1. BUS 411
DAY 6

2. Agenda Question? Disney Assignment 2 Posted
Vision and missions posted in Stuff
S, W, O, and T (unedited) posted in SWOT folder
Assignment 2 Posted
Due Feb 10 (4 days from now)
Requires completed SWOT
BUS 411 Assignment 2 Sp14.pdf
Assignment 3 will be posted soon
Today
Chap 3 The External Assessment

3. Assignment 2
External Assessment: Developing an EFE Matrix and Competitive Profile Matrix for Walt Disney
Using the information gathered in assignment 1 and the Walt Disney SWOT analysis prepared in class, develop an EFE matrix for Walt Disney (50 points)
Using the information gathered in assignment 1, the Walt Disney SWOT analysis prepared in class, and additional research materials available for Time Warner, Inc and News Corporation develop a CPM matrix comparing Walt Disney, Time Warner, Inc and News Corporation (50 points)
You may use the templates provided with this assignment or develop your own.
Upload your completed matrixes.

4. The External Assessment
Chapter Three

5. Chapter Objectives
Describe how to conduct an external strategic-management audit.
Discuss 10 major external forces that affect organizations: economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive.
Describe key sources of external information, including the Internet.
Discuss important forecasting tools used in strategic management.
Discuss the importance of monitoring external trends and events.

6. Chapter Objectives (cont.)
Explain how to develop an EFE Matrix.
Explain how to develop a Competitive Profile Matrix.
Discuss the importance of gathering competitive intelligence.
Describe the trend toward cooperation among competitors.
Discuss market commonality and resource similarity in relation to competitive analysis.

7. Market Commonality and Resource Similarity
the number and significance of markets that a firm competes in with rivals
Example: Automotive Industry, Fast Food
Resource similarity
the extent to which the type and amount of a firm’s internal resources are comparable to a rival
Example: Logistics (UPS and Fedex)

8. The Five-Forces Model of Competition

10. The Five-Forces Model of Competition
Identify key aspects or elements of each competitive force that impact the firm.
Evaluate how strong and important each element is for the firm.
Decide whether the collective strength of the elements is worth the firm entering or staying in the industry.

11. The Five-Forces Model Rivalry among competing firms
Most powerful of the five forces
Focus on competitive advantage of strategies over other firms

12. The Five-Forces Model

13. The Five-Forces Model Potential Entry of New Competitors
Barriers to entry are important
Quality, pricing, and marketing can overcome barriers

14. Barriers to Entry Need to gain economies of scale quickly
Need to gain technology and specialized know-how
Lack of experience
Strong customer loyalty
Strong brand preferences
Large capital requirements
Lack of adequate distribution channels

15. Barriers to Entry Government regulatory policies Tariffs
Lack of access to raw materials
Possession of patents
Undesirable locations
Counterattack by entrenched firms
Potential saturation of the market

16. The Five-Forces Model Potential development of substitute products
Pressure increases when:
Prices of substitutes decrease
Consumers’ switching costs decrease

17. The Five-Forces Model
Bargaining Power of Suppliers is increased when there are:
Large numbers of suppliers
Few substitutes
Costs of switching raw materials is high
Backward integration is gaining control or ownership of suppliers

18. The Five-Forces Model Bargaining power of consumers
Customers being concentrated or buying in volume affects intensity of competition
Consumer power is higher where products are standard or undifferentiated (commodity products)

19. Conditions Where Consumers Gain Bargaining Power
If buyers can inexpensively switch
If buyers are particularly important
If sellers are struggling in the face of falling consumer demand
If buyers are informed about sellers’ products, prices, and costs
If buyers have discretion in whether and when they purchase the product

20. Sources of External Information
Unpublished sources include customer surveys, market research, speeches at professional and shareholders’ meetings, television programs, interviews, and conversations with stakeholders.
Buy stock in competitors' companies
Published sources of strategic information include periodicals, journals, reports, government documents, abstracts, books, directories, newspapers, and manuals.

