703834270-David-Strategic-Management-17e-Accessible-PowerPoint-03[1].pptx

703834270-David-Strategic-Management-17e-Accessible-PowerPoint-03[1].pptx703834270-David-Strategic-Management-17e-Accessible-PowerPoint-03[1].pptx703834270-David-Strategic-Management-17e-Accessible-PowerPoint-03[1].pptx

1. Strategic Management Concepts: A Competitive Advantage Approach, Concepts and Cases Seventeenth Edition Chapter 3 The External Assessment Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved If this PowerPoint presentation contains mathematical equations, you may need to check that your computer has the following installed: 1) MathType Plugin 2) Math Player (free versions available) 3) NVDA Reader (free versions available)

2. Learning Objectives (1 of 2) 3.1 Describe the nature and purpose of an external assessment in formulating strategies. 3.2 Identify and discuss 10 external forces that impact organizations. 3.3 Explain Porter’s Five-Forces Model and its relevance in formulating strategies. After studying this chapter, you should be able to do the following: 3-1. Describe the nature and purpose of an external assessment in formulating strategies. 3-2. Identify and discuss 10 external forces that impact organizations. 3-3. Explain Porter’s Five-Forces Model and its relevance in formulating strategies.

3. Learning Objectives (2 of 2) 3.4 Describe key sources of information for identifying opportunities and threats. 3.5 Discuss forecasting tools and techniques. 3.6 Explain how to develop and use an External Factor Evaluation ( E F E) Matrix. 3.7 Explain how to develop and use a Competitive Profile Matrix ( C P M). After studying this chapter, you should be able to : 3-4. Describe key sources of information used for identifying opportunities and threats. 3-5. Discuss forecasting tools and techniques. 3-6. Explain how to develop and use an External Factor Evaluation (EFE) Matrix. 3-7. Explain how to develop and use a Competitive Profile Matrix (CPM).

4. Figure 3.1 A Comprehensive Strategic-Management Model Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, n o. 1 (February 1989): 91. See also Anik Ratnaningsih , Nadjadji Anwar, Patdono Suwignjo , and Putu Artama Wiguna , “Balance Scorecard of David’s Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,” Journal of Mathematics and Technology , n o. 4 (October 2010): 20.

5. This figure illustrates with white shading how the external audit fits into the strategic-management process. Long Description: The rectangular block at the top reads, Chapter 10: Business Ethics, Environmental Sustainability, and Social Responsibility and the rectangular block at the bottom reads, Chapter 11: Global and International Issues. The block in level 1 reads, The External Assessment Chapter 3 (highlighted). The blocks in level 2 pointing from left to right are as follows: Business Vision and Mission Chapter 2; Strategies in Action Chapter 5; Strategy Analysis and Choice Chapter 6; Implementing Strategies: Management and Marketing Issues Chapter 7; Implementing Strategies: Finance and Accounting Issues Chapter 8; and Strategy Evaluation and Governance Chapter 9. The block in level 3 reads, The Internal Assessment Chapter 4 which is interconnected to the block, The External Assessment Chapter 3 in level 1. The feedback from Strategy Evaluation and Governance Chapter 9 is fed back to each blocks in level 1 and 2 through the block, chapter 10 at the top and to each blocks in level 3 and 2 through the block, chapter 11 at the bottom. The chapters 2, 3, 4, 5, and 6 are grouped as, Strategy Formulation, the chapters 7 and 8 are grouped as, Strategy Implementation, and the chapter 9 is labeled as, Strategy Evaluation.

6. External Audit External audit focuses on identifying and evaluating trends and events beyond the control of a single firm reveals key opportunities and threats confronting an organization so that managers can formulate strategies to take advantage of the opportunities and avoid or reduce the impact of threats This chapter examines the tools and concepts needed to conduct an external strategic management audit (sometimes called environmental scanning or industry analysis).

7. The Purpose of an External Audit The external audit is aimed at identifying key variables that offer actionable responses Firms should be able to respond either offensively or defensively to the factors by formulating strategies that take advantage of external opportunities or that minimize the impact of potential threats . The purpose of an external audit is to develop a finite list of opportunities that could benefit a firm as well as threats that should be avoided. As the term finite suggests, the external audit is not aimed at developing an exhaustive list of every possible factor that could influence the business; rather, it is aimed at identifying key variables that offer actionable responses.

