Chapter 3
The External Assessment
Strategic
Management:
Concepts & Cases
11th Edition
Fred David
Copyright 2007 Prentice Hall
Ch 3 -1
External Strategic
Management Audit
Identify & Evaluate factors beyond
the control of a single firm
– Increased foreign competition
– Population shifts
– Information technology
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Ch 3 -2
Key External Forces & the Organization
Key
External
Forces
Competitors
Suppliers
Distributors
Creditors
Customers
Employees
Communities
Managers
Stockholders
Labor Unions
Special Interest Groups
Products
Services
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Opportunities
&
Threats
Ch 3 -3
Performing External Audit
Long-term orientation
External
Factors
Measurable
Applicable to
competing firms
Hierarchical
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Ch 3 -4
I/O Perspective Firm Performance
Industry Properties
Economies of Scale
Barriers to market entry
Product differentiation
Level of competitiveness
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Ch 3 -5
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
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Ch 3 -6
Key Social, Cultural, Demographic &
Environmental Variables
Childbearing rates
Number of special interest groups
Number of marriages & divorces
Number of births & deaths
Immigration & emigration rates
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Ch 3 -7
Political, Government & Legal
Forces
Globalization of Industry
• Worldwide trend toward similar
consumption patterns
• Global buyers and sellers
• E-commerce
• Technology for instant currency transfers
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Ch 3 -8
Competitive Forces
Identifying Rival Firms
•Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies
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Ch 3 -9
Competitive Forces
7 Characteristics of most
Competitive U.S. Firms:
1. Market share matters
2. Understand what business you are in
3. Broke or not, fix it
4. Innovate or evaporate
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Ch 3 -10
Competitive Forces
7 Characteristics of most
Competitive U.S. Firms:
5. Acquisition is essential to growth
6. People make a difference
7. No substitute for quality
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Ch 3 -11
The Five-Forces Model of Competition
Potential development
of substitute products
Rivalry among
competing firms
Bargaining power
of suppliers
Bargaining power
of consumers
Potential entry of new
competitors
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Ch 3 -12
The Global Challenge
Faced by U.S. Firms --
•Gain & maintain exports to other
nations
•Defend domestic markets against
imported goods
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Ch 3 -13
Industry Analysis: The External Factor
Evaluation (EFE) Matrix
Summarize & Evaluate
Economic
Demographic
Governmental
Social
Environmental
Technological
Cultural
Political
Competitive
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Ch 3 -14
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Ch 3 -15
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Ch 3 -16
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
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Ch 3 -17
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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Ch 3 -18
Gateway
Apple
Dell
Wt
Rating
Wt’d
Score
Ratin
g
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
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Ch 3 -19
Gateway
Apple
Dell
CSF’s (cont’d)
Wt
Rating
Wt’d
Score
Ratin
g
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
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2.83
2.47
3.49
Ch 3 -20