1. BUS 411 Lecture 4

2. Agenda Assignment 2 Assignment 3 posted
Due Right Now
Assignment 3 posted
Covers Chapter 3 & 4
Due Feb 14
Use Class generated SWOT for IFE and EFE
Finish Lecture on The External Assessment
Begin Lecture in the Internal Assessment

3. The External Assessment
Chapter Three

4. The Five-Forces Model of Competition
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5. 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.
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6. The Five-Forces Model Rivalry among competing firms
Most powerful of the five forces
Focus on competitive advantage of strategies over other firms
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7. The Five-Forces Model
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8. The Five-Forces Model Potential Entry of New Competitors
Barriers to entry are important
Quality, pricing, and marketing can overcome barriers
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9. 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
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10. 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
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11. The Five-Forces Model Potential development of substitute products
Pressure increases when:
Prices of substitutes decrease
Consumers’ switching costs decrease
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12. 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
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13. 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
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14. 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
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15. Sources of External Information
Unpublished sources include customer surveys, market research, speeches at professional and shareholders’ meetings, television programs, interviews, and conversations with stakeholders.
Published sources of strategic information include periodicals, journals, reports, government documents, abstracts, books, directories, newspapers, and manuals.
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16. Sources of External Information: Web Sites
UMFK Databases
These are clickable links in slideshow mode.

17. 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
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18. 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
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19. Industry Analysis: The External Factor Evaluation (EFE) Matrix
Economic
Social
Cultural
Demographic
Environmental
Political
Governmental
Technological
Competitive
Legal
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20. 5 Steps (Page 77-78) 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

21. EFE Matrix for a Local Ten-Theater Cinema Complex
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22. 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

23. 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
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24. 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

25. An Example Competitive Profile Matrix
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26. Strategic Management Concepts: A Competitive Advantage Approach
Sixteenth Edition
Chapter 4
The Internal Assessment
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27. 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

28. Learning Objectives (1 of 2)
4.1 Describe the nature and role of an internal assessment in formulating strategies. 4.2 Discuss why organizational culture is so important in formulating strategies. 4.3 Identify the basic functions (activities) that make up management and their relevance in formulating strategies. 4.4 Identify the basic functions of marketing and their relevance in formulating strategies. 4.5 Discuss the nature and role of finance and accounting in formulating strategies.
After studying this chapter, you should be able to do the following:
4-1. Describe the nature and role of an internal assessment in formulating strategies.
4-2. Discuss why organizational culture is so important in formulating strategies.
4-3. Identify the basic functions (activities) that make up management and their relevance
in formulating strategies.
4-4. Identify the basic functions of marketing and their relevance in formulating strategies.
4-5. Discuss the nature and role of finance/accounting in formulating strategies.
4-6. Discuss the nature and role of production/operations in formulating strategies.
4-7. Discuss the nature and role of research and development (R&D) in formulating
strategies.
4-8. Discuss the nature and role of management information systems (MIS) in formulating
4-9. Explain value chain analysis and its relevance in formulating strategies.
4-10. Develop and use an Internal Factor Evaluation (IFE) Matrix.

29. Learning Objectives (2 of 2)
4.6 Discuss the nature and role of production/operations in formulating strategies. 4.7 Discuss the nature and role of research and development (R&D) in formulating strategies. 4.8 Discuss the nature and role of management information systems (MIS) in formulating strategies. 4.9 Explain value chain analysis and its relevance in formulating strategies Develop and use an Internal Factor Evaluation (IFE) Matrix.

30. Figure 4-1 A Comprehensive Strategic-Management Model
Source: Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40. Also, Ratnaningsih, Anik, and Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, “Balance Scorecard of David’s Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,” Journal of Mathematics and Technology, no. 4, (October 2010): 20.

31. 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.
Figure 4-2 The Process of Gaining Competitive Advantage in a Firm Weaknesses → Strengths → Distinctive Competencies → Competitive Advantage
Strategies are designed in part to improve on a firm’s weaknesses, turning them into strengths—and maybe even into distinctive competencies that can provide the firm with competitive advantages over rival firms.

32. The Process of Performing an Internal Audit
The internal audit
Requires gathering, assimilating, and prioritizing information about the firm's management, marketing, finance, accounting, production/operations, research and development (R and D), and management information systems operations
Provides more opportunity for participants to understand how their jobs, departments, and divisions fit into the whole firm
All organizations have strengths and weaknesses in the functional areas of business. No enterprise is equally strong or weak in all areas. Strategic planning is most successful when managers and employees from all functional areas work together to provide ideas and information.

33. The Resource-Based View (R B V) (1 of 3)
The Resource-Based View (R B V) Approach
contends that internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage

34. The Resource-Based View (R B V) (2 of 3)
Proponents of the R B V contend that organizational performance will primarily be determined by internal resources that can be grouped into three all-encompassing categories:
physical resources
human resources
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.

