1. 1 COMP5331: Web Pub and Web Ad 8. External Analysis Dickson K.W. Chiu PhD, SMIEEE

2. Dickson Chiu 2006COMP5331-8-2 What is External Analysis? External Analysis Scan and evaluate various external environmental sectors impacting performance Opportunities Positive external environmental trends that improve the organization’s performance Threats Negative external environmental trends that hinder the organization's performance

3. Dickson Chiu 2006COMP5331-8-3 Organizations as Open Systems  Organizations function as systems  Affect and impact environment Open System Interacts with and responds to its external environment

4. Dickson Chiu 2006COMP5331-8-4 Organizations as Open Systems (2) Environment Organization Inputs ProcessesOutputs Resources: Physical Capital Human Information Organization Functions: Production-Operations Marketing Financial-Accounting Human Resource Mgt. Research and Development Information Systems Managerial Activities: Planning Organization Leading Controlling Goods Services Performance Measures: Financial Productivity Achieve Goal

5. Dickson Chiu 2006COMP5331-8-5 External Environmental Sectors Specific Environment External sectors that directly impact the organization’s strategic decisions by opening up opportunities or threats General Environment External sectors that indirectly affect the organization’s strategic decisions and which may pose opportunities and threats

6. Dickson Chiu 2006COMP5331-8-6 Organization Specific Environment Industry-Competitors Substitute Products Bargaining Power of Suppliers Bargaining Power of Buyers Potential Entrants Current Rivalry General Environment Technological Political-Legal Sociocultural Demographic Economic Organization’s External Environment

7. Dickson Chiu 2006COMP5331-8-7 Specific Environment Industry Group(s) of organizations producing similar or identical products Competitive Variables Compete for customers Compete for resources Assess an organization’s specific environment Porter’s five forces model

8. Dickson Chiu 2006COMP5331-8-8 Five Forces Model Industry Competitors Rivalry Among Existing Firms Suppliers Bargaining Power of Suppliers Potential Entrants Threats of New Entrants Buyers Bargaining Power of Buyers Substitutes Threat of Substitute Products or Services One assumption of Porter’s five forces model is that some industries are inherently more attractive than others; that is, the profit potential for companies in that industry is higher. As this figure indicates, the interaction and strength of five forces influences profit potential.

9. Dickson Chiu 2006COMP5331-8-9 General Environment Economic Demographic Sociocultural Political-Legal Technical Sources of External Influence Sources of External Influence Trends in each of the five sectors of the general environment could have a potential positive effect on the organization (opportunity) or a potential negative impact (threat).

10. Dickson Chiu 2006COMP5331-8-10 General Environment - Economic Economic All the macroeconomic data, current statistics, trends, and changes Interest rates Monetary exchange rates Budget deficit-surplus Trade deficit-surplus Inflation rates GNP or GDP Consumer income, spending, and debt levels Unemployment levels Workforce productivity

11. Dickson Chiu 2006COMP5331-8-11 General Environment - Demographics Demographics Current statistical data and trends in population characteristics Gender Age Income levels Ethnic makeup Education Family composition Geographic location Birth rates Employment status

12. Dickson Chiu 2006COMP5331-8-12 General Environment - Sociocultural Sociocultural Country's culture Society's Traditions Values Attitudes Beliefs Tastes Patterns of behavior

13. Dickson Chiu 2006COMP5331-8-13 General Environment – Political-Legal Political-Legal Federal, state, and local Laws Regulations Judicial decisions Political forces

14. Dickson Chiu 2006COMP5331-8-14 General Environment - Technical Technical Improvements, advancements, and innovations that create opportunities and threats Communications Computing Transportation Manufacturing Robotics Biotechnology Medicine and medical Telecommunications Consumer electronics

15. Dickson Chiu 2006COMP5331-8-15 Responsibilities for External Analysis at Different Managerial Levels Lower Level Managers/Supervisors Observe and interact Collect and consolidate Middle Managers Coordinate Share with organizational units Gatherer and disseminator Monitor general environmental sectors Make needed strategic changes Upper Management Evaluate opportunities and threats

16. Dickson Chiu 2006COMP5331-8-16 Benefits of Doing An External Analysis Proactive managers anticipate change and plan accordingly Provide information for Planning Decision making Strategy formulation Acquire and control needed resources Cope effectively with increasingly dynamic environment Make a difference with higher performance

17. Dickson Chiu 2006COMP5331-8-17 Challenges of Doing an External Analysis Rapid environmental changes are difficult to keep up with Amount of time that analysis can consume Forecasts and trend analyses are not actual fact