21. Sources of External Information: Web Sites
UMFK Databases
These are clickable links in slideshow mode.

22. Forecasting Tools and Techniques
Forecasts
educated assumptions about future trends and events
quantitative, qualitative techniques
Forecasting is complex because of factors such as technological innovation, cultural changes, new products, improved services, stronger competitors, shifts in government priorities, changing social values, unstable economic conditions, and unforeseen events

23. Making Assumptions Assumptions Document your assumptions
Best present estimates of the impact of major external factors, over which the manager has little if any control, but which may exert a significant impact on performance or the ability to achieve desired results.
Document your assumptions
Will be tested by time and actual outcomes

24. Industry Analysis: The External Factor Evaluation (EFE) Matrix
Economic
Social
Cultural
Demographic
Environmental
Political
Governmental
Technological
Competitive
Legal
EFE matrix.xlt

25. 5 Steps (Page 80-82) List key external factors
10-20 (balanced 5&5  10&10)
Opportunities then threats
Assign weights from 0.0 to 1.0 based on importance
Sum of all weights across all factors = 1
Assign a rating from 1 to 4 for all factors where
4 = the firm’s response is superior
3 = the firm’s response is above avg
2 = the firm’s response is average
1 = the firm’s response is poor
Multiply the rating by the weight
Sum the weighted scores

28. Industry Analysis EFE Total weighted score of 4.0
Organization response is outstanding to threats and weaknesses
Total weighted score of 1.0
Firm’s strategies not capitalizing on opportunities or avoiding threats
Average is 2.5

29. Critical success factors include internal and external issues
Industry Analysis: Competitive Profile Matrix (CPM)
Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions
Critical success factors include internal and external issues
CPM_matrix.XLT

30. Steps to a CPM Identify Critical Success Factors (CSF)
Broad issues
Internal and external (5 of each is a good mix)
Assign a weight to each CSF
Must add up to 1
Assign a rating for your firm and each of your competitors
4 = major strength
3 = minor strength
2 = minor weakness
1 = major weakness
Multiply weight by rating
Sum the weighted ratings and compare

31. CSF’s Gateway Apple Dell Market share 0.15 3 0.45 2 0.30 4 0.60Wt
Rating
Wt’d Score
Market share
0.15 3
0.45 2
0.30 4
0.60
Inventory sys
0.08
0.16
0.32
Fin position
0.10
0.20
Prod. Quality
0.24
Cons. Loyalty
0.02
0.06
Sales Distr
Global Exp.
Org. Structure
0.05

32. Gateway Apple Dell CSF’s (cont’d) Prod. Capacity 0.04 3 0.12Wt
Rating
Wt’d Score
Prod. Capacity
0.04 3
0.12
E-commerce
0.10
0.30
Customer Serv 2
0.20 4
0.40
Price competitive
0.02
0.08 1
0.06
Mgt. experience
0.01
Total
1.00
2.83
2.47
3.49

34. An Example Competitive Profile Matrix

35. Industry Analysis CPM
Important –
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.

36. The Internal Assessment
Chapter Four

37. Internal Assessment – Sun Tzu
“Great spirits have always encountered violent opposition from mediocre minds.” – Albert Einstein
“Weak leadership can wreck the soundest strategy.”
– Sun Tzu

38. Chapter Objectives
Describe how to perform an internal strategic-management audit.
Discuss the Resource-Based View (RBV) in strategic management.
Discuss key interrelationships among the functional areas of business.
Identify the basic functions or activities that make up management, marketing, finance/accounting production/operations, research and development, and management information systems.

39. Chapter Objectives
Explain how to determine and prioritize a firm’s internal strengths and weaknesses.
Explain the importance of financial ratio analysis.
Discuss the nature and role of management information systems in strategic management.
Develop an Internal Factor Evaluation (IFE) Matrix.
Explain cost/benefit analysis value chain analysis, and benchmarking as strategic-management tools.

40. A Comprehensive Strategic-Management Model

41. Key Internal Forces Distinctive competencies
A firm’s strengths that cannot be easily matched or imitated by competitors
Building competitive advantages involves taking advantage of distinctive competencies.

42. The Process of Performing an Internal Audit
The internal audit
Requires gathering and assimilating information about the firm’s management, marketing, finance/accounting, production/operations, research and development (R&D), and management information systems operations
Provides more opportunity for participants to understand how their jobs, departments, and divisions fit into the whole organization

43. The Resource-Based View (RBV)
The Resource-Based View (RBV) approach
contends that internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage

44. The Resource-Based View (RBV)
Proponents of the RBV contend that organizational performance will primarily be determined by internal resources that can be grouped into three all-encompassing categories: physical resources, human resources, and organizational resources
Physical resources include all plant and equipment, location, technology, raw materials, machines; human resources include all employees, training,
experience, intelligence, knowledge, skills, abilities; and organizational resources include firm structure, planning processes, information systems, patents, trademarks, copyrights, databases, and so on.

