
Contend that external factors and the industry in which a firm choose to compete has a stronger influence on the firm’s performance than do the internal functional

8. Economic Forces – Key economic Variables
Change to service economic
Availability of credit
Level of disposable income
Propensity of people spend
Interest rate
Inflation rate
Money market rates
Gross Domestic product trend
Employment rate/trend
Value of dollar in world markets
Stock market trends
Foreign countries economics condition
Import/export factors
Income differences by consumers

9. Economic Forces – Countries GDP 2010
The ten largest economies in the world in 2010, measured in nominal GDP (millions of USD), according to the International Monetary Fund

10. Economic Forces – Inflation rate in Malaysia
Year
Inflation rate (consumer prices) (%)
2000
2.8
2001
1.7
2002
1.5
2003
1.9
2004
1.1
2005
1.3
2006 3
2007
3.8
2008 2
2009
5.4

11. Social, Cultural, Demographic & Environmental Forces
Have a major impact on all products, services, markets and consumers
Shaping the way people live, work, produce and consume

12. Social, Cultural, Demographic & Environmental Forces
Aging population - occurs when the median age of a country or region rises
Less Caucasian
Widening gap between rich & poor
no ethnic or racial majority

13. Number of marriages & divorces
Key Social, Cultural, Demographic & Environmental Variables
Childbearing rates
Number of marriages & divorces
Lifestyle
Attitudes towards work/ saving/investing/business
Air pollution/ water pollution/ recycle. Waste management

14. Social, Cultural, Demographic & Environmental Forces – example UK population grows

15. Political, Government & Legal Forces
Government is the major regulators, deregulators, employers, customers or organization
Firm that depend heavily on government contract can be the most important part of external audit
Recent trend
Government are taking control of more and more companies (in the UK, 2009, government took 95% stake in the Royal Bank) (US government taking over Fannie Mae and Freddie Mac)
More companies accept government bail-out (BMB and MISC – in Malaysia)

16. Political, Government & Legal Forces – some key variables
Government regulations or de-regulations
Changes in Tax laws
Special tariff
Environment protection laws
Legislation on equal employment
Level of government subsidies
Import-export regulation
Government fiscal and monetary policy
Political conditions in foreign countries
Size of government budget
Countries relationship
Corruption index

17. Technology Forces Internet has changed the nature of opportunities by:
altering cycles of products
increase speed of distribution
create new products and services
erasing limitations of traditional geographic markets
Altering economic scale
Changing entry barriers
Redefining the relationship between industries, supplies, creditors, customers and competitors

18. Technology Forces Technology advancement can effect:
Product or services, markets, suppliers, competitors, customers, manufacturing processes, marketing practices and competitive position
Create new markets, result in proliferation of new and improve med product, change the relative competitive cost position
Create new competitive advantages that are more powerful than existing advantages

19. Competitive Forces Identifying Rival Firms Strengths Weaknesses
Capabilities
Opportunities
Threats
Objectives
Strategies

20. Competitive Forces 7 Characteristics of most Competitive U.S. Firms:
Market share matters
Understand what business you are in
Broke or not, fix it
Innovate or evaporate

21. Competitive Forces 7 Characteristics of most Competitive U.S. Firms:
Acquisition is essential to growth
People make a difference
No substitute for quality

22. The Five-Forces Model of Competition
Porter's five forces is a framework for the industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979.
It draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market.
This concept involves a relationship between competitors within an industry, potential competitors, suppliers, buyers and alternative solutions to the problem being addressed.

23. The Five-Forces Model of Competition
Potential development
of substitute products
Rivalry among
competing firms
Bargaining power
of suppliers
Bargaining power
of consumers
Potential entry of new competitors

24. The Five-Forces Model of Competition

25. Reducing the Bargaining Power of Suppliers
Partnering, Supply chain management, supply chain training, increase dependency, build knowledge of supplier costs and methods, take over a supplier
Reducing the Treat of New Entrants - Increase minimum efficient scales of operations, create a marketing / brand image (loyalty as a barrier), protection of intellectual property, alliances with linked products / services, tie up with suppliers, tie up with distributors
Reducing the Competitive Rivalry between Existing Players - Avoid price competition, differentiate your product, buy out competition, reduce industry over-capacity, focus on different segments, communicate with competitors
Reducing the Bargaining Power of Customers- partnering, supply chain management, increase loyalty, increase incentives and value added, move purchase decision away from price, cut put powerful intermediaries (go directly to customer)
Reducing the Threat of Substitutes- Legal actions, increase switching costs, alliances, customer surveys to learn about their preferences, enter substitute market and influence from within  

26. Source of External Information
Published report/information
Internet- websites (IMF, world Bank, EPU, Central Bank, stock exchange, etc)
Standard and Poor – industry surveys
Example: Apparel & Footwear

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

28. Industry Analysis: The External Factor Evaluation (EFE) Matrix Steps:
List key external factors. List the opportunities and then threat
Assign each factors a weight that ranges from 0.0 (not important) to 1.0 (very important)
Assign rating between 1 to 4 (1=the response is poor, 2=the response is average, 3= the response is above average, 4= the response is superior)
Multiple each factor’s weight by its rating to determine weighted score
Sum the weighted score for each variable to determines the total weighted score for the organization

31. Total weighted score of 4.0
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

32. Include both internal and external factors
Industry Analysis: Competitive Profile Matrix (CPM)
Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions
Include both internal and external factors

33. The rating score: 4= major strength 3= minor strength 2=minor weakness
Industry Analysis: Competitive Profile Matrix (CPM)
The rating score:
4= major strength
3= minor strength
2=minor weakness
1=major weakness

34. Samsung Apple Nokia Market share 0.15 3 0.45 Inventory sys 0.08 0.24
CSF’s Wt
Rating
Wt’d Score
Market share
0.15 3
0.45
Inventory sys
0.08
0.24
Fin. position
0.10
0.30
Prod. Quality 4
0.32
Cons. Loyalty
0.02
0.06
Sales Distr
Global Exp.
Org. Structure
0.05

35. Samsung Apple Nokia CSF’s (cont’d) Prod. Capacity 0.04 4 0.16Wt
Rating
Wt’d Score
Prod. Capacity
0.04 4
0.16
E-commerce
0.10 3
0.30
Customer Serv 2
0.20
Price competitive
0.02 1
Mgt. experience
0.01
Total
1.00
2.99

36. Issues for Review or Discussion
List 8 key external forces that affect Proton
Using Porter’s model, explain competitiveness for local fast food restaurant (example: Marry Brown, Radix Fried Chicken)