BUS 411
DAY 4
1
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Agenda
 Question?
 Assignment 1 due
 We will develop a class wide SWOT next class for use
in future assignments
 Assignment 2 posted
 Due Feb 15
 Begin Discussion on the External Assessment
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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 McDonald’s
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.
2-3
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
The External
Assessment
Chapter Three
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
External Assessment
“It is not the strongest of the species that
survive, nor the most intelligent, but the one
most responsive to change.”
– Charles Darwin
“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
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter Objectives
1. Describe how to conduct an external strategic2.
3.
4.
5.
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.
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter Objectives (cont.)
6. Explain how to develop an EFE Matrix.
7. Explain how to develop a Competitive Profile Matrix.
8. Discuss the importance of gathering competitive
9.
10.
intelligence.
Describe the trend toward cooperation among
competitors.
Discuss market commonality and resource similarity in
relation to competitive analysis.
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
The Nature 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.
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Key External Forces
External forces can be divided into five
broad categories:
1.
2.
3.
4.
5.
economic forces
social, cultural, demographic, and natural
environment forces
political, governmental, and legal forces
technological forces
competitive forces
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Relationships Between Key External Forces
and an Organization
3-12
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
The Process of Performing an
External Audit
 First, gather competitive intelligence and
information about economic, social,
cultural, demographic, environmental,
political, governmental, legal, and
technological trends.
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
The Process of Performing an
External Audit
 Information should be assimilated and
evaluated
 A final list of the most important key
external factors should be communicated
 10-20 external factors (balanced)
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
The Process of Performing an
External Audit
Key external factors should be:
1.
2.
3.
4.
important to achieving long-term and annual
objectives
measurable
applicable to all competing firms, and
hierarchical in the sense that some will pertain
to the overall company and others will be more
narrowly focused on functional or divisional
areas
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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 for achieving competitive
advantage.
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
The Industrial Organization
(I/O) View
 Firm performance
Economies of scale
is based more on
industry properties Barriers to market entry
than the firm
Product differentiation
properties
The economy
Level of competitiveness
3-17
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Economic Forces
3-18
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Sources of Economic Data
 FRED


http://research.stlouisfed.org/fred2/
World Bank

http://data.worldbank.org/
 Google Public Data Explorer


http://www.google.com/publicdata/directory
Bureau of Economic Analysis

http://www.bea.gov/
 International Monetary Fund

http://www.imf.org/external/data.htm
2-19
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Advantages and Disadvantages
of a Weak Dollar
3-20
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Social, Cultural, Demographic, and
Natural Environmental Forces
 U.S. Facts





Aging population
Less white
Widening gap between rich & poor
2025 = 18.5% population > 65 years
2075 = no ethnic or racial majority
 United States Census Bureau

http://www.census.gov/#
 UN Data

http://unstats.un.org/unsd/demographic/sources/census/2010_PHC/def
ault.htm
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Social, Cultural, Demographic, and
Natural Environmental Forces
 Facts




World population 7 billion
World population = 8 billion by 2028
World population = 9 billion by 2054
U.S. population > 310 million
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Key Social, Cultural, Demographic, and
Natural Environment Variables
3-23
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Political, Governmental, and
Legal Forces
 The increasing global interdependence
among economies, markets,
governments, and organizations makes it
imperative that firms consider the
possible impact of political variables on
the formulation and implementation of
competitive strategies.
 CIA Data
 https://www.cia.gov/index.html
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Political, Government, and
Legal Variables
3-25
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
American Labor Unions
 The extent that a state is unionized can be a


