1. Lecture 3 External Evaluation

2. Vision & Mission Strategy Formulation External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection

3. 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

4. External Strategic Management Audit Identify & Evaluate factors beyond the control of a single firm such as:  Increased foreign competition  Population shifts  Aging society  Stock market volatility  Determine if such factors are: Opportunities Threats

5. Performing External Audit – factors Related to long term and annual, objectives Measurable; e.g. Market share; Price competitiveness Applicable to competitors Pertain to the overall organisation (wide scope) and to narrow areas or functions within the company.

6. Key External Forces associated with the external: audit 1. Economic forces 2. Social, cultural, demographic & environmental forces 3. Political, governmental & legal forces 4. Technological forces 5. Competitive forces

7. Economic Forces Trends in the dollar’s value European Union Layoffs Economic standard of living

8. Ch 3 -8Cpyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

9. Social, Cultural, Demographic & Environmental Forces Major Impact – Products Services Markets Customers Some important Facts Aging population Widening gap between rich & poor World population = 8 billion by 2028 Decimation and degradation of the natural environment More educated consumers Global “facts” China largest exporter to U.S. China and Asia provide cheaper labor and utilities than Mexico Would these have an impact upon Ryanair or Google

10. Social, Cultural, Demographic & Environmental Forces Sample of variables that should be monitored : –Number of nativity and mortality rates, –immigration and emigration rates –Average disposable income –Average educational level –Government regulation; e.g. mortgage to salary –Air and Water pollution

11. Competitive Forces 1. Market share matters 2. Understand what business you are in 3. Innovate or evaporate 4. Acquisition is essential to growth 5. People make a difference 6. No substitute for quality 7 Characteristics of most Competitive Firms:

12. Political, Government & Legal Forces Key opportunities & threats Antitrust legislation Tax rates Lobbying efforts Patent laws Government Regulation

13. Technological Forces Worldwide trend toward similar consumption patterns Global buyers and sellers E-commerce Technology for instant currency transfers Leads to Globalization of Industry

14. The External factor evaluation  Understanding the factors used in the EFE Matrix is more important than the actual weights and ratings assigned.  Constructing an external evaluation (factor) matrix:  Assign a weight to each factor (opportunity/threat) increase in relation to importance.  Assign a rating to each factor: 1 (little response); 2 response below average; 3 response above average; very good response.  Multiply the weight by the rating and add all the weighed scores  Note the different rating procedure between the internal and external factor matrices.

15. Ryanair external opportunities

16. Ryanair external threats

17. 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

18. Align IT with business objectives 75 percent of businesses fail to align their IT with their business objectives, leading to lower profitability  To align IT: Identify business goals and strategies Break strategic goals into concrete activities and processes Identify metrics for measuring progress Determine how IT can help achieve business goals; supplier chain management system. Measure actual performance

19. Question Briefly describe any three of the inputs used in the derivation of the external evaluation matrix. (6 marks) Given a set of strengths and weakness, obtained in part 1. Explain, using suitable examples, how you would derive and interpret an external evaluation matrix. (12 marks) Explain, using suitable examples, how 3 of the 5 elements may impact on an organisations strategic decision making. (12 marks)