1. Assessing Opportunities and Threats: Doing an External Analysis
Strategic Management in Action: Chapter 3

2. What is an external analysis?
Pet care spending has more than doubled to 3.2 billion over the last 5 yrs.
Referred to as nonessential expenditures
External analysis: process of scanning and evaluating an organizations external environment.
Strategic managers determine the opportunities and threat facing their organizations.
Opportunities: positive external trends or changes
Threats: negative external trends or changes

3. Organizations as Open Systems
Open systems: interact with and respond to their environment.
Example- inputs have to come from somewhere and outputs must be distributed somewhere.
The somewhere is the external environment.
Organizations are interrelated and interdependent.
Chester Barnard, management theorist, first suggested this in 1938.

4. Organization as an Open System

5. Perspectives on Organizational Environments
Organizations interact with their environment in two ways:
The environment as a source of information
The environment as a source of resources

6. Environment as Information Perspective
Environmental uncertainty: the amount of change and complexity in an organization’s environment
Dynamic: changing rapidly; more uncertain environment
Stable: minimal and slow;
Strategic decisions made by doing an external analysis.

7. Resources Perspective
Environment viewed a source of scarce and valued sources.
Organizations depend on the environment for these resources.
Reducing dependency means controlling environment resources.
Means knowing about the environment and attempting to change or influence it.
Example: Toyota hybrid vehicles.

8. Determine What's Happening in the External Environment
Environmental scanning and analysis.
Identify the opportunities and threats facing the organization.

9. How to Conduct an External Analysis
Specific Environments- Customers, Competitors, Suppliers, other Industry-competitive Variables
-Whereas-
General Environments- Economic, Demographic, Sociocultural, Political-legal, Technological Sectors

10. An Organization’s External Environment

11. Five-forces Model(Specific Environments)

12. Conditions Contributing to Rivalries
Numerous or Equally Balanced competitors
Slow Industry Growth
High Fixed or Storage Costs
Lack of Differentiation or Switching Costs
Addition of capacity in large increments
Diverse competitors
High Strategic stakes
High Exit Barriers

13. Barriers to Potential Entrants
Economies of Scale
Cost Disadvantages
Product differentiation
Capital Requirements
Switching costs
Access to Distribution Channels
Government Policies

14. Bargaining Power Power Struggle between Buyers vs. Suppliers
Factors That Contribute to either side
Differentiates between industries and markets
Examples
Wal-mart as a buyer
UPS holds a “supplier” advantage for their service
Buyers of their service have few choices, and are therefore forced to pay UPS’s price.

15. Substitute Products
An alternative product that can satisfy the consumer’s need that our industry is satisfying
Examples
Soft Drink industry

16. General Environment Economics Demographic Sociocultural
Political-Legal
Technological

17. Finding and Evaluating Information
Informal approach vs. Formal Approach
External Information System- formal approach that provides managers with needed external information on a regular basis
Having too much information

18. Responsibilities at Different Managerial Levels
Small to medium-sized organization
Large organizations
Lower level supervisors
Middle management
Top Level Management

19. Benefits of Doing an External Analysis
Proactive Manager- a manager who anticipates changes and plans for those changes, instead of reacting to them.
“Environment as source of resources”
Ability to acquire and control needed resources depends on having strategies that take advantage of environment’s abundant resources and the limited resources.

20. Benefits Continued
Depending on the industry, today’s external environment is increasingly dynamic.
Does an external analysis make a difference?
Research studies have shown that in organizations in which strategic decision makers did external analyses, performance was higher.
Evaluated using a financial measure such as return on assets or growth in profitability.

21. Challenges of Doing an External Analysis
The environment might be changing more rapidly than realistically can be kept up with.
Amount of time it can consume.
Forecasts and trend analyses are a significant part of the external analysis, they are not perfect.