Bus 411
Day 5
Copyright 2005 Prentice Hall
1
Agenda
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Question?
Assignment 1 Corrected
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3 A’s, 2 B’s, 3 C’s & 1 D
We will be working a collective SWOT for McDonald’s
during this class to be used for the next two
assignments
Assignment 2 posted
 Due Feb 9
 EFE and CPM for McDonald's
Assignment 3 will be assigned soon and due right after
Winter break
Finish Discussion on The External Assessment
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Copyright 2005 Prentice Hall
Ch 1 -2
Chapter 2
The Business Vision & Mission
Strategic Management:
Concepts & Cases
13th Edition
Fred David
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Ch 2 -3
McDonald's SWOT
Strengths
Weaknesses
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Ch 2 -4
McDonald's SWOT
Opportunities
Threats
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Ch 2 -5
Chapter 3
The External Assessment
Strategic Management:
Concepts & Cases
13th Edition
Fred David
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Ch 3 -6
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Ch 3 -7
Key external forces
1. Economic
2. Social, cultural, demographic, and natural
environment
3. Political, government, and legal
4. Technology
5. Competition
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Ch 2 -8
Social, Cultural, Demographic, and
Natural Environmental Forces

Trends
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More American households with
people living alone
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More DINKs (Dual income families with
no kids) especially in Urban Areas
Aging Americans – affects all
organizations
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Ch 3 -9
Political, Governmental, and
Legal Forces
Government Regulation
Key opportunities & threats
Antitrust legislation
 Tax rates
 Lobbying activities
 Patent laws
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Ch 3 -10
Political, Governmental, and
Legal Forces
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Protectionist policies
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Tariffs vs. Free Trade
Governments taking equity stakes
in companies
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Auto & Financial bailout in US
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Ch 3 -11
Technological Forces
Major Impact –
•Internet
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Ch 3 -12
Technological Forces
Significance of IT
•Chief Information Officer (CIO)
•Chief Technology Officer (CTO)
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Ch 3 -13
Technological Forces
Essential for nearly every
strategic decision
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Ch 3 -14
Competitive Forces
Collection & evaluation of data on
competitors is essential for successful
strategy formulation
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Ch 3 -15
Competitive Forces
Identify Rival Firms’
•Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies
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Ch 3 -16
Competitive Forces
Competition in virtually all
industries can be described as
intense
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Ch 3 -17
Key Questions Concerning
Competitors
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Their strengths
Their weaknesses
Their objectives and strategies
Their responses to external variables
Their vulnerability to our alternative
strategies
Our vulnerability to strategic counterattack
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Ch 3 -18
Key Questions Concerning
Competitors
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Our product/service positioning
Entry and exit of firms in the industry
Key factors for our current position in industry
Sales/profit ranking of competitors over time
Nature of supplier and distributor
relationships
The threat of substitute products/services
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Ch 3 -19
Competitive Forces
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7 characteristics of most competitive firms
 Market share matters
 Understanding what business you are in
 Broke or not, fix it
 Innovate or evaporate
 Acquisition is essential to growth
 People make a difference
 No substitute for quality
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Ch 3 -20
Competitive Intelligence

