1. Copyright 2005 Prentice Hall1 Bus 411 Day 5

2. Copyright 2005 Prentice Hall Ch 3 -2 Agenda Assignment # 1 Not Corrected (Yet)  Will have done ASAP no later than Monday Morning Google SWOT (group Work) Discussion on External Assessment  Opportunities and threats Assignment #2 assigned today  Due Feb 14

3. Copyright 2005 Prentice Hall Ch 3 -3 Google SWOT The purpose of this exercise is to give students experience identifying an organization’s opportunities, threats, strengths, and weaknesses. INSTRUCTIONS:  Join in a group of 2-4 students  Identify Google’s major opportunities, threats, strengths, and weaknesses. List these under separate headings. You should have a least 5 items in each section  In class discussion, compare lists of external and internal factors. From the discussion, students should add to their lists. Save this information for use in later exercises during the term.

4. Copyright 2005 Prentice Hall Ch 3 -4 SWOT (2005) Strengths: 1.Strong brand recognition and recall 2.Brand equity (Ranked #1 among online brands by EquiTrend) 3.Talented employee base 4.Access to Google available to anyone with Internet access 5.Good cash reserves ($426,900,000) 6.Strong revenues (117 percent over previous year) 7.Strong profits (profits increased 106 percent over previous year) 8.Relationships with major corporations like AOL 9.Culture of innovation and accountability 10.Products based on solving consumer needs Weaknesses: 1.Corporate governance minimizes power of nonemployee shareholders 2.Lack of independence on board of directors 3.Vision for company may be unclear 4.Fast growth may be unmanageable and unsustainable 5.Technology that supports targeting advertising can result in inappropriate positioning (e.g., Kraft ad on the Web site for a White Nationalist group) 6.Net profit margin is weak (12.51 percent) compared to Yahoo! (23.00 percent) 7.Company is smaller and less profitable compared to Yahoo! (e.g., Yahoo! revenues were $3,574,517,000 compared to $3,189,223 for Google; Yahoo! spent $368,760,000 on research development while Google spent $225,632,000; Yahoo! net income was $839,553,000 while Google’s was $399,100,000.) 8.Little physical presence (offices) in Asia and none in South America or Africa

5. Copyright 2005 Prentice Hall Ch 3 -5 SWOT (Part 2) Opportunities: 1.Internet-based technologies and businesses continue to develop 2.Worldwide growth in Internet coverage and use 3.Large market still to be tapped (currently only 15.7 percent of the world has Internet access). Asia, in particular, is a valuable potential market. It makes up 56.4 percent of the world’s population, but only 9.9 percent of its population is online (according to www.internetworldstats.com). 4.Increasing demand for Web-based business and consumer solutions 5.Advertising spending declining in other media but increasing online 6.Potential to expand into other media Threats: 1.Microsoft has stated its plans to threaten Google’s future 2.Other competitors (Yahoo, eBay, MSN, and others) 3.Potential for click fraud 4.Potential for attacks on Google’s servers 5.Legal constraints in the area of intellectual property rights 6.Consumer attitudes toward online advertising

6. Copyright 2005 Prentice Hall Ch 3 -6 Chapter 3 The External Assessment Strategic Management: Concepts & Cases 11 th Edition Fred David

7. Copyright 2005 Prentice Hall Ch 3 -7 Strategic Management Process Model

8. Copyright 2005 Prentice Hall Ch 3 -8 Chapter Outline The Nature of the External Audit The Industrial Organization (I/O) View Social, Cultural, Demographic & Environmental Forces

9. Copyright 2005 Prentice Hall Ch 3 -9 Chapter Outline ( cont’d ) Political, Governmental, and Legal Forces Technological Forces Competitive Forces

10. Copyright 2005 Prentice Hall Ch 3 -10 Chapter Outline ( cont’d ) Porter’s Five-Forces Model Sources of External Information Forecasting Tools & Techniques

11. Copyright 2005 Prentice Hall Ch 3 -11 Chapter Outline ( cont’d ) Global Challenge The External Factor Evaluation (EFE) Matrix Competitive Profile Matrix (CPM)

12. Copyright 2005 Prentice Hall Ch 3 -12 It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. – Charles Darwin External Assessment Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map. – Wayne Calloway, Former CEO, PepsiCo

13. Copyright 2005 Prentice Hall Ch 3 -13 External Strategic Management Audit -- Environmental Scanning -- Industry Analysis