8. Key External Forces External forces can be divided into five broad categories : economic forces social, cultural, demographic, and environmental ( S C D E) forces political, governmental, and legal forces technological forces competitive forces Important Note: When identifying and prioritizing key external factors in strategic planning, make sure the factors selected are (1) specific (i.e., quantified to the extent possible); (2) actionable (i.e., meaningful in terms of having strategic implications); and (3) stated as external trends, events, or facts rather than as strategies the firm could pursue.

9. Figure 3.2 Relationships Between Key External Forces and an Organization

10. Identifying and evaluating external opportunities and threats enables organizations to develop a clear mission, to design strategies to achieve long-term objectives, and to develop policies to achieve annual objectives. Long Description: The flow chart consists of three blocks from left to right. The texts in each blocks read as follows. Block 1: Economic forces, Social, cultural, demographic, and natural environment forces, Political, legal, and governmental forces, Technological forces, and Competitive forces; Block 2: Competitors, Suppliers, Distributors, Creditors, Customers, Employees, Communities, Managers, Stockholders, Labor unions, Governments, Trade associations, Special interest groups, Products, Services, Markets, and Natural environment; Block 3: An organization’s opportunities and threats.

11. The A Q C D Test When identifying and prioritizing key external factors in strategic planning, the following 4 factors are important: A ctionable Q uantitative C omparative D ivisional The A Q C D is a measure of the quality of an external factor . The “Actionable-Quantitative-Comparative-Divisional (AQCD) Test” is a measure of the quality of an external factor.

12. Economic Forces (1 of 2) Shift to service economy Availability of credit Level of disposable income Propensity of people to spend Interest rates Inflation rates G D P trends Consumption patterns Unemployment trends Value of the dollar Be mindful that in strategic planning and case analysis, relevant economic variables such as those listed (from Table 3.1) must be quantified and actionable to be useful.

13. Economic Forces (2 of 2) Import/Export factors Demand shifts for different goods and services Income differences by region and consumer group Price fluctuations Foreign countries’ economic conditions Monetary and Fiscal policy Stock market trends Tax rate variation by country and state European Economic Community ( E E C) policies Organization of Petroleum Exporting Countries ( O P E C) policies Be mindful that in strategic planning and case analysis, relevant economic variables such as those listed must be quantified and actionable to be useful.

14. Social, Cultural, Demographic, and Environmental ( S C D E) Forces S C D E forces impact strategic decisions on virtually all products, services, markets, and customers. These forces are shaping the way people live, work, produce, and consume. Social, cultural, demographic, and environmental trends are shaping the way Americans live, work, produce, and consume. New trends are creating a different type of consumer and, consequently, a need for different products, new services, and updated strategies.

15. Key S C D E Variables (1 of 3) Population changes by race, age, and geographic area Regional changes in tastes and preferences Number of marriages Number of divorces Number of births Number of deaths Immigration and emigration rates Social Security programs Be mindful that in strategic planning and case analysis, relevant social, cultural, demographic, and natural environment factors for a particular business must be quantified and actionable to be useful. The list is from Table 3.2.

16. Key S C D E Variables (2 of 3) Life expectancy rates Per capita income Social media pervasiveness Attitudes toward retirement Energy conservation Attitudes toward product quality Attitudes toward customer service Pollution control Be mindful that in strategic planning and case analysis, relevant social, cultural, demographic, and natural environment factors for a particular business must be quantified and actionable to be useful.

17. Key S C D E Variables (3 of 3) Attitudes toward foreign peoples Energy conservation Social programs Number of churches Number of church members Social responsibility issues Be mindful that in strategic planning and case analysis, relevant social, cultural, demographic, and natural environment factors for a particular business must be quantified and actionable to be useful.

18. Political, Governmental, and Legal Forces Local, state, and federal laws, as well as regulatory agencies and special-interest groups, can have a major impact on the strategies of small, large, for-profit, and nonprofit organizations. Federal, state, local, and foreign governments are major regulators, deregulators, subsidizers, employers, and customers of organizations. Political, governmental, and legal factors, therefore, can represent major opportunities or threats for both small and large organizations.

19. Political, Government, and Legal Variables (1 of 2) Natural environmental regulations Protectionist actions by countries Changes in patent laws Equal employment opportunity laws Level of defense expenditures Unionization trends Antitrust legislation Some political, governmental, and legal variables that can represent key opportunities or threats to organizations are provided on this slide, but in stating these for a particular company, the factors should be both quantitative and actionable .

20. Political, Government, and Legal Variables (2 of 2) U S A versus 3 other country relationships Political conditions in countries Global price of oil changes Local, state, and federal laws Import-export regulations Tariffs, particularly on steel and aluminum Local, state, and national elections Some political, governmental, and legal variables that can represent key opportunities or threats to organizations are provided on this slide, but in stating these for a particular company, the factors should be both quantitative and actionable .