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
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Ch 3 -21
Sources of Competitive Intelligence
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Internet
Employees
Managers
Suppliers
Distributors
Customers
Creditors
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Consultants
Trade journals
Want ads
Newspaper articles
Government filings
Competitors
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Ch 3 -22
Objectives of Competitive Intelligence
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Provide a general understanding of industry
and competitors
Identify areas where competitors are
vulnerable and assess impact of actions on
competitors
Identify potential moves that a competitor
might make
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Ch 3 -23
Market Commonality
 The
number and significance of
markets that a firm competes in
with rivals
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Ch 3 -24
Resource Similarity
 Extent
to which the type and
amount of a firm’s internal
resources are comparable to a
rival
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Ch 3 -25
Media Monitoring
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Companies that gather competitive
intelligence for a fee
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http://www.burrellesluce.com/
http://www.vocus.com/content/index.asp
http://www.metromonitor.com/
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Ch 2 -26
The Five-Forces Model of Competition
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Ch 3 -27
Steps to Determine if an Acceptable
Profit Can Be Earned
1.
2.
3.
Identify key aspects or elements of each
competitive force
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
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Ch 3 -28
The Five-Forces Model
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Rivalry among competing firms
Most powerful of the five forces
 Focus on competitive advantage of
strategies over other firms
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Ch 3 -29
Conditions that Cause High Rivalry
Among Competing Firms
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High number of competing firms
Similar size of firms competing
Similar capability of firms competing
Falling demand for the industry’s products
Falling product/service prices in the
industry
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Ch 3 -30
Conditions that Cause High Rivalry
Among Competing Firms
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Consumers can switch brands easily
Barriers to leaving the market are high
Barriers to entering the market are low
Fixed costs are high among firms
competing
The product is perishable
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Ch 3 -31
Conditions that Cause High Rivalry
Among Competing Firms
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Rivals have excess capacity
Consumer demand is falling
Rivals have excess inventory
Rivals sell similar products/services
Mergers are common in the industry
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Ch 3 -32
The Five-Forces Model
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Potential Entry of New Competitors
Barriers to entry are important
 Quality, pricing, and marketing can
overcome barriers
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Ch 3 -33
The Five-Forces Model
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Potential development of substitute
products
 Pressure increases when:
 Prices of substitutes decrease
 Consumers’ switching costs
decrease
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Ch 3 -34
The Five-Forces Model
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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
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Ch 3 -35
The Five-Forces Model
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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
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Ch 3 -36
Conditions Where Consumers Gain
Bargaining Power
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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
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Ch 3 -37
Sources of External Information:
Unpublished Sources
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Customer surveys
Market research
Speeches at professional or shareholder
meetings
Television programs
Interviews and conversations with
stakeholders
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Ch 3 -38
Sources of External Information:
Published Sources
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Periodicals
Journals
Reports
Government documents
Abstracts
Books
Directories
Newspapers
Manuals
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Ch 3 -39
Sources of External Information:
Web Sites
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http://www.marketwatch.com/
http://moneycentral.msn.com
http://finance.yahoo.com
http://www.bloomberg.com/markets/
https://us.etrade.com/e/t/invest/markets
www.hoovers.com
UMFK Databases
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Ch 3 -40
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
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Ch 3 -41
Assumptions
Estimates of future events based
upon the best available
information in the present
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Ch 3 -42
Industry Analysis: The External
Factor Evaluation (EFE) Matrix
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Economic
Social
Cultural
Demographic
Environmental
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Political
Governmental
Technological
Competitive
Legal
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Ch 3 -43
5 Steps (Page 80 & 81)
1.
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1.
2.
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
Copyright 2005 Prentice Hall
Ch 3 -44
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Ch 3 -45
Copyright © 2011 Pearson Education, Inc.
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Ch 3 -46
Industry Analysis EFE
Total weighted score of 4.0
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Organization response is outstanding to threats
and weaknesses
Total weighted score of 1.0
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Firm’s strategies not capitalizing on opportunities
or avoiding threats
Average is 2.5
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Ch 3 -47
Industry Analysis: Competitive Profile
Matrix (CPM)

Identifies firm’s major competitors and
their strengths & weaknesses in
relation to a sample firm’s strategic
positions
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Critical success factors include
internal and external issues
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Ch 3 -48
Steps to a CPM
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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
Copyright 2005 Prentice Hall
Ch 3 -49
Gateway
Apple
Dell
Wt
Rating
Wt’d
Score
Rating
Wt’d
Score
Rating
Wt’d
Score
Market share
0.15
3
0.45
2
0.30
4
0.60
Inventory sys
0.08
2
0.16
2
0.16
4
0.32
Fin position
0.10
2
0.20
3
0.30
3
0.30
Prod. Quality
0.08
3
0.24
4
0.32
3
0.24
Cons. Loyalty
0.02
3
0.06
3
0.06
4
0.08
Sales Distr
0.10
3
0.30
2
0.20
3
0.30
Global Exp.
0.15
3
0.45
2
0.30
4
0.60
Org. Structure
0.05
3
0.15
3
0.15
3
0.15
CSF’s
Copyright 2005 Prentice Hall
Ch 3 -50
Gateway
Apple
Dell
CSF’s (cont’d)
Wt
Rating
Wt’d
Score
Rating
Wt’d
Score
Rating
Wt’d
Score
Prod. Capacity
0.04
3
0.12
3
0.12
3
0.12
E-commerce
0.10
3
0.30
3
0.30
3
0.30
Customer Serv
0.10
3
0.30
2
0.20
4
0.40
Price
competitive
0.02
4
0.08
1
0.02
3
0.06
Mgt. experience
0.01
2
0.02
4
0.04
2
0.02
Total
1.00
2.83
Copyright 2005 Prentice Hall
2.47
3.49
Ch 3 -51
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Ch 3 -52
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.
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Ch 3 -53
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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.
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Ch 3 -54