MGMT 478 Ch. 3

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

Forecasts

- educated assumptions about future trends and events - no forecast is perfect

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

Porter's Five Forces

-The rivalry among existing competitors -The threat of new entrants -The threat of substitute and complementary products -The bargaining power of suppliers -The bargaining power of buyers

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.

Conditions Where Consumers Gain Bargaining Power

1. If buyers can inexpensively switch 2. If buyers are particularly important 3. If sellers are struggling in the face of falling consumer demand 4. If buyers are informed about sellers' products, prices, and costs 5. If buyers have discretion in whether and when they purchase the product

Key Questions About Competitors

1. What are the strengths and weaknesses of our major competitors? 2. What products and services do we offer that are unique in the industry? 3. What are the objectives and strategies of our major competitors? 4. How will our major competitors most likely respond to current economic, SCDE, political, governmental, legal, technological, and competitive trends affecting our industry? 5. How vulnerable are the major competitors to our new strategies, products, and services? 6. How vulnerable is our firm to successful counterattack by our major competitors? 7. How does our firm compare to rivals in mastering the social-media conversation in this industry? 8. To what extent are new firms entering and old firms leaving this industry? 9. What key factors have resulted in our present competitive position in this industry? 10. How are supplier and distributor relationships changing in this industry?

Key External Forces

1. economic forces 2. social, cultural, demographic, and natural environment forces 3. political, governmental, and legal forces 4. technological forces 5. competitive forces

Which of the following EFE scores indicates that a firm is weak at responding to external factors

1.2

In using the strategic planning Excel template, how many critical success factors should be included in a CPM

12

How many factors should be included in an External Factor Evaluation Matrix

20

An EFEM matrix should always include what element?

A 1, 2, 3, 4 rating scale. 1 being bad 4 being good

Which of the following is NOT one of Porters five forces?

Barriers to entry

What do the letters CPM stands for

Competitive Profile Matrix

When using a CPM, rival companies should be assigned ratings in what manner

Different ratings

which of the following is considered a published source for external information?

Directories

Ashley is looking for an external factor that relates to the​ firm's products. This best exemplifies the AQCD test category​ of:

Divisional

Which two matrices require strategists to assign weights and ratings

EFE Matrix and Competitive Profile Matrix

Who says, "In God we trust; all others bring the data"

Edward Deming

which of the following economic forces might be monitored by an international firm entering a new market in​ Germany?

European Economic Community EEC policies

Which of the following is NOT true of the process of performing an external​ audit?

External factors should be qualitative in nature

Opportunities are best described in what way

External in nature

Under which condition can consumers gain increasing bargaining power?

If they can inexpensively switch to a substitute

The external audit is aimed at identifying​ ______.

Key variables that offer actionable responses

Obtaining Competitive Intelligence

Legal and ethical ways to obtain competitive intelligence: 1. Reverse-engineer rival firms' products. 2. Use surveys and interviews of customers, suppliers, and distributors of rival firms. 3. Analyze rival firm's Form 10-K. 4. Conduct fly-over and drive-by visits to rival firm operations. 5. Search online databases. 6. Contact government agencies for public information about rival firms. 7. Monitor relevant trade publications, magazines, and newspapers. 8. Purchase social-media data about customers of all firms in the industry. 9. Hire top executives from rival firms.

Which of the following is NOT one of the external force​ categories?

Marketing (internal factor, can be monitored by the company)

Factors are organized in an EFE Matrix into what two categories?

Opportunities and threats

For industries and firms that depend heavily on government contracts or subsidies, which forecasts can be the most important part of an external audit?

Political

The video emphasizes that strategic planning is all about what concept

Prioritization

The Five-Forces Model

Rivalry among competing firms - Most powerful of the five forces - Focus on competitive advantage of strategies over other firms 1. When the number of competing firms is high 2. When competing firms are of similar size 3. When competing firms have similar capabilities 4. When demand for the industry's products is changing rapidly 5. When price cuts are common in the industry 6. When consumers can switch brands easily 7. When barriers to leaving the market are high 8. When barriers to entering the market are low 9. When fixed costs are high among competing firms 10. When products are perishable or have short product life cycles • Potential Entry of New Competitors - Barriers to entry are important - Quality, pricing, and marketing can overcome barriers 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 • Government regulatory policies • Tariffs • Lack of access to raw materials • Possession of patents • Undesirable locations • Counterattack by entrenched firms • Potential saturation of the market Potential development of substitute products - Pressure increases when: Prices of substitutes decrease Consumers' switching costs decrease Bargaining Power of Suppliers is increased when (there are): - Few suppliers - Few substitutes - Costs of switching raw materials is high • Backward integration is gaining control or ownership of suppliers 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

