1. Chapter 3 The External Assessment

2. Identify & Evaluate factors beyond the control of a single firm –Increased foreign competition –Population shifts –Information technology External Strategic Management Audit

3. Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products Services Key External Forces Opportunities & Threats Key External Forces & the Organization

4. Performing External Audit External Factors Measurable Long-term orientation Applicable to competing firms Hierarchical

5. Economies of Scale Industry Properties Barriers to market entry Product differentiation Level of competitiveness I/O Perspective Firm Performance

6. 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

7. Key Social, Cultural, Demographic & Environmental Variables Number of marriages & divorces Number of special interest groups Number of births & deaths Immigration & emigration rates Childbearing rates

8. Political, Government & Legal Forces Worldwide trend toward similar consumption patterns Global buyers and sellers E-commerce Technology for instant currency transfers Globalization of Industry

9. Competitive Forces Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies Identifying Rival Firms

10. 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:

11. 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:

12. 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

13. The Global Challenge Faced by U.S. Firms -- Gain & maintain exports to other nations Defend domestic markets against imported goods

14. Industry Analysis: The External Factor Evaluation (EFE) Matrix CompetitivePoliticalCultural TechnologicalEnvironmentalSocial GovernmentalDemographicEconomic Summarize & Evaluate

15. 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

16. 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

17. 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

18. 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

19. 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

20. Industry Analysis: Competitive Profile Matrix (CPM) Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions

21. GatewayAppleDell CSF’s WtRatingWt’d Score Ratin g Wt’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

22. GatewayAppleDell CSF’s (cont’d) WtRatingWt’d Score Ratin g Wt’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. experience 0.0120.0240.0420.02 Total1.002.832.473.49