45. The Resource-Based View (RBV)
For a resource to be valuable, it must be either (1) rare, (2) hard to imitate, or (3) not easily substitutable
These three characteristics of resources enable a firm to implement strategies that improve its efficiency and effectiveness and lead to a sustainable competitive advantage

46. If I could pick two, I’d pick strategy and culture.
The biggest levers you’ve got to change a company are strategy, structure, and culture.
If I could pick two, I’d pick strategy and culture.
Wayne Leonard, CEO, Entergy

47. Where would you work?

48. Organizational Culture
Pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integration is considered valid and taught to new members as the correct way to perceive, think, and feel

49. Integrating Strategy and Culture
Organizational culture significantly affects business decisions and thus must be evaluated during an internal strategic-management audit.
If strategies can capitalize on cultural strengths, such as a strong work ethic or highly ethical beliefs, then management often can swiftly and easily implement changes.

50. Example Cultural Products Defined

51. Management
The functions of management consist of five basic activities: planning, organizing, motivating, staffing, and controlling.
These activities are important to assess in strategic planning because an organization should continually capitalize on its management strengths and improve on its management weaknesses.

52. The Basic Functions of Management

53. Management Audit Checklist of Questions
Does the firm use strategic-management concepts?
Are company objectives and goals measurable and well communicated?
Do managers at all hierarchical levels plan effectively?
Do managers delegate authority well?
Is the organization’s structure appropriate?

54. Management Audit Checklist of Questions (cont.)
Are job descriptions and job specifications clear?
Is employee morale high?
Are employee turnover and absenteeism low?
Are organizational reward and control mechanisms effective?

55. Marketing
Marketing
the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

56. Functions of Marketing
Customer analysis
Selling products/services
Product and service planning
Pricing Distribution
Marketing research
Opportunity analysis

57. Marketing Customer analysis
the examination and evaluation of consumer needs, desires, and wants
involves administering customer surveys, analyzing consumer information, evaluating market positioning strategies, developing customer profiles, and determining optimal market segmentation strategies
essential in developing an effective mission statement

58. Desirable Characteristics of Ads Today

59. Product and Service Planning
includes activities such as test marketing; product and brand positioning; devising warranties; packaging; determining product options, features, style, and quality; deleting old products; and providing for customer service
important when a company is pursuing product development or diversification

60. Pricing
Five major stakeholders affect pricing decisions: consumers, governments, suppliers, distributors, and competitors
Sometimes an organization will pursue a forward integration strategy primarily to gain better control over prices charged to consumers

61. Distribution Distribution
includes warehousing, distribution channels, distribution coverage, retail site locations, sales territories, inventory levels and location, transportation carriers, wholesaling, and retailing
especially important when a firm is striving to implement a market development or forward integration strategy

62. Marketing Research Marketing research
the systematic gathering, recording, and analyzing of data about problems relating to the marketing of goods and services
can uncover critical strengths and weaknesses

63. Cost/Benefit Analysis
Three steps are required to perform a cost/benefit analysis:
compute the total costs associated with a decision,
estimate the total benefits from the decision,
compare the total costs with the total benefits.

64. CBA methods NPV  net present value PVB  present value of benefits
PVC  present value of costs
BCR  benefit cost ratio PVB/PVC
Net Benefit  PVB – PVC
NPV/k  where k is level of funds available

65. Marketing Audit Checklist of Questions
Are markets segmented effectively?
Is the organization positioned well among competitors?
Has the firm’s market share been increasing?
Are present channels of distribution reliable and cost effective?
Does the firm have an effective sales organization?
Does the firm conduct market research?

66. Marketing Audit Checklist of Questions
Are product quality and customer service good?
Are the firm’s products and services priced appropriately?
Does the firm have an effective promotion, advertising, and publicity strategy?
Are marketing, planning, and budgeting effective?
Do the firm’s marketing managers have adequate experience and training?
Is the firm’s Internet presence excellent as compared to rivals?