14. Copyright 2005 Prentice Hall Ch 3 -14 Identify & Evaluate factors beyond the control of a single firm  Increased foreign competition  Population shifts  Aging society  Fear of traveling  Stock market volatility External Strategic Management Audit

15. Copyright 2005 Prentice Hall Ch 3 -15 Purpose of External Audit  Identify Opportunities Threats External Strategic Management Audit

16. Copyright 2005 Prentice Hall Ch 3 -16 Key External Forces 1. Economic forces 2. Social, cultural, demographic & environmental forces 3. Political, governmental & legal forces 4. Technological forces 5. Competitive forces

17. Copyright 2005 Prentice Hall Ch 3 -17 Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products Services Markets Natural Environment Key External Forces Opportunities & Threats Key External Forces & the Organization

18. Copyright 2005 Prentice Hall Ch 3 -18 Gather competitive intelligence – Social Cultural Demographic Environmental Governmental Legal Technological External Audit

19. Copyright 2005 Prentice Hall Ch 3 -19 External Audit – Sources of Information Internet Libraries Suppliers Distributors Salespersons Customers Competition

20. Copyright 2005 Prentice Hall Ch 3 -20 Internet Resources www.redherring.com www.fastcompany.com www.business2.com online.wsj.com www.hoovers.com www.ecommercetimes.com www.businessplanarchive.org/ www.informationweek.com/ www.thestandard.com cbs.marketwatch.com www.morningstar.com finance.yahoo.com

21. Copyright 2005 Prentice Hall Ch 3 -21 Performing External Audit -- Key Factors Vary over time Vary by industry

22. Copyright 2005 Prentice Hall Ch 3 -22 Performing External Audit -- Variables Market share Breadth of competing products World economies Foreign affiliates Proprietary account advantages

23. Copyright 2005 Prentice Hall Ch 3 -23 Performing External Audit -- Variables Price competitiveness Technological advancements Interest rates Pollution abatement

24. Copyright 2005 Prentice Hall Ch 3 -24 Performing External Audit External Factors Measurable Long-term orientation Applicable to competing firms Hierarchical

25. Copyright 2005 Prentice Hall Ch 3 -25 Industrial Organization (I/O) View -- Industry factors more important than internal factors Performance determined by industry forces

26. Copyright 2005 Prentice Hall Ch 3 -26 Economies of Scale Industry Properties Barriers to market entry Product differentiation Level of competitiveness I/O Perspective Firm Performance

27. Copyright 2005 Prentice Hall Ch 3 -27 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”

28. Copyright 2005 Prentice Hall Ch 3 -28 Economic Forces

29. Copyright 2005 Prentice Hall Ch 3 -29 Economic Forces Trends in the dollar’s value European Union Layoffs Economic standard of living

30. Copyright 2005 Prentice Hall Ch 3 -30 Economic Standard of Living

31. Copyright 2005 Prentice Hall Ch 3 -31 Russia’s Economy Political bureaucracy Illegal actions by officials and policemen State-run gas; monopoly purchase of newspaper Foreign direct investment

32. Copyright 2005 Prentice Hall Ch 3 -32 Economic Forces Availability of credit Level of disposable income Interest rates Inflation rates

33. Copyright 2005 Prentice Hall Ch 3 -33 FDI 2005 http://neweconomist.blogs.com/new_economist/ economy_international_comparative/index.html

34. Copyright 2005 Prentice Hall Ch 3 -34 Finding Economic Data http://www.economagic.com/ http://www.econdata.net/ http://www.census.gov/econ/www/ http://www.bls.gov/home.htm http://bea.gov/

35. Copyright 2005 Prentice Hall Ch 3 -35 Social, Cultural, Demographic & Environmental Forces Major Impact – Products Services Markets Customers

36. Copyright 2005 Prentice Hall Ch 3 -36 Social, Cultural, Demographic & Environmental Forces U.S. Facts Aging population Less Caucasian Widening gap between rich & poor 2025 = 18.5% population >65 years 2075 = no ethnic or racial majority

37. Copyright 2005 Prentice Hall Ch 3 -37 Social, Cultural, Demographic & Environmental Forces Facts World population approaching 7 billion World population = 8 billion by 2028 World population = 9 billion by 2054 U.S. population < 300 million

38. Copyright 2005 Prentice Hall Ch 3 -38 Trends  More American households with people living alone  By 2021 Hispanics will be largest minority group  Aging Americans – affects all organizations  Population shift to the south and west  Less interested in fitness and exercise  Decimation and degradation of the natural environment Social, Cultural, Demographic & Environmental Forces

39. Copyright 2005 Prentice Hall Ch 3 -39 U.S. – Mexico Border North America’s fastest growing region 1,500 maquiladoras No longer largest exporter to U.S.

