1. Ch 3 -1 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter 3 The External Assessment Strategic Management: Concepts & Cases 12 th Edition Fred David

2. Ch 3 -2 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Outline The Nature of the External Audit The Industrial Organization (I/O) View Social, Cultural, Demographic, and Environmental Forces

3. Ch 3 -3 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Outline ( cont’d ) Political, Governmental, and Legal Forces Technological Forces Competitive Forces

4. Ch 3 -4 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Outline ( cont’d ) Porter’s Five-Forces Model Sources of External Information Forecasting Tools & Techniques

5. Ch 3 -5 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Outline ( cont’d ) Global Challenge The External Factor Evaluation (EFE) Matrix Competitive Profile Matrix (CPM)

6. Ch 3 -6 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall “ 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

7. Ch 3 -7 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall External Strategic Management Audit – Environmental Scanning – Industry Analysis

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

9. Ch 3 -9 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Purpose of External Audit  Identify Opportunities Threats External Strategic Management Audit

10. Ch 3 -10 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

11. Ch 3 -11 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Gather competitive intelligence – Social Cultural Demographic Environmental Governmental Legal Technological External Audit

12. Ch 3 -12 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall External Audit – Sources of Information Internet Libraries Suppliers Distributors Salespersons Customers Competition

13. Ch 3 -13 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Performing External Audit Key Factors – Vary over time Vary by industry

14. Ch 3 -14 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Performing External Audit – Variables Market share Breadth of competing products World economies Foreign affiliates Proprietary account advantages

15. Ch 3 -15 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Performing External Audit – Variables Price competitiveness Technological advancements Interest rates Pollution abatement

16. Ch 3 -16 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Performing External Audit External Factors Measurable Long-term Orientation Applicable to Competing Firms Hierarchical

17. Ch 3 -17 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Industrial Organization (I/O) View – Industry factors more important than internal factors Performance determined by industry forces

18. Ch 3 -18 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Economies of Scale Industry Properties Barriers to Market Entry Product Differentiation Level of Competitiveness I/O Perspective Firm Performance

19. Ch 3 -19 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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”

20. Ch 3 -20 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Economic Forces Trends in the dollar’s value European Union Layoffs Economic standard of living

21. Ch 3 -21 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

22. Ch 3 -22 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Social, Cultural, Demographic, and Environmental Forces Major Impact – Products Services Markets Customers

23. Ch 3 -23 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Social, Cultural, Demographic, and 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

24. Ch 3 -24 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall States with the Highest Percentage of Minorities 1. Nevada 2. Arizona 3. Georgia 4. Florida 5. Idaho 6. North Carolina 7. Colorado

25. Ch 3 -25 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

26. Ch 3 -26 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Social, Cultural, Demographic, and 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

27. Ch 3 -27 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Trends  More American households with people living alone  Aging Americans – affects all organizations  Population shift to the south and west  Decimation and degradation of the natural environment Social, Cultural, Demographic, and Environmental Forces

28. Ch 3 -28 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Global trends China’s labor rates less than Mexico China provides more site location incentives than Mexico Social, Cultural, Demographic, and Environmental Forces

29. Ch 3 -29 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Natural Environment Perspective Business Leaders Pushing for Legislation on Climate Change 10 CEOs pressuring for caps on greenhouse-gas omissions Desiring a single national emissions cap Top 5 buyers of green power: 1. PepsiCo 2. Wells Fargo 3. Whole Foods 4. U.S. Air Force 5. Johnson & Johnson

30. Ch 3 -30 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Social, Cultural, Demographic, and Environmental Forces More educated consumers Aging population Minorities more influential Local rather than federal solutions 21 st Century Trends

31. Ch 3 -31 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Social, Cultural, Demographic, and 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

32. Ch 3 -32 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Social, Cultural, Demographic, and Environmental Variables Number of marriages & divorces Number of special interest groups Number of births & deaths Immigration & emigration rates Childbearing rates

33. Ch 3 -33 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Actuarial Rates Monitor Key Variables Per Capita Income Attitudes Toward Business Avg. Disposable Income Social, Cultural, Demographic, and Environmental Forces

34. Ch 3 -34 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Consumer Behavior Monitor Key Variables Ethical Concerns Attitudes Toward Saving Racial Equality Social, Cultural, Demographic, and Environmental Forces

35. Ch 3 -35 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Avg. Educational Level Monitor Key Variables Governmental Regulation Attitudes Toward Customer Service Attitudes Toward Quality Social, Cultural, Demographic, and Environmental Forces

36. Ch 3 -36 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Energy Conservation Monitor Key Variables Social Responsibility Leisure-Time Values Recycling Social, Cultural, Demographic, and Environmental Forces

37. Ch 3 -37 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Waste Management Monitor Key Variables Air & Water Pollution Ozone Depletion Endangered Species Social, Cultural, Demographic, and Environmental Forces

38. Ch 3 -38 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Political, Governmental, and Legal Forces Key opportunities & threats Antitrust legislation Tax rates Lobbying efforts Patent laws Government Regulation

39. Ch 3 -39 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Political, Governmental, and Legal Forces Political variables impact –  Formulation of strategies  Implementation of strategies Increasing Global Interdependence