21. Technological Forces (1 of 3) New technologies such as: the Internet of Things 3 D printing the cloud mobile devices biotech analytics autotech No company or industry today is insulated against emerging technological developments. In high-tech industries, identification and evaluation of key technological opportunities and threats can be the most important part of the external strategic-management audit.

22. Technological Forces (2 of 3) robotics and artificial intelligence are fueling innovation in many industries, and impacting strategic-planning decisions. No company or industry today is insulated against emerging technological developments. In high-tech industries, identification and evaluation of key technological opportunities and threats can be the most important part of the external strategic-management audit.

23. Technological Forces (3 of 3) Many firms now have a Chief Information Officer ( C I O) and a Chief Technology Officer ( C T O) who work together to ensure that information needed to formulate, implement, and evaluate strategies is available where and when it is needed These individuals are responsible for developing, maintaining, and updating a company’s information database. The CIO is more a manager, managing the firm’s relationship with stakeholders; the CTO is more a technician, focusing on technical issues such as data acquisition, data processing, decision-support systems, and software and hardware acquisition.

24. Competitive Forces An important part of an external audit is identifying rival firms and determining their strengths , weaknesses , capabilities, opportunities , threats , objectives, and strategies Collecting and evaluating information on competitors is essential for successful strategy formulation. Identifying major competitors is not always easy because many firms have divisions that compete in different industries.

25. Obtaining Competitive Intelligence (1 of 2) Legal and ethical ways to obtain competitive intelligence: The six ways can help one collect competitor intelligence both legally and ethically . Reverse-engineer rival firms’ products . Use surveys and interviews of customers, suppliers, and distributors of rival firms. Analyze rival firm’s Form 10-K. Conduct fly-over and drive-by visits to rival firm operations. Search online databases . Contact government agencies for public information about rival firms.

26. Obtaining Competitive Intelligence (2 of 2) Monitor relevant trade publications, magazines, and newspapers. Purchase social-media data about customers of all firms in the industry. Hire top executives from rival firms .

27. Key Questions About Competitors (1 of 3) What are the strengths and weaknesses of our major competitors? What products and services do we offer that are unique in the industry? What are the objectives and strategies of our major competitors? How will our major competitors most likely respond to current economic, S C D E, political, governmental, legal, technological, and competitive trends affecting our industry? Addressing questions about competitors, such as those presented on this slide, is important in performing an external audit .

28. Key Questions About Competitors (2 of 3) How vulnerable are the major competitors to our new strategies, products, and services? How vulnerable is our firm to successful counterattack by our major competitors? How does our firm compare to rivals in mastering the social-media conversation in this industry? To what extent are new firms entering and old firms leaving this industry? What key factors have resulted in our present competitive position in this industry? Addressing questions about competitors, such as those presented on this slide, is important in performing an external audit.

29. Key Questions About Competitors (3 of 3) How are supplier and distributor relationships changing in this industry?

30. Competitive Intelligence Programs Competitive intelligence ( C I) a systematic and ethical process for gathering and analyzing information about the competition's activities and general business trends to further a business's own goals Competitive intelligence (C I) is formally defined by the Society of Competitive Intelligence Professionals (S C I P). Competitive intelligence is not corporate espionage; after all, 95 percent of the information a company needs to make strategic decisions is available and accessible to the public.

31. Figure 3.3 The Five-Forces Model of Competition (1 of 2) Porter’s Five-Forces Model of competitive analysis is a widely used approach for developing strategies in many industries. Long Description: The flow chart consists of five blocks. The block at the center reads, Rivalry among competing firms. Four blocks pointing the block at the center from the four sides are as follows: Potential development of substitute products at the top; Bargaining power consumers at the right; Potential entry of new competitors at the bottom; Bargaining power of suppliers at the left.

32. The Five-Forces Model of Competition (2 of 2) 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. The intensity of competition among firms varies widely across industries.

33. The Five-Forces Model (1 of 6) Rivalry among competing firms Most powerful of the five forces Focus on competitive advantage of strategies over other firms The intensity of rivalry among competing firms tends to increase as the number of competitors increases, as competitors become more equal in size and capability, as demand for the industry’s products declines, and as price cutting becomes common.

34. Table 3.5 The Five-Forces Model When the number of competing firms is high When competing firms are of similar size When competing firms have similar capabilities When demand for the industry’s products is changing rapidly When price cuts are common in the industry When consumers can switch brands easily When barriers to leaving the market are high When barriers to entering the market are low When fixed costs are high among competing firms When products are perishable or have short product life cycles Conditions That Cause High Rivalry Among Competing Firms This slide summarizes conditions that cause high rivalry among competing firms.