40. Copyright 2005 Prentice Hall Ch 3 -40 Social, Cultural, Demographic & Environmental Forces Global trends 2003 – China largest exporter to U.S. 2003 –– Asia receives highest foreign direct investment Cheaper labor and utilities than Mexico China joined WTO

41. Copyright 2005 Prentice Hall Ch 3 -41 Global trends China’s labor rates less than Mexico China provides more site location incentives than Mexico Social, Cultural, Demographic & Environmental Forces

42. Copyright 2005 Prentice Hall Ch 3 -42 Social, Cultural, Demographic & Environmental Forces More educated consumers Aging population Minorities more influential Local rather than federal solutions 21 st Century Trends

43. Copyright 2005 Prentice Hall Ch 3 -43 Social, Cultural, Demographic & Environmental Forces (cont’d) Fixation with youth decreasing Hispanics increase to 15% by 2021 African American increase to 14% by 2021 21 st Century Trends

44. Copyright 2005 Prentice Hall Ch 3 -44 Key Social, Cultural, Demographic & Environmental Variables Number of marriages & divorces Number of special interest groups Number of births & deaths Immigration & emigration rates Childbearing rates

45. Copyright 2005 Prentice Hall Ch 3 -45 Actuarial rates Monitor Key Variables Per capita income Attitudes toward business Avg. disposable income Social, Cultural, Demographic & Environmental Forces

46. Copyright 2005 Prentice Hall Ch 3 -46 Consumer behavior Monitor Key Variables Ethical concerns Attitudes toward saving Racial equality Social, Cultural, Demographic & Environmental Forces

47. Copyright 2005 Prentice Hall Ch 3 -47 Avg. educational level Monitor Key Variables Governmental regulation Attitudes toward customer service Attitudes toward quality Social, Cultural, Demographic & Environmental Forces

48. Copyright 2005 Prentice Hall Ch 3 -48 Energy conservation Monitor Key Variables Social responsibility Leisure time values Recycling Social, Cultural, Demographic & Environmental Forces

49. Copyright 2005 Prentice Hall Ch 3 -49 Waste management Monitor Key Variables Air & water pollution Ozone depletion Endangered species Social, Cultural, Demographic & Environmental Forces

50. Copyright 2005 Prentice Hall Ch 3 -50 Political, Government & Legal Forces Key opportunities & threats Antitrust legislation Tax rates Lobbying efforts Patent laws Government Regulation

51. Copyright 2005 Prentice Hall Ch 3 -51 Political, Government & Legal Forces Political variables impact –  Formulation of strategies  Implementation of strategies Increasing Global Interdependence

52. Copyright 2005 Prentice Hall Ch 3 -52 Political, Government & Legal Forces Strategists in a global economy –  Forecast political climates  Legalistic skills  Diverse world cultures Increasing Global Interdependence

53. Copyright 2005 Prentice Hall Ch 3 -53 Political, Government & Legal Forces Worldwide trend toward similar consumption patterns Global buyers and sellers E-commerce Technology for instant currency transfers Globalization of Industry

54. Copyright 2005 Prentice Hall Ch 3 -54 Key Political, Governmental, & Legal Variables Special tariffs Tax law changes PAC’s Voter participation rates Regulation/deregulation

55. Copyright 2005 Prentice Hall Ch 3 -55 Key Political, Governmental, & Legal Variables (cont’d) Environmental protection laws Changes in patent laws Equal employment legislation Government subsidies Number of patents

56. Copyright 2005 Prentice Hall Ch 3 -56 Key Political, Governmental, & Legal Variables (cont’d) Import/export regulations Global relationships Political conditions Location and severity of terrorist activity Anti-trust enforcement

57. Copyright 2005 Prentice Hall Ch 3 -57 Technological Forces Major Impact – Internet Communications Semiconductors

58. Copyright 2005 Prentice Hall Ch 3 -58 Technological Forces Significance of IT Chief Information Officer (CIO) Chief Technology Officer (CTO)

59. Copyright 2005 Prentice Hall Ch 3 -59 Technological Forces Essential for nearly every strategic decision Technology-based issues

60. Copyright 2005 Prentice Hall Ch 3 -60 Competitive Forces Collection & evaluation of data on competitors is essential for successful strategy formulation

61. Copyright 2005 Prentice Hall Ch 3 -61 Competitive Forces Competition on virtually all industries can be described as intense.

