1. EXTERNAL
ENVIRONMENT

2. Strategic Management Process
Feedback
Perform
External
Audit #2
Develop
Vision
Mission #1
Establish
Long-Term
Goals #4
Generate,
Evaluate
Select
Strategies #5
Implement
Strategies –
Management
Issues #6
Implement
Strategies-
Marketing,
Finance,
Accounting,
CIS Issues
Measure and
Evaluate
Performance #7
Perform
Internal
Audit #3
Strategy
Evaluation
Strategy
Formulation
Strategy
Implementation

3. External Assessment
Identifies & evaluates events beyond control of firm, like:
Increased foreign
competition
Population shifts
Demographics
Technology

4. External Assessment Examine immediate environment; Then broader,
Industry
Then broader,
General (macro)
Examine ‘stakeholder’
Groups --- how firm
relates

5. External Audit Reveals: Key Opportunities Key Threats
Managers formulate strategies:
Take advantage of opportunities
Avoid/reduce threats

6. Categories to Consider
World economies
Proprietary & key account advantages
Price competitiveness
Technology

7. General, Industry & Competitive environments
Firms must understand present to predict the future. Company’s external environment is divided into 3 main areas:
General (Macro)
Industry
Competitive (Micro)
Let’s review each….

9. PESTEL Framework Political Economic Social Technological Environmental
Legal

10. Political Tariffs Subsidies Import/export laws Quotas
Political variables impact:
“Formulation” of strategies
“Implementation” of strategies

11. Economic Credit Availability Disposable income Interest rates
Inflation rates, Money market rates
Federal government budget deficits
GDP trends, Consumption patterns

12. Economic cont’d Unemployment trends Worker productivity Value of $$
Stock market trends
Foreign countries’ economic conditions
Demand shifts for goods / services
Income differences by region/customer

13. Social Social, cultural, demographic, environmental changes Impacts:
Products
Services
Markets
Customers

14. Social Key Factors Marriages, divorces, births, deaths
Immigration & emigration rates
Life expectancy rate
Per capita income
Attitudes toward business
Average disposable income

15. Key Factors, cont’d Buying behavior Ethical concerns
Attitude toward saving
Education level
Govt regulations
Attitude toward customer service, product quality

16. Technological Gov’t spending on R&D Information & communication
Infrastructures
New technologies & products
Availability of technology

17. Technological
260B
300B
90B

18. Internet Opportunities & threats Information tool Transactions online
Accelerates communication
Alters product life cycles
Speeds distribution
Creates new products / services
Eliminates geographical boundaries

19. Environmental Environmental protection Pollution laws Waste disposal
Energy

20. Legal Corporate / Contract law / Tax Employment / trade unions law
Health & Safety laws
Monopoly & restrictive
practices legislation
Consumer protection
Anti-corruption law
Intl laws affecting business

22. External Factor Evaluation (EFE) Matrix – Stage 1
Steps:
List external factors
Assign weight from 0.0 ‘not
important’ to 1.0 ‘very important’.
Assign 1- 4 rating to each
indicating ‘current response’
Multiply weight by rating
Total scores
Google to learn more

23. EFE Matrix Highest score 4.0, lowest 1.0 Average score is 2.5
4.0 firm is effective handling threats / opportunities

24. (US Tobacco enter China) KEY EXTERNAL FACTORS Wt Rating Score
EFE MATRIX
(US Tobacco enter China)
KEY EXTERNAL FACTORS Wt Rating Score
Opportunities
1. China market favors smoking
.15 1
2. Increasing demand caused by habit
.05 3
3. Internet advertising accelerating growth
4. Company is leader in tobacco industry 4
.60
5. China fastest growing population
.10
.30
Threats
1. Legislation against industry or foreign companies 2
.20
2. Production limits --- increases competition
3. Market concentrated only in China
4. Bad media exposure from US Govt, NGOs
TOTAL
1.00
2.10

25. QUESTIONS??

27. Industry Environment Factors influencing competitive actions
Interactions determine profit potential.
Goal: influence or defend against forces
Influence = above average returns:
Threat of new entrants
Power of suppliers
Power of buyers
Product substitutes
Intensity of rivalry

29. 5 Forces Model Five Forces Threat of New Entrants
Bargaining Power of Buyers
Threat of New Entrants
Threat of
Substitute Products
Rivalry Among Competing Firms
Five Forces
Bargaining Power of Suppliers 14

30. Threat of New Entrants Barriers to Entry * * * * * * *
Economies of Scale *
Product Differentiation *
Barriers to Entry
Capital Requirements *
Switching Costs *
Access to Distribution Channels *
Government Policy *
Expected Retaliation * 12

31. Bargaining Power Suppliers
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of New Entrants
Threat of
Substitute Products
Rivalry Among Competing Firms
Five Forces
Bargaining Power of Suppliers
Supplier Power depends on a number of factors… * 14