35. The Five-Forces Model (3 of 6) Potential Entry of New Competitors Barriers to entry are important Quality, pricing, and marketing can overcome barriers Whenever new firms can easily enter a particular industry, the intensity of competitiveness among firms increases.

36. Barriers to Entry (1 of 2) 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 Barriers to entry, however, can include the need to gain economies of scale quickly, the need to gain technology and specialized know-how, the lack of experience, strong customer loyalty, strong brand preferences, large capital requirements, lack of adequate distribution channels, government regulatory policies, tariffs, lack of access to raw materials, possession of patents, undesirable locations, counterattack by entrenched firms, and potential saturation of the market.

37. Barriers to Entry (2 of 2) Government regulatory policies Tariffs Lack of access to raw materials Possession of patents Undesirable locations Counterattack by entrenched firms Potential saturation of the market Whenever new firms can easily enter a particular industry, the intensity of competitiveness among firms increases.

38. The Five-Forces Model (4 of 6) Potential development of substitute products Pressure increases when: Prices of substitutes decrease Consumers ' switching costs decrease In many industries, firms are in close competition with producers of substitute products in other industries. The presence of substitute products puts a ceiling on the price that can be charged before consumers will switch to the substitute product.

39. The Five-Forces Model (5 of 6) Bargaining Power of Suppliers is increased when (there are): Few suppliers Few substitutes Costs of switching raw materials is high Backward integration is gaining control or ownership of suppliers It is often in the best interest of both suppliers and producers to assist each other with reasonable prices, improved quality, development of new services, just-in-time deliveries, and reduced inventory costs, thus enhancing long-term profitability for all concerned.

40. The Five-Forces Model (6 of 6) 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 When customers are concentrated or large in number or buy in volume, their bargaining power represents a major force affecting the intensity of competition in an industry .

41. 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 The bargaining power of consumers can be the most important force affecting competitive advantage.

42. Sources of External Information (1 of 2) Unpublished sources include customer surveys, market research, speeches at professional and shareholders ' meetings, television programs, interviews, and conversations with stakeholders. Published sources of strategic information include periodicals, journals, reports, government documents, abstracts, books, directories, newspapers, and manuals. A wealth of strategic information is available to organizations from both published and unpublished sources.

43. Sources of External Information (2 of 2) I B I S World Lexis-Nexis Academic Lexis-Nexis Company Dossier Mergent Online PrivCo Regional Business News S&P NetAdvantage Value Line Investment Survey U.S. Securities and Exchanges Commission Company Annual Reports On-Line ( C A R O L) There are many excellent sources for gathering strategic information.

44. Forecasting Tools and Techniques Forecasts educated assumptions about future trends and events no forecast is perfect 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.

45. Making Assumptions 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. Planning would be impossible without assumptions. McConkey defines assumptions as the “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.”

46. Industry Analysis: The External Factor Evaluation ( E F E) Matrix Summarize and evaluate these factors: Social Cultural Demographic Economic Environmental Political Governmental Legal Technological Competitive An External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information.

47. E F E Matrix Steps List 20 key external factors Weight from 0.0 to 1.0 Rate the effectiveness of current strategies from 1-4 Multiply weight * rating Sum weighted scores The EFE matrix can be developed in five steps.

48. Table 3.8 (1 of 2) E F E Matrix for a Local 10-Theater Cinema Complex Key External Factors Weight Rating Weighted Score Opportunities Blank Blank Blank 1. Two new neighborhoods developing within 3 miles 0.09 1 0.09 2. TDB University is expanding 6% annually 0.08 4 0.32 3. Major competitor across town recently closed 0.08 3 0.24 4. Demand for going to cinemas growing 10% 0.07 2 0.14 5. Disposable income among citizens up 5% in prior year 0.06 3 0.15 6. Rowan County is growing 8% annually in population 0.05 3 0.15 7. Unemployment rate in county declined to 3.1% 0.03 2 0.06