67. Finance/Accounting Functions
The functions of finance/accounting comprise three decisions:
the investment decision
the financing decision
the dividend decision

68. Finance/Accounting Functions
Investment decision
the allocation and reallocation of capital and resources to projects, products, assets, and divisions of an organization
Financing decision
determines the best capital structure for the firm and includes examining various methods by which the firm can raise capital

69. Finance/Accounting Functions
Dividend decisions
concern issues such as the percentage of earnings paid to stockholders, the stability of dividends paid over time, and the repurchase or issuance of stock
determine the amount of funds that are retained in a firm compared to the amount paid out to stockholders

70. A Summary of Key Financial Ratios

71. A Summary of Key Financial Ratios
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

72. A Summary of Key Financial Ratios

73. A Summary of Key Financial Ratios

74. Finance/Accounting Functions
How has each ratio changed over time?
How does each ratio compare to industry norms?
How does each ratio compare with key competitors?

75. Figure 4-3 page 109

76. Breakeven point = quantity of units that a firm must sell in order for total revenues to equal total costs

78. BE Chart.xlsx

79. Finance/Accounting Audit Checklist
Where is the firm financially strong and weak as indicated by financial ratio analyses?
Can the firm raise needed short-term capital?
Can the firm raise needed long-term capital through debt and/or equity?
Does the firm have sufficient working capital?
Are capital budgeting procedures effective?

80. Finance/Accounting Audit Checklist
Are dividend payout policies reasonable?
Does the firm have good relations with its investors and stockholders?
Are the firm’s financial managers experienced and well trained?
Is the firm’s debt situation excellent?

81. Production/Operations
Production/operations function
consists of all those activities that transforms inputs into goods and services
Production/operations management deals with inputs, transformations, and outputs that vary across industries and markets.

82. The Basic Functions (Decisions) Within Production/Operations

83. Implications of Various Strategies on Production/Operations
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

84. Production/Operations Audit Checklist
Are supplies of raw materials, parts, and subassemblies reliable and reasonable?
Are facilities, equipment, machinery, and offices in good condition?
Are inventory-control policies and procedures effective?
Are quality-control policies and procedures effective?
Are facilities, resources, and markets strategically located?
Does the firm have technological competencies?

85. Research & Development
Research & Development Functions
Development of new products before competitors
Improving product quality
Improving manufacturing processes to reduce costs
These functions can be done internally or externally

86. Research & Development
Financing as many projects as possible
Use percent-of-sales method
Budgeting relative to competitors How many successful new products are needed
R&D Budgets

87. Research and Development Audit
Does the firm have R&D facilities? Are they adequate?
If outside R&D firms are used, are they cost-effective?
Are the organization’s R&D personnel well qualified?
Are R&D resources allocated effectively?
Are management information and computer systems adequate?
Is communication between R&D and other organizational units effective?
Are present products technologically competitive?

88. Management Information Systems
A management information system’s purpose is to improve the performance of an enterprise by improving the quality of managerial decisions
An effective information system thus collects, codes, stores, synthesizes, and presents information in such a manner that it answers important operating and strategic questions

89. Management Information Systems Audit
Do all managers in the firm use the information system to make decisions?
Is there a chief information officer or director of information systems position in the firm?
Are data in the information system updated regularly?
Do managers from all functional areas of the firm contribute input to the information system?
Are there effective passwords for entry into the firm’s information system?

90. Management Information Systems Audit
Are strategists of the firm familiar with the information systems of rival firms?
Is the information system user-friendly?
Do all users of the information system understand the competitive advantages that information can provide firms?
Are computer training workshops provided for users of the information system?
Is the firm’s information system continually being improved in content- and user-friendliness?

91. Value Chain Analysis (VCA)
refers to the process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing product(s) to marketing those products
aims to identify where low-cost advantages or disadvantages exist anywhere along the value chain from raw material to customer service activities

92. Benchmarking Benchmarking
an analytical tool used to determine whether a firm’s value chain activities are competitive compared to rivals and thus conducive to winning in the marketplace
entails measuring costs of value chain activities across an industry to determine “best practices”

93. Transforming Value Chain Activities into Sustained Competitive Advantage

94. The Internal Factor Evaluation (IFE) Matrix
List key internal factors as identified in the internal-audit process
Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to each factor
Assign a 1-to-4 rating to each factor to indicate whether that factor represents a strength or weakness
Multiply each factor’s weight by its rating to determine a weighted score for each variable
Sum the weighted scores for each variable to determine the total weighted score for the organization

95. A Sample Internal Factor Evaluation Matrix for a Retail Computer Store

96. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

97. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall