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8/3/2019 Chap3- External Environment
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2001 Prentice Hall
Ch. 3-1
Comprehensive Strategic Management Model
Vision
&MissionStatements
Chapter 2
External
Audit
Chapter 3
Internal
Audit
Chapter 4
Long-Term
Objectives
Chapter 5
Generate,
Evaluate,Select
Strategies
Chapter 6
Implement
Strategies:Mgmt Issues
Chapter 7
Implement
Strategies:Marketing,Fin/Acct,R&D, CIS
Chapter 8
Measure &
EvaluatePerformance
Chapter 9
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Ch. 3-2
External Assessment
If you're not faster than your competitor,youre in a tenuous position, and ifyoure only half as fast, youre terminal.
George Salk
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Ch. 3-3
External Assessment (Contd)
External Strategic-Management Audit
Environmental scanning
Industry Analysis
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Ch. 3-4
External Assessment (Contd)
External audit:
Focuses on identifying &
evaluating events beyond theimmediate control of the firm
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Ch. 3-5
External Assessment (Contd)
External audit focuses on:
Increased foreign competition
Population shifts
Demographics (e.g., aging population)
Information technology
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Ch. 3-6
External Assessment (Contd)
External audit reveals:
Key opportunities
Key threats
Managers then formulate strategies:
Take advantage of opportunities
Avoid/reduce impact of threats
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Ch. 3-7
External Assessment (Contd)
External Audit
Aimed at identifying key variables thatofferactionableresponses
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Ch. 3-8
External Assessment (Contd)
Key External ForcesFive (5) broad categories:
Economic forces
Social, cultural, demographic, & environmental forces
Political, governmental, & legal forces
Technological forces
Competitive forces
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Ch. 3-9
Characteristics of Environment
Complexity & Uncertainty
Dynamic
Multi-Faceted
Far-Reaching Impact
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Ch. 3-10
External Assessment (Contd)
Process of External Audit:
Involve as many managers & employees as possible
Gather competitive intelligence
Information about social, demographic, cultural,environmental, etc.
Monitor sources of information (key magazines,articles, etc.)
Utilization of Internet
Suppliers, distributors, customers as sources ofinformation
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Ch. 3-11
Economic Forces
Monitor Key Economic Variables:
Availability of credit
Level of disposable income Interest rates
Inflation rates
Money market rates
Federal government budget deficits Gross domestic product trend
Consumption patterns
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Ch. 3-12
Economic Forces (Contd)
Monitor Key Economic Variables: (Contd)
Unemployment trends
Worker productivity levels Value of the dollar in world markets
Stock market trends
Foreign countries economic conditions
Import/export factors Demand shifts for goods/services
Income differences by region/customer
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Ch. 3-13
Social & Environmental Forces
Social, cultural, demographic, andenvironmental changes:
Major impact on:Products
Services
Markets
Customers
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Ch. 3-14
Social & Environmental Forces(Contd)
Key social, cultural, demographic, &environmental variables: (Contd)
Life expectancy rates Per capita income
Attitudes toward business
Average disposable income
Buying habits
Ethical concerns
Attitudes toward saving
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Ch. 3-15
Social & Environmental Forces(Contd)
Key social, cultural, demographic, &environmental variables: (Contd)
Value placed on leisure time
Recycling
Waste management
Air & water pollution
Ozone depletion
Endangered species
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Ch. 3-16
Political, Govt., & Legal Forces
Government Regulation
Key opportunities & key threats
Antitrust legislation (Microsoft)
Tax ratesLobbying efforts
Patent laws
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Ch. 3-17
Political, Govt., & Legal Forces(Contd)
Increasing Global Interdependence
Strategists in a global economy
Forecast political climates
Legalistic skills
Diverse world cultures
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Ch. 3-18
Political, Govt., & Legal Forces(Contd)
Key Political, govt., & legal variables:
Government regulation/deregulation
Tax law changes
Special tariffs
Political Action Committees (PACs)
Voter participation rates Number of patents
Changes in patent laws
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Ch. 3-19
Technological Forces
Technological Change
Dramatic effect on businessFiber optics
Biometrics
EFT
Computer engineering
Superconductivity advancements
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Ch. 3-20
Technological Forces (Contd)
Internet impact on opportunities & threats:
Altering life cycles of products
Increasing speed of distribution
Creating new products & services
Erasing limitations of traditionalgeographic markets
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Ch. 3-21
Competitive Forces
External Audit & Competing Firms
Identifying rival firms
StrengthsWeaknesses
Capabilities
Opportunities
Threats
Objectives
Strategies
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Ch. 3-22
Techniques for Environmental
Scanning Forecasting
Delphi Method
Scenario Planning (QUEST)
Brainstorming
Benchmarking
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Ch. 3-23
SCENARIO PLANNING (QUEST)
Quick Environmental Scanning Technique based onPEST analysis.
Observation Major trends & Events.
Experts speculate issues affecting Firm. Pen down issues and implication & build 3 to 5
scenarios. Another Group reviews and rank the options and
select the most appropriate option.
Develop strategy according to selected option. A tool for ordering ones perception about alternative
future environments in which ones decision might beplayed out. Nanus