62. Copyright 2005 Prentice Hall Ch 3 -62 Competitive Forces Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies Identifying Rival Firms

63. Copyright 2005 Prentice Hall Ch 3 -63 Key Questions Concerning Competitors Their objectives and strategies Their weaknesses Their responses to external variables Their vulnerability to our alternative strategies Their strengths

64. Copyright 2005 Prentice Hall Ch 3 -64 Key Questions Concerning Competitors (cont’d) Entry and exit of firms in the industry Our product/service positioning Key factors for our current position in industry Sales/profit rankings of competitors over time Our vulnerability to strategic counterattack

65. Copyright 2005 Prentice Hall Ch 3 -65 Key Questions Concerning Competitors (cont’d) The threat of substitute products/services Nature of supplier & distributor relationships Should we keep our strategies secret from employees and stakeholders?

66. Copyright 2005 Prentice Hall Ch 3 -66 Competitive Forces 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 Sources of Corporate Information

67. Copyright 2005 Prentice Hall Ch 3 -67 Competitive Forces 1. Market share matters 2. Understand what business you are in 3. Broke or not, fix it 4. Innovate or evaporate 7 Characteristics of most Competitive U.S. Firms:

68. Copyright 2005 Prentice Hall Ch 3 -68 Competitive Forces 5. Acquisition is essential to growth 6. People make a difference 7. No substitute for quality 7 Characteristics of most Competitive U.S. Firms:

69. Copyright 2005 Prentice Hall Ch 3 -69 The Five-Forces Model of Competition Potential development of substitute products Rivalry among competing firms Bargaining power of suppliers Potential entry of new competitors Bargaining power of consumers

70. Copyright 2005 Prentice Hall Ch 3 -70 Steps to Determine if an Acceptable Profit Can be Earned 1. Identify key aspects or elements of each competitive force 2. Evaluate how strong and important each element is for the firm 3. Decide whether the collective strength of the elements is worth the firm entering or staying in the industry

71. Copyright 2005 Prentice Hall Ch 3 -71 The Five-Forces Model Most powerful of the five forces Focus on competitive advantage of strategies Rivalry Among Competing Firms

72. Copyright 2005 Prentice Hall Ch 3 -72 The Five-Forces Model Barriers to entry are important Quality, pricing, and marketing can overcome barriers Potential Entry of New Competitors

73. Copyright 2005 Prentice Hall Ch 3 -73 The Five-Forces Model Pressures increase when consumer’s switching costs decrease Firm’s plans for increased capacity & market penetration Potential Development of Substitute Products

74. Copyright 2005 Prentice Hall Ch 3 -74 The Five-Forces Model Large number of suppliers & few substitutes affects intensity of competition Backward integration can gain control or ownership of suppliers Bargaining Power of Suppliers

75. Copyright 2005 Prentice Hall Ch 3 -75 The Five-Forces Model Customers concentrated or buying in volume affects intensity of competition Consumer power is higher where products are standard or undifferentiated Bargaining Power of Consumers

76. Copyright 2005 Prentice Hall Ch 3 -76 Conditions where Consumers Gain Bargaining Power If they can inexpensively switch If they are particularly important If sellers are struggling in the face of falling consumer demand If they are informed about seller’s products, prices and costs. If they have discretion in whether and when they purchase the product.

77. Copyright 2005 Prentice Hall Ch 3 -77 Forecasting Tools and Techniques Forecasts are educated assumptions about future trends and events  Quantitative techniques – Most appropriate when historical data is available and there is a constant relationship  Qualitative techniques

78. Copyright 2005 Prentice Hall Ch 3 -78 The Global Challenge Faced by U.S. Firms -- Gain & maintain exports to other nations Defend domestic markets against imported goods

79. Copyright 2005 Prentice Hall Ch 3 -79 The Global Challenge Simultaneously globally competitive & nationally responsive Multinational Corporations (MNC’s)

80. Copyright 2005 Prentice Hall Ch 3 -80 The Global Challenge Worldwide integration of:  Strategy formulation  Strategy implementation  Strategy evaluation Globalization

81. Copyright 2005 Prentice Hall Ch 3 -81 The Global Challenge  Similar consumption patterns  Global buyers and sellers  E-commerce  Instant transmission of money & information Globalization of Industries

82. Copyright 2005 Prentice Hall Ch 3 -82 Industry Analysis: The External Factor Evaluation (EFE) Matrix CompetitivePoliticalCultural TechnologicalEnvironmentalSocial GovernmentalDemographicEconomic Summarize & Evaluate