32. Supplier Powerful if… * * * * * Dominated by few suppliers.
Suppliers exert power by:
* Threatening to raise prices or to reduce quality *
Dominated by few suppliers. *
Buyer not important *
Suppliers’ important to buyers’. *
Products are differentiated. *
High switching costs. * 16

33. Bargaining Power Buyers (B2B: Distributors)
Bargaining Power of Suppliers
Threat of New Entrants
Bargaining Power of Buyers
Threat of New Entrants
Threat of
Substitute Products
Rivalry Among Competing Firms
Five Forces
Bargaining Power of Buyers
Bargaining Power of buyers depends on a number of factors…
Bargaining Power of Suppliers * 17

34. Buyers Powerful if… * * * * * Large purchases Suppliers are similar
Buyers compete with supplying industry by:
* Bargaining down prices *
Suppliers are similar *
Easy switch other suppliers *
Industry earns low profits
* Forcing higher quality *
Product unimportant to quality
Playing firms off
of each other 18

35. Threat of Substitute Products
Threat of Substitutes
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Threat of Substitute Products
Bargaining Power of Buyers
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry Among Competing Firms
Five Forces
Threat of
Substitute Products
Substitutes are NOT always direct competitors * 23

36. with similar Function limit prices firms charge
Threat of Substitutes
Products
with similar Function limit prices firms charge
Example:
Electronic security systems
instead of security guards
Fax machines or ed attachments in place of FEDEX 21

37. Rivalry Rivalry Reduced rivalry means greater profitability
Threat of New Entrants
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of Substitute Products
Rivalry
Rivalry
Rivalry Among Competing Firms
Bargaining Power of Buyers
Threat of New Entrants
Threat of
Substitute Products
Bargaining Power of Suppliers
Five Forces
Reduced rivalry means greater profitability * 23

38. Occurs if pressured or sees opportunity
Rivalry
Intense rivalry is:
Strategic positioning
Price competition
Advertising battles
Increasing consumer warranties or service
Making new product introductions
Occurs if pressured or sees opportunity
Advertising battles increase demand,
but costly to smaller competitors
Price competition leaves entire industry worse off 24

39. Rivalry - Existing Competitors
Intense competition is more
likely to occur when
Diverse competitors
Slow growth industry
High storage costs
High fixed costs
Companies
similar
High strategic stakes
High exit barriers
Equally balanced competitors 24

40. Interpreting industry analyses
Low entry barriers
Unattractive industry
Suppliers-buyers strong positions
Threats from substitutes
Low profit potential
Intense rivalry

41. Interpreting industry analyses
High entry barriers
Attractive industry
Suppliers-buyers weak positions
Few substitutes
High profit potential
Low to Moderate Rivalry

42. QUESTIONS??

44. Competitor Environment
All companies
compete against:
Competitors
Environment

45. Competitor Environment
Identifying Rivals
Strengths
Weaknesses
Capabilities
Opportunities
Threats
Objectives
Strategies

46. Compare goals to competitors’
Competitor Analysis
Future objectives
Future Objectives:
Compare goals to competitors’
What emphasis?
Attitude toward risk?

47. Competitor Analysis Current Strategy: How are we currently competing?
Future objectives
Current Strategy:
How are we currently competing?
Does strategy adapt to market changes ?
Current Strategy

48. Assumptions competitors have about industry --- themselves?
Competitor Analysis
Future objectives
Assumptions:
Current strategy
Future turbulent
Are we adapting?
Assumptions competitors have about industry --- themselves?
Assumptions

49. Competitor Analysis Capabilities: Our strengths / weaknesses?
Future objectives
Capabilities:
Current strategy
Our strengths / weaknesses?
Compared to competitors?
Assumptions
Capabilities

50. Competitor Analysis Response What are competitors future strategies?
Future Objectives
Response
Current Strategy
What are competitors future strategies?
What advantages do we have?
How will this strengthen our competitiveness?
Assumptions
Capabilities

52. Competitive Profile Matrix (CPM)
Compares Competitors to You
Strengths / Weaknesses
Weights: 0 – 1 level of importance
Rating:
4=major strength =minor strength,
2=minor weakness 1=major weakness.

53. Competitive Profile Matrix
Critical Success Factors (CSF)
Wt Rating Score Rating Score Rating Score
IPhone
Nokia
Sony-Ericsson
Advertising
0.20 1 4
0.80 3
0.60
Product Quality
0.10
0.40
0.30
Price Competitiveness
Management
Financial Position
0.15
0.45
Customer Loyalty 2
Global Expansion
Market Share
0.05
TOTAL
1.00
3.15
3.25
2.8

54. More Strategy Tools…

55. QUESTIONS??