Chapter 3 The External Assessment

Potential Entry of New Competitors

- Barriers to entry are important - Quality, pricing, and marketing can overcome barriers

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

Bargaining Power of Suppliers is increased when (there are):

- Few suppliers - Few substitutes - Costs of switching raw materials is high

Rivalry among competing firms

- Most powerful of the five forces - Focus on competitive advantage of strategies over other firms

Potential development of substitute products

- Pressure increases when: Prices of substitutes decrease Consumers' switching costs decrease

What is 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.

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

What are the four important factors in Strategic Planning (A Q C D Test)?

1. Actionable 2. Quantitative 3. Comparative 4. Divisional

Unpublished sources include?

1. Customer surveys, 2. Market research, 3. Speeches at professional and shareholders' meetings, 4. Television programs, 5. Interviews, and 6. Conversations with stakeholders.

External forces can be divided into five broad categories:

1. Economic forces. 2. Social, cultural, demographic, and environmental (S C D E) forces. 3. Political, governmental, and legal forces. 4. Technological forces. 5. Competitive forces.

The Five-Forces Model of Competition help us

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

E F E Matrix 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

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.

The Five-Forces Model are?

1. Rivalry among competing firms 2. Potential Entry of New Competitors 3. Potential development of substitute products 4. Bargaining Power of Suppliers 5. Bargaining power of consumers

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, S C D E, 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?

Conditions That Cause High Rivalry Among Competing Firms are?

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

Many firms now have a _____ who work together to ____ ?

Chief Information Officer (C I O) and a Chief Technology Officer (C T O) who work together to ensure that information needed to formulate, implement, and evaluate strategies is available where and when it is needed

Forecasting Tools and Techniques

Forecasts and Assumptions

An important part of an external audit is

Identifying rival firms and determining their 1. Strengths, 2. Weaknesses, 3. Capabilities, 4. Opportunities, 5. Threats, 6. Objectives, and 7. Strategies

Robotics and Artificial intelligence are fueling?

Innovation in many industries, and impacting strategic-planning decisions.

(S C D E) Forces are shaping the way people?

Live, work, produce, and consume.

(PGL) Forces include?

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.

What does (PGL) Stands for?

Political, Governmental, and Legal Forces

The A Q C D is a measure of the?

Quality of an external factor.

(S C D E) Forces are?

Social, Cultural, Demographic, and Environmental.

(S C D E) Forces impact?

Strategic decisions on virtually all products, services, markets, and customers.

Published sources of

Strategic information include periodicals, 2. Journals, 3. Reports, 4. Government documents, 5. Abstracts, 6. Books, 7. Directories, 8. Newspapers, and 9. Manuals.

Competitive Intelligence Programs (CI) is

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.

Backward integration is

gaining control or ownership of suppliers

Bargaining power of consumers

• 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

Competitive Profile Matrix (C P M)

• 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

(PGL) Variables are?

• Natural environmental regulations • Protectionist actions by countries • Changes in patent laws • Equal employment opportunity laws • Level of defense expenditures • Unionization trends • Antitrust legislation • U S A 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

Barriers to Entry are?

• 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

Key (S C D E) Variables are?

• 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

Economic Forces are?

• Shift to service economy • Availability of credit • Level of disposable income • Propensity of people to spend • Interest rates • Inflation rates • G D P 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 (E EC) policies • Organization of Petroleum Exporting Countries (O P E C) policies

The External Factor Evaluation (E F E) Matrix Summarize and evaluate these factors:

• Social • Cultural • Demographic • Economic • Environmental • Political • Governmental • Legal • Technological • Competitive

Sources of External Information are?

• Unpublished and Published Sources. • I B I S World • 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 (C A R O L)

Technological Forces are?

• the Internet of Things • 3 D printing • the cloud • mobile devices • biotech • analytics • autotech • robotics and • artificial intelligence