significant political factor in strategic planning
decisions as related to manufacturing plant
location and other operational matters
The size of American labor unions has fallen
sharply in the last decade due in large part to
erosion of the U.S. manufacturing base
http://www.bls.gov/news.release/union2.toc.htm
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Technological Forces
The Internet has changed the very nature of
opportunities and threats by:
altering the life cycles of products,
increasing the speed of distribution,
creating new products and services,
erasing limitations of traditional geographic
markets,
changing the historical trade-off between
production standardization and flexibility.
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Technological Forces
 The Internet is altering economies of
scale, changing entry barriers, and
redefining the relationship between
industries and various suppliers,
creditors, customers, and competitors
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Economic Trade Zones
http://en.wikipedia.org/wiki/Trade_bloc
2-29
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Technological Forces
 Many firms now have a Chief
Information Officer (CIO) and a Chief
Technology Officer (CTO) who work
together to ensure that information
needed to formulate, implement, and
evaluate strategies is available where and
when it is needed
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Technological Forces
Technological advancements can:
Create new markets,
Result in a proliferation of new and improved
products,
Change the relative competitive cost positions in
an industry,
Render existing products and services obsolete.
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Competitive Forces
 An important part of an external audit is
identifying rival firms and determining
their strengths, weaknesses, capabilities,
opportunities, threats, objectives, and
strategies
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Competitive Forces
Characteristics of the most competitive
companies:
1.Market share matters
2.Understand and remember precisely what business
you are in
3.Whether it’s broke or not, fix it–make it better
4.Innovate or evaporate
5.Acquisition is essential to growth
6.People make a difference
7.There is no substitute for quality
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Key Questions About Competitors
3-34
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Competitive Intelligence
Programs
 Competitive intelligence (CI)
 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
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Competitive Intelligence Programs
The three basic objectives of a CI program
are:
1.
2.
3.
to provide a general understanding of an industry and
its competitors
to identify areas in which competitors are vulnerable
and to assess the impact strategic actions would have
on competitors
to identify potential moves that a competitor might
make that would endanger a firm’s position in the
market
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Media Monitoring
 Companies that gather competitive
intelligence for a fee
 http://www.burrellesluce.com/
 http://www.vocus.com/content/index.asp
 http://www.metromonitor.com/
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Market Commonality and Resource
Similarity
 Market
 Resource
commonality
similarity
 the number and
significance of
markets that a firm
competes in with
rivals
 the extent to which
the type and
amount of a firm’s
internal resources
are comparable to
a rival
3-38
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
The Five-Forces Model of
Competition
3-39
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
The Five-Forces Model of
Competition
1. Identify key aspects or elements of each
competitive force that impact the firm.
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.
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
The Five-Forces Model
 Rivalry among competing firms
 Most powerful of the five forces
 Focus on competitive advantage of strategies
over other firms
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
The Five-Forces Model
3-42
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
The Five-Forces Model
 Potential Entry of New Competitors
 Barriers to entry are important
 Quality, pricing, and marketing can overcome
barriers
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
The Five-Forces Model
 Potential development of substitute
products
 Pressure increases when:
• Prices of substitutes decrease
• Consumers’ switching costs decrease
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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)
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Conditions Where Consumers Gain
Bargaining Power
1.
2.
3.
4.
5.
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
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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.
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Sources of External Information:
Web Sites
 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
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Forecasting Tools and Techniques
 Forecasts
 educated assumptions about future trends
and events
 quantitative, qualitative techniques
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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.
 Document your assumptions
 Will be tested by time and actual outcomes
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Industry Analysis: The External Factor
Evaluation (EFE) Matrix
 Economic
 Social
 Cultural
 Demographic
 Environmental
 Political
 Governmental
 Technological
 Competitive
 Legal
EFE matrix.xlt
3-54
Copyright
©2013
Pearson Education,
publishing as Prentice
Copyright
©2013
PearsonInc.Education,
Inc. Hall
5 Steps (Page 80-82)
1.


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 ©2013 Pearson Education, Inc. publishing as Prentice Hall
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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
Ch 3 -58
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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

Ch 3 -59
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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
Ch 3 -61
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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
2.47
3.49
Ch 3 -62
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
An Example Competitive
Profile Matrix
3-64
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
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.
Ch 3 -65
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall
Copyright
©2013
PearsonInc. publishing as Prentice Hall
Copyright ©2013
Pearson Education,
3-66