83. Copyright 2005 Prentice Hall Ch 3 -83 Industry Analysis: The External Factor Evaluation (EFE) Matrix CompetitivePoliticalCultural TechnologicalEnvironmentalSocial GovernmentalDemographicEconomic Summarize & Evaluate

84. Copyright 2005 Prentice Hall Ch 3 -84 5 Steps (Page 110-111) 1.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 1.Multiply the rating by the weight 2.Sum the weighted scores

85. Copyright 2005 Prentice Hall Ch 3 -85 EFE – Gateway Computers (2003) Key External Factors WeightRating Wtd Score Opportunities 1. Global PC market expected to grow 20% in 2004 0.1030.30 2. Cost of PC component parts expected to decrease 10% - 2004 0.1030.30 3. Internet use growing rapidly0.0520.10 4. China entered WTO; lowered taxes for importing PC’s 0.101 5. The average income for PC worker has declined from $40K/yr to $30k/yr 0.0530.15

86. Copyright 2005 Prentice Hall Ch 3 -86 EFE – Gateway Computers (2003) (cont’d) Key External Factors WeightRating Wtd Score Opportunities (cont’d) 6. Modernization of business firms and government agencies 0.0520.10 7. U.S. (& world) economies recovering0.0530.15 8. 30% of Chinese population can afford a PC; only 10% of homes have a PC 0.051 Threats 0.101 1. Intense rivalry in industry0.1010.05

87. Copyright 2005 Prentice Hall Ch 3 -87 EFE – Gateway Computers (2003) (cont’d) Key External Factors WeightRating Wtd Score Threats (cont’d) 2. Severe price cutting in PC industry0.1020.20 3. Different countries have different reg’s and infrastructure for PC’s 0.051 4. Palm & PDA becoming substitutes0.0530.15 5. Demand exceeds supply of experienced PC workers 0.0540.20 6. Birth rate in U.S. declining annually0.0530.15

88. Copyright 2005 Prentice Hall Ch 3 -88 EFE – Gateway Computers (2003) (cont’d) Key External Factors WeightRating Wtd Score Threats (cont’d) 7. U.s. consumers and businesses delaying purchase of PC’s 0.0520.10 8. PC firms diversifying into consumer electronics 0.0530.15 Total1.002.40

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90. Copyright 2005 Prentice Hall Ch 3 -90

91. Copyright 2005 Prentice Hall Ch 3 -91 Total weighted score of 4.0 Organization response is outstanding to threats and weaknesses Industry Analysis EFE Total weighted score of 1.0 Firm’s strategies not capitalizing on opportunities or avoiding threats

92. Copyright 2005 Prentice Hall Ch 3 -92 Industry Analysis EFE Understanding the factors used in the EFE Matrix is more important than the actual weights and ratings assigned. Important --

93. Copyright 2005 Prentice Hall Ch 3 -93 Industry Analysis: Competitive Profile Matrix (CPM) Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions

94. Copyright 2005 Prentice Hall Ch 3 -94 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

95. Copyright 2005 Prentice Hall Ch 3 -95 GatewayAppleDell CSF’s WtRatingWt’d Score RatingWt’d Score RatingWt’d Score Market share0.1530.4520.3040.60 Inventory sys0.0820.162 40.32 Fin position0.1020.2030.303 Prod. Quality0.0830.2440.3230.24 Cons. Loyalty0.0230.063 40.08 Sales Distr0.1030.3020.2030.30 Global Exp.0.1530.4520.3040.60 Org. Structure0.0530.153 3

96. Copyright 2005 Prentice Hall Ch 3 -96 GatewayAppleDell CSF’s (cont’d) WtRatingWt’d Score RatingWt’d Score RatingWt’d Score Prod. Capacity0.0430.123 3 E-commerce0.1030.303 3 Customer Serv0.1030.3020.2040.40 Price competitive 0.0240.0810.0230.06 Mgt. experience0.0120.0240.0420.02 Total1.002.832.473.49

97. Copyright 2005 Prentice Hall Ch 3 -97 Industry Analysis CPM Just because one firm receives a 3.2 rating and another receives a 2.8 rating, it does not follow that the first firm is 20 percent better than the second. Important --

98. Copyright 2005 Prentice Hall Ch 3 -98 Assignment two Prepare a EFE and CPM for Google  Bus 411 assignment two.doc Bus 411 assignment two.doc Due Feb 14 Excel templates for both the EFE and CPM are available in Blackboard