Lecture 3 External opportunities and threats. Vision & Mission Strategy Formulation External...
-
Upload
grace-walsh -
Category
Documents
-
view
223 -
download
1
Transcript of Lecture 3 External opportunities and threats. Vision & Mission Strategy Formulation External...
Vision & Mission
Strategy Formulation
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
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
External Strategic Management Audit
Identify & Evaluate factors beyond the control of a single firm– Increased foreign competition– Population shifts– Aging society– Fear of traveling– Stock market volatility
– Identify• Opportunities• Threats
Key External Forces
•Economic forces
•Social, cultural, demographic & environmental forces
•Political, governmental & legal forces
•Technological forces
•Competitive forces
CompetitorsSuppliers
DistributorsCreditors
CustomersEmployees
CommunitiesManagers
StockholdersLabor Unions
Special Interest GroupsProductsServicesMarkets
Natural Environment
Key External Forces
Opportunities&
Threats
Key External Forces & the Organization
Performing External Audit -- Variables•Commonly use areas requiring analysis in determining opportunities and threats:
•Market share
•Breadth of competing products
•World economies
•Foreign affiliates
•Proprietary account advantages•Price competitiveness•Technological advancements•Interest rates•Pollution abatement
Performing External Audit – factors
•Related to long term and annual, objectives
•Measurable
•Applicable to competitors
•Pertain to the overall organisation (wide scope) and to narrow areas or functions within the company.
Economic Forces
• Trends in the dollar’s value
• European Union
• Layoffs
• Economic standard of living
Social, Cultural, Demographic & Environmental Forces
Major Impact –
•Products
•Services
•Markets
•Customers
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
Social, Cultural, Demographic & 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
• Local Trends– More American households with people living
alone– By 2021 Hispanics will be largest minority group– Aging Americans – affects all organizations– Population shift to the south and west– Less interested in fitness and exercise– Decimation and degradation of the natural
environment
Social, Cultural, Demographic & Environmental Forces
Social, Cultural, Demographic & Environmental Forces
Global trends
•China largest exporter to U.S.
•Asia receives highest foreign direct investment
• China and Asia provide cheaper labor and utilities than Mexico
•China joined WTO
Social, Cultural, Demographic & Environmental Forces
•More educated consumers
•Aging population
•Minorities more influential
•Local rather than federal solutions•Fixation with youth decreasing•Hispanics increase to 15% by 2021•African American increase to 14% by 2021
21st Century Trends
Social, Cultural, Demographic & Environmental Forces
• Sample of variables that should be monitored :– Number of Births and deaths, – immigration and emigration rates – Average disposable income– Ethical Concerns– Average educational level– Government regulation– Social responsibility– Air and Water pollution– Ozone Depletion
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, Business Week
Sources of Corporate Information
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:
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:
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
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
The Five-Forces Model
• Most powerful of the five forces
• Focus on competitive advantage of strategies
Rivalry Among Competing Firms
The Five-Forces Model
• Barriers to entry are important
• Quality, pricing, and marketing can overcome barriers
Potential Entry of New Competitors
The Five-Forces Model
• Pressures increase when consumer’s switching costs decrease
• Firm’s plans for increased capacity & market penetration
Potential Development of Substitute Products
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
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
Conditions where Consumers GainBargaining 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 seller’s products, prices and costs.
• If they have discretion in whether and when they purchase the product.
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
External Audit: Dell
• Opportunities• Demand for personal computers continues to grow.• Many customers switching from desktops to notebooks.• Microsoft desires to partner with Dell.• Consumer electronics is a profitable business.• Higher consumer spending in the US.• Incorporated managed and professional services.• Global enterprise systems.• Training and certification program.• Financial services offered.• Growth in the color printer market.
External evaluation: Dell
• Threats• Consolidation in the PC industry (i.e., Lenove Group Ltd.
of China purchase PC division of IBM in May 2005).• Higher oil prices could crimp consumers’ spending.• Commercial demand fails to accelerate.• Competitors are strong.• Slow growth in the PC market.• Component price fluctuation• Price for computing power has decreased.• Computer market has broadened.• Currency fluctuations in the international markets.
Industry Analysis: The External Factor Evaluation (EFE) Matrix
CompetitivePoliticalCultural
Technological
EnvironmentalSocial
Governmental
DemographicEconomic
Summarize & Evaluate
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
Question
• Derive an EEM based on the aforementioned opportunities and threats for Dell. (to be completed in class)
• Discuss the importance of an the external environment for an organisation and how to evaluate its impact on strategic formulation.
• Discuss how a company could evaluate whether it should remain in its current industry or enter a new industry, illustrate your answer with suitable examples .