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Strategic Management Slides - Chapter 3 "the External Assessment"
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Transcript of Strategic Management Slides - Chapter 3 "the External Assessment"
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Fred R. DavidPrentice Hall
Ch.3-1
Chapter 3The External Assessment
Strategic Management: Concepts and Cases. 9th edition
Fred R. David
PowerPoint Slides byAnthony F. Chelte
Western New England College
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Fred R. DavidPrentice Hall
Ch.3-2
Chapter Outline
• The Nature of an External Audit• The Industrial Organization View• Economic Forces• Social, Cultural, Demographic, and
Environmental Forces
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Fred R. DavidPrentice Hall
Ch.3-3
Chapter Outline
• Political, Governmental, and Legal Forces
• Technological Forces
• Competitive Forces
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Fred R. DavidPrentice Hall
Ch.3-4
The External Assessment
Prediction is very difficult, especially about the future.
-- Neils Bohr
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Fred R. DavidPrentice Hall
Ch.3-5
External Strategic Management Audit
Also called:– Environmental scanning– Industry analysis
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Fred R. DavidPrentice Hall
Ch.3-6
External Strategic Management Audit
External Audit:– Identification and evaluation of trends and
events beyond control of single firm• Increased foreign competition• Populations shifts• Aging society• Information technology• Computer revolution
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The Industrial Organization (I/O) View
• The Industrial Organization (I/O) approach to competitive advantage advocates that external (industry) factors are more important than internal factors in a firm achieving competitive advantage.
Fred R. DavidPrentice Hall
Ch.3-7
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Fred R. DavidPrentice Hall
Ch.3-8
Purpose:
– Development of Finite List:• Opportunities• Threats to be avoided
Nature of External Audit
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Fred R. DavidPrentice Hall
Ch.3-9
Five (5) broad categories:
1. Economic forces2. Social, cultural, demographic, &
environmental forces3. Political, governmental, and legal forces4. Technological factors5. Competitive forces
Key External Forces
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Fred R. DavidPrentice Hall
Ch.3-10
Relationships Between Key External Forces and an Organization
Key External Forces
CompetitorsSuppliers
DistributorsCreditors
CustomersEmployees
CommunitiesManagers
StockholdersLabor Unions
Special Interest GroupsProductsServices
Opportunities&
Threats
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Fred R. DavidPrentice Hall
Ch.3-11
Performing an External Audit
Gather competitive intelligence on factors:– Social– Cultural– Demographic– Environmental– Economic– Political, legal, governmental– technological
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Fred R. DavidPrentice Hall
Ch.3-12
Performing an External Audit
Key factors:– Vary over time– Vary by industry
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Fred R. DavidPrentice Hall
Ch.3-13
Performing an External Audit
Variables include:– Market share– Breadth of competing products– World economies– Foreign affiliates– Proprietary account advantages– Price competitiveness– Technological advancements– Interest rates– Pollution abatement
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Fred R. DavidPrentice Hall
Ch.3-14
Economic ForcesMonitor Key Economic Variables:
Availability of credit Level of disposable income Interest rates Inflation rates Money market rates Federal government budget deficits Gross domestic product trend Consumption patterns
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Fred R. DavidPrentice Hall
Ch.3-15
Monitor Key Economic Variables:
• Unemployment trends• Worker productivity levels• Value of the dollar in world markets• Stock market trends• Foreign countries’ economic conditions• Import/export factors• Demand shifts for goods/services• Income differences by region/customer•
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Fred R. DavidPrentice Hall
Ch.3-16
Monitor Key Economic Variables:
• Price fluctuations• Exportation of labor & capital• Monetary policies• Fiscal policies• Tax rates• ECC policies• OPEC policies• LDC policies
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Fred R. DavidPrentice Hall
Ch.3-17
Social, Cultural, Demographic & Environmental Forces
Major impact on:
– Products– Services– Markets– customers
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Fred R. DavidPrentice Hall
Ch.3-18
Social, Cultural, Demographic & Environmental Forces
• World population > 6 billion
• U.S. population < 300 million• Great potential for domestic production
expansion to other markets
• Domestic only is a risky strategy
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Fred R. DavidPrentice Hall
Ch.3-19
Social, Cultural, Demographic & Environmental Forces
Trends for the 2000’s –
– More educated consumers– Population aging– Minorities more influential– Local rather than federal solutions– Fixation with youth decreasing– Hispanics increase to 15% by 2021– African Americans increase to 14% by 2021
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Fred R. DavidPrentice Hall
Ch.3-20
Social, Cultural, Demographic & Environmental Forces
Key variables –• Childbearing rates• Number of special-interest groups• Number of marriages• Number of divorces• Number of births• Number of deaths• Immigration & emigration rates
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Fred R. DavidPrentice Hall
Ch.3-21
Monitor Key Variables
• Life expectancy rates• Per capita income• Attitudes toward business• Average disposable income• Buying habits• Ethical concerns• Attitudes toward saving
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Fred R. DavidPrentice Hall
Ch.3-22
Monitor Key Variables
• Racial equality• Average level of education• Government regulation• Attitudes toward customer service• Attitudes toward product quality• Energy conservation• Social responsibility
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Fred R. DavidPrentice Hall
Ch.3-23
Monitor Key Variables
• Value placed on leisure time• Recycling• Waste management• Air & water pollution• Ozone depletion• Endangered species
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Fred R. DavidPrentice Hall
Ch.3-24
Political, Govt., & Legal Forces
Government Regulation
• Key opportunities & key threats• Antitrust legislation (Microsoft)• Tax rates• Lobbying efforts• Patent laws
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Fred R. DavidPrentice Hall
Ch.3-25
Political, Govt., & Legal Forces
Increasing Global Interdependence
• Impact of political variables– Formulation of Strategies– Implementation of Strategies
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Fred R. DavidPrentice Hall
Ch.3-26
Political, Govt., & Legal Forces
Increasing Global Interdependence
• Strategists in a global economy• Forecast political climates• Legalistic skills• Diverse world cultures
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Fred R. DavidPrentice Hall
Ch.3-27
Political, Govt., & Legal Forces
Globalization of Industry
• Worldwide trend toward similar consumption patterns
• Global buyers & sellers
• E-commerce
• Instant transmission of money & information across continents
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Fred R. DavidPrentice Hall
Ch.3-28
Political, Govt., & Legal Forces
Key Political, govt., & legal variables:
• Government regulation/deregulation• Tax law changes• Special tariffs• Political Action Committees (PACs)• Voter participation rates• Number of patents• Changes in patent laws
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Fred R. DavidPrentice Hall
Ch.3-29
Technological Forces
Internet changes the nature of opportunities and threats --
• Alters life cycle of products• Increases speed of distribution• Creates new products and services• Eases limitations of geographic markets• Alters economies of scale• Changes entry barriers
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Fred R. DavidPrentice Hall
Ch.3-30
Technological Forces
Capitalizing on Information Technology (IT)
• Chief Information Officer (CIO)
• Chief Technology Officer (CTO)
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Fred R. DavidPrentice Hall
Ch.3-31
Technological Forces
Technology-based issues
– Underlie nearly every strategic decision
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Strategy and Future Forecast
• Linear regression is based on the assumption that the future will be just like the past.
Fred R. DavidPrentice Hall
Ch.3-32
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Fred R. DavidPrentice Hall
Ch.3-33
Competitive Forces
Collection and evaluation of information on competitors is essential for successful strategy formulation
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Fred R. DavidPrentice Hall
Ch.3-34
Competitive Forces
Competition in virtually all industries can be described as intense.
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Fred R. DavidPrentice Hall
Ch.3-35
Competitive Forces
Identifying rival firms• Strengths• Weaknesses• Capabilities• Opportunities• Threats• Objectives• Strategies
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Fred R. DavidPrentice Hall
Ch.3-36
Competitive Forces
Key Questions About Competitors:• Their strengths• Their weaknesses• Their objectives and strategies• Their responses to all external variables
(e.g. social, political, demographic, etc.)• Their vulnerability to our alternative
strategies
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Fred R. DavidPrentice Hall
Ch.3-37
Competitive Forces
Key Questions About Competitors:• Our vulnerability to successful strategic
counterattack• Our product and service positioning relative
to competitors• Entry and exit of firms in the industry• Key factors for our current position in
industry
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Fred R. DavidPrentice Hall
Ch.3-38
Competitive Forces
Key Questions About Competitors:• Sales and profit rankings of competitors
over time• Nature of supplier and distributor
relationships• The threat of substitute products or
services
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Fred R. DavidPrentice Hall
Ch.3-39
Competitive Forces
Sources of Corporate Information:• 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
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Fred R. DavidPrentice Hall
Ch.3-40
Competitive Forces
Competitive Intelligence Programs:
• Systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’ own goals.
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Fred R. DavidPrentice Hall
Ch.3-41
Competitive Analysis: Porter’s Five-Forces Model
Potential development of substitute products
Rivalry among competing firms
Bargaining power of suppliers
Potential entry of new competitors
Bargaining power of consumers