40. Ch 3 -40 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Political, Governmental, and Legal Forces Strategists in a global economy –  Forecast political climates  Legalistic skills  Diverse world cultures Increasing Global Interdependence

41. Ch 3 -41 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Political, Governmental, and Legal Forces Worldwide trend toward similar consumption patterns Global buyers and sellers E-commerce Technology for instant currency transfers Globalization of Industry

42. Ch 3 -42 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Political, Governmental, and Legal Variables Special tariffs Tax law changes PAC’s Voter participation rates Regulation/deregulation

43. Ch 3 -43 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Political, Governmental, and Legal Variables (cont’d) Environmental protection laws Changes in patent laws Equal employment legislation Government subsidies Number of patents

44. Ch 3 -44 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Political, Governmental, and Legal Variables (cont’d) Import/export regulations Global relationships Political conditions Location and severity of terrorist activity Anti-trust enforcement

45. Ch 3 -45 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Technological Forces Major Impact – Internet Communications Semiconductors

46. Ch 3 -46 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Technological Forces Significance of IT Chief Information Officer (CIO) Chief Technology Officer (CTO)

47. Ch 3 -47 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Technological Forces Essential for nearly every strategic decision Technology-based issues

48. Ch 3 -48 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Competitive Forces Collection & evaluation of data on competitors is essential for successful strategy formulation

49. Ch 3 -49 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Competitive Forces Competition on virtually all industries can be described as intense

50. Ch 3 -50 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Competitive Forces Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies Identifying Rival Firms

51. Ch 3 -51 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Questions Concerning Competitors Their objectives and strategies Their weaknesses Their responses to external variables Their vulnerability to our alternative strategies Their strengths

52. Ch 3 -52 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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

53. Ch 3 -53 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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?

54. Ch 3 -54 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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, BusinessWeek Sources of Corporate Information

55. Ch 3 -55 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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:

56. Ch 3 -56 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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:

57. Ch 3 -57 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Five-Forces Model of Competition

58. Ch 3 -58 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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

59. Ch 3 -59 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Five-Forces Model Most powerful of the five forces Focus on competitive advantage of strategies Rivalry Among Competing Firms

60. Ch 3 -60 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Five-Forces Model Barriers to entry are important Quality, pricing, and marketing can overcome barriers Potential Entry of New Competitors

61. Ch 3 -61 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Five-Forces Model Pressures increase when consumers’ switching costs decrease Firm’s plans for increased capacity & market penetration Potential Development of Substitute Products

62. Ch 3 -62 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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

63. Ch 3 -63 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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

64. Ch 3 -64 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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 sellers’ products, prices, and costs If they have discretion in whether and when they purchase the product

65. Ch 3 -65 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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

66. Ch 3 -66 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Global Challenge Faced by U.S. Firms – Gain & maintain exports to other nations Defend domestic markets against imported goods

67. Ch 3 -67 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Global Perspective China’s Automobile Producers Heading to the United States in 2008 China’s auto exports doubled in 2006 China produces more cars than Germany and is the world’s third largest automobile producer Changfeng Group first Chinese automaker in the Detroit Auto Show

68. Ch 3 -68 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Global Challenge Simultaneously globally competitive & nationally responsive Multinational Corporations (MNCs)

69. Ch 3 -69 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Global Challenge Worldwide integration of:  Strategy formulation  Strategy implementation  Strategy evaluation Globalization

70. Ch 3 -70 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall The Global Challenge  Similar consumption patterns  Global buyers and sellers  E-commerce  Instant transmission of money & information Globalization of Industries

71. Ch 3 -71 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Industry Analysis: The External Factor Evaluation (EFE) Matrix CompetitivePoliticalCultural TechnologicalEnvironmentalSocial GovernmentalDemographicEconomic Summarize & Evaluate

72. Ch 3 -72 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

73. Ch 3 -73 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

74. Ch 3 -74 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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

75. Ch 3 -75 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Industry Analysis EFE Understanding the factors used in the EFE Matrix is more important than the actual weights and ratings assigned. Important –

76. Ch 3 -76 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Industry Analysis: Competitive Profile Matrix (CPM) Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions

77. Ch 3 -77 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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 –

78. Ch 3 -78 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Terms & Concepts For Review (Chapter 3) AOLCompetitive Analysis Chief Information Officer (CIO) Competitive Intelligence (CI) Chief Technology Officer (CTO) Competitive Profile Matrix (CPM) Competitive AdvantageDecruiting

79. Ch 3 -79 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Terms & Concepts For Review (Chapter 3) Director of Competitive Analysis External Factor Evaluation Matrix (EFE) DownsizingExternal Forces Environmental ScanningIndustry Analysis External Audit Industrial Organization (I/O)

80. Ch 3 -80 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Terms & Concepts For Review (Chapter 3) Information Technology (IT) Lifecare Facilities Internet Porter’s Five-Forces Model Learning from the Partner Rightsizing Linear RegressionWorld Wide Web

81. Ch 3 -81 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Key Terms & Concepts For Review (Chapter 3) Tax Harmonization Foreign Direct Investment

82. Ch 3 -82 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.