Economic Forces

Shift to service economy • Availability of credit • Level of disposable income • Propensity of people to spend • Interest rates • Inflation rates • GDP trends • Consumption patterns • Unemployment trends • Value of the dollar • Import/Export factors • Demand shifts for different goods and services • Income differences by region and consumer group • Price fluctuations • Foreign countries' economic conditions • Monetary and Fiscal policy • Stock market trends • Tax rate variation by country and state • European Economic Community (EEC) policies • Organization of Petroleum Exporting Countries (OPEC) policies

Industry Analysis: The External Factor Evaluation (EFE) Matrix

Summarize and evaluate these factors: • Social • Cultural • Demographic • Economic • Environmental • Political • Governmental • Legal • Technological • Competitive Steps 1. List 20 key external factors 2. Weight from 0.0 to 1.0 3. Rate the effectiveness of current strategies from 1-4 4. Multiply weight * rating 5. Sum weighted scores

As common positions in firms today, chief information officers (CIOs) reflect the growing importance of the impact of which external force?

Technological

What is the most important part of an external audit?

To develop a finite list of opportunities that could benefit a firm as well as threats that should be avoided or mitigated

Sources of External Information

Unpublished sources include customer surveys, market research, speeches at professional and shareholders' meetings, television programs, interviews, and conversations with stakeholders. Published sources of strategic information include periodicals, journals, reports, government documents, abstracts, books, directories, newspapers, and manuals. • IBISWorld • Lexis-Nexis Academic • Lexis-Nexis Company Dossier • Mergent Online • PrivCo • Regional Business News • S&P NetAdvantage • Value Line Investment Survey • U.S. Securities and Exchanges Commission • Company Annual Reports On-Line (CAROL)

When identifying and prioritizing key external factors in strategic planning, four criteria should be met to the extent possible. What are these four criteria?

actionable, quantitative, comparative, and divisional

Which of the following is similar about the chief information officer​ (CIO) and chief technology officer​ (CTO) position?

both are involved with information technology

Which of the following is considered an unpublished source of external information

customer surveys

If a firm engages in backward​ integration, it is likely to be​ ______.

decreasing the bargaining power of suppliers

in generating the list of critical success factors in a CPM, a firm should strive to include factors that

differentiate firms within the industry

the EFE Matriz provides an empirical assessment of how well a firm is handling

external factors overall

an effective competitive intelligence program

identifies potential moves that a competitor might make that would endanger a firms market position

One difference between a Competitive Profile Matrix and an EFE is that critical success factors

in a CPM include both internal and external issues

backward integration

is gaining control or ownership of suppliers

in forecasting, strategists identify future occurrences that could have a major effect on the firm, and, based on that make

reasonable assumptions

which of porters five-forces model is usually the most powerful?

rivalry among competing firms

which of the following is NOT true concerning forecasts?

sometimes, wild guesses are acceptable as forecasts

A firm making a decision concerning the location of a manufacturing facility would monitor which of the following​ political, governmental, and legal​ variables?

unionization trends

Which of the following conditions causes high rivalry among competing​ firms?

when the competing firms are of a similar size

Consumers gain increasing bargaining power​ ______.

when they buy in volume

Competitive Forces

• An important part of an external audit is identifying rival firms and determining their strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies

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

Political, Governmental, and Legal Forces

• Local, state, and federal laws, as well as regulatory agencies and special-interest groups, can have a major impact on the strategies of small, large, for-profit, and nonprofit organizations. Variables • Natural environmental regulations • Protectionist actions by countries • Changes in patent laws • Equal employment opportunity laws • Level of defense expenditures • Unionization trends • Antitrust legislation • USA versus other country relationships • Political conditions in countries • Global price of oil changes • Local, state, and federal laws • Import-export regulations • Tariffs, particularly on steel and aluminum • Local, state, and national elections

Key SCDE Variables

• Population changes by race, age, and geographic area • Regional changes in tastes and preferences • Number of marriages • Number of divorces • Number of births • Number of deaths • Immigration and emigration rates • Social Security programs • Life expectancy rates • Per capita income • Social media pervasiveness • Attitudes toward retirement • Energy conservation • Attitudes toward product quality • Attitudes toward customer service • Pollution control • Attitudes toward foreign peoples • Energy conservation • Social programs • Number of churches • Number of church members • Social responsibility issues

Social, Cultural, Demographic, and Environmental (SCDE) Forces

• SCDE forces impact strategic decisions on virtually all products, services, markets, and customers. • These forces are shaping the way people live, work, produce, and consume.

The Purpose 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.

The AQCD Test

• When identifying and prioritizing key external factors in strategic planning, the following 4 factors are important: - Actionable - Quantitative - Comparative - Divisional • The AQCD is a measure of the quality of an external factor.

Competitive Intelligence Programs

• 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

Technological Forces

• the Internet of Things • 3D printing • the cloud • mobile devices • biotech • analytics • autotech • robotics and • artificial intelligence are fueling innovation in many industries, and impacting strategic-planning decisions. • 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