35. The Resource-Based View (R B V) (3 of 3)
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 are called Empirical Indicators
These enable a firm to implement strategies that improve its efficiency and effectiveness and lead to a sustainable competitive advantage.
The basic premise of the RBV is that the mix, type, amount, and nature of a firm’s internal resources should be considered first and foremost in devising strategies that can lead to sustainable competitive advantage.

36. Integrating Strategy and Culture
Organizational culture significantly affects planning activities.
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.
Every business entity has a unique organizational culture that impacts strategic-planning activities.

37. Organizational Culture
Organizational culture is “a pattern of behavior that has been developed by an organization as it learns to cope with its problem of external adaptation and internal integration and that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think, and feel.”
Remarkably resistant to change, culture can represent a major strength or weakness for any firm. It can be an underlying reason for strengths or weaknesses in any of the major business functions.

38. 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

39. Where would you work?

40. Cultural Products Values Beliefs Rites Rituals Ceremonies Myths
Stories
Legends
Sagas
Language
Metaphors
Symbols
Folktales
Heroes and heroines
These products or dimensions are levers that strategists can use to influence and direct strategy formulation, implementation, and evaluation activities.

41. Table 4-2 Aspects of Organizational Culture
Dimension
Low
Degree
High
1. Strong work ethic; arrive early and leave late 1 2 3 4 5
2. High ethical beliefs; clear code of business ethics followed
3. Formal dress; shirt and tie expected
4. Informal dress; many casual dress days
5. Socialize together outside of work
6. Do not question supervisor’s decision
7. Encourage whistle-blowing
8. Be health conscious; have a wellness program
9. Allow substantial “working from home”
10. Encourage creativity, innovation, and open-mindedness
11. Support women and minorities; no glass ceiling
12. Be highly socially responsible; be philanthropic
13. Have numerous meetings
14. Have a participative management style
15. Preserve the natural environment; have a sustainability program
Table 4-2 provides some example (possible) aspects of an organization’s culture. Note that you might want to ask employees and managers to rate the degree that the dimension characterizes the firm.
Fifteen Example (Possible) Aspects of an Organization’s Culture

42. Management
The functions of management consist of five basic activities:
planning
organizing
motivating
staffing
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.

43. The Basic Functions of Management (1 of 2)
Planning: forecasting, establishing objectives, devising strategies, and developing policies
Organizing: organizational design, job specialization, job descriptions, span of control, coordination, job design, and job analysis
Motivating: leadership, communication, work groups, behavior modification, delegation of authority, job enrichment, job satisfaction, needs fulfillment, organizational change, employee morale, and managerial morale
Planning consists of all those managerial activities related to preparing for the future.
Organizing includes all those managerial activities that result in a structure of task and authority relationships.
Motivating involves efforts directed toward shaping human behavior.

44. The Basic Functions of Management (2 of 2)
Staffing: wage and salary administration, employee benefits, interviewing, hiring, firing, training, management development, employee safety, equal employment opportunity, and union relations
Controlling: quality control, financial control, sales control, inventory control, expense control, analysis of variances, rewards, and sanctions
Staffing refers to human resource (HR) activities.
Controlling refers to all those managerial activities directed toward ensuring that actual results are consistent with planned results.

45. Management Audit Checklist of Questions (1 of 2)
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?
This checklist of questions can help determine specific strengths and weaknesses in the functional area of business. An answer of no to any question could indicate a potential weakness. Positive or yes answers to the checklist questions suggest potential areas of strength.

46. Management Audit Checklist of Questions (2 of 2)
Are job descriptions and job specifications clear?
Is employee morale high?
Are employee turnover and absenteeism low?
Are organizational reward and control mechanisms effective?

47. Marketing
Marketing
the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services
Marketing can be described as the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services.

48. Functions of Marketing
Customer analysis
Selling products and services
Product and service planning
Pricing
Distribution
Marketing research
Cost/ benefit analysis
These are the seven basic functions of marketing. Each will be described on the following slides.

49. Customer Analysis 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
Customer analysis is the first function of marketing.

50. Selling Products and Services
includes many marketing activities, such as advertising, sales promotion, publicity, personal selling, sales force management, customer relations, and dealer relations
Selling products and services is the second function of marketing. Successful strategy implementation generally rests on the ability of an organization to sell some product or service.

51. 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
Product and service planning is the third function of marketing.

52. Pricing
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.
Pricing is the fourth function of marketing.

53. 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
Distribution is the fifth function of marketing.

54. 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
Marketing research is the sixth function of marketing.

55. Cost/Benefit Analysis
Three steps are required:
compute the total costs associated with a decision
estimate the total benefits from the decision
compare the total costs with the total benefits
Cost/benefit analysis is the seventh function of marketing.

56. Marketing Audit Checklist of Questions (1 of 2)
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?
These questions about marketing must be examined in strategic planning.

57. Marketing Audit Checklist of Questions (2 of 2)
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?

58. Finance/Accounting Functions (1 of 4)
The functions of finance/accounting comprise three decisions:
The investment decision
The financing decision
The dividend decision
According to James Van Horne, the functions of finance/accounting comprise three decisions: the investment decision, the financing decision, and the dividend decision.

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