49. Table 3.8 (2 of 2) E F E Matrix for a Local 10-Theater Cinema Complex Key External Factors Weight Rating Weighted Score Threats Blank Blank Blank 8. Trend toward healthy eating eroding concession sales 0.12 4 0.48 9. Demand for online movies and DVDs growing 10% 0.06 2 0.12 10. Commercial property adjacent to cinemas for sale 0.06 3 0.18 11. TDB University installing an on-campus movie theater 0.04 3 0.12 12. County and city property taxes increasing 25% 0.08 2 0.6 13. Local religious groups object to R-rated movies 0.04 3 0.12 14. Movies rented at local Red Box’s up 12% 0.08 2 0.16 15. Movies rented last quarter from Time Warner up 15% 0.06 1 0.06 Total 1.00 Blank 2.58 The most important factor to being successful in this business is “Trend toward healthy eating eroding concession sales,” as indicated by the 0.12 weight. Also note that the local cinema is doing excellent in regard to handling two factors, “TDB University is expanding 6 percent annually” and “Trend toward healthy eating eroding concession sales.” Perhaps the cinema is placing flyers on campus and also adding yogurt and healthy drinks to its concession menu.

50. Industry Analysis: Competitive Profile Matrix ( C P M) 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 The ratings refer to strengths and weaknesses, where 4 = major strength, 3 = minor strength, 2 = minor weakness, and 1 = major weakness.

51. Table 3.10 An Example Competitive Profile Matrix Note: The ratings values are as follows: 1 = response is poor, 2 = response is average, 3 = response is above average, 4 = response is superior. As indicated by the total weighted score of 2.20, Company 3 is performing worst. Only 8 critical success factors are included for simplicity; in actuality, however, this is too few. The template asks that 12 factors be included and to tailor factors to a given industry.

52. Long Description: The table has nine rows and eight columns and the columns headers are: Critical Success Factors; Weight; Company 1: Rating, Score; Company 2: Rating, Score; and Company 3: Rating, Score. The data from the table are as follows: Row 1. Critical Success Factors, Advertising; Weight, 0.20; Company 1: Rating, 1; Company 1: Score, 0.20; Company 2: Rating, 4; Company 2: Score, 0.80; and Company 3: Rating, 3; Company 3: Score. 0.60. Row 2. Critical Success Factors, Global Expansion; Weight, 0.20; Company 1: Rating, 4; Company 1: Score, 0.80; Company 2: Rating, 1; Company 2: Score, 0.20; and Company 3: Rating, 2; Company 3: Score. 0.40. Row 3. Critical Success Factors, Financial Position; Weight, 0.15; Company 1: Rating, 4; Company 1: Score, 0.60; Company 2: Rating, 2; Company 2: Score, 0.30; and Company 3: Rating, 3; Company 3: Score. 0.45. Row 4. Critical Success Factors, Management; Weight, 0.10; Company 1: Rating, 4; Company 1: Score, 0.40; Company 2: Rating, 3; Company 2: Score, 0.20; and Company 3: Rating, 1; Company 3: Score. 0.10. Row 5. Critical Success Factors, Product Quality; Weight, 0.10; Company 1: Rating, 4; Company 1: Score, 0.40; Company 2: Rating, 3; Company 2: Score, 0.30; and Company 3: Rating, 2; Company 3: Score. 0.20. Row 6. Critical Success Factors, Customer Loyalty; Weight, 0.10; Company 1: Rating, 4; Company 1: Score, 0.40; Company 2: Rating, 3; Company 2: Score, 0.30; and Company 3: Rating, 2; Company 3: Score. 0.20. Row 7. Critical Success Factors, Price Competitiveness; Weight, 0.10; Company 1: Rating, 3; Company 1: Score, 0.30; Company 2: Rating, 2; Company 2: Score, 0.20; and Company 3: Rating, 1; Company 3: Score. 0.10. Row 8. Critical Success Factors, Market Share; Weight, 0.05; Company 1: Rating, 1; Company 1: Score, 0.05; Company 2: Rating, 4; Company 2: Score, 0.20; and Company 3: Rating, 3; Company 3: Score. 0.15. Row 9. Total: Weight, 1.00; Company 1: Score, 3.15; Company 2: Score, 2.50; and Company 3: Score. 2.20.

53. Figure 3.4 How to Gain and Sustain Competitive Advantages Long Description: The circular block at the center of the cycle reads Gain and Sustain Competitive Advantages. The cycle starts with the circular block at the top that reads, Establish a Clear Vision and Mission which leads to the second circular block at the right that reads, Formulate Strategies: Collect, Analyze , and Prioritize Data using matrices; establish a clear strategic plan. The second block leads to the third circular block at the bottom that reads, Implement Strategies: Establish structure; Allocate resources; Motivate and reward; Attract customers; Manage finances which further leads to the fourth circular block at the left that reads, Evaluate and Monitor Results: Take corrective actions; Adapt to change. The fourth block further leads to the first block and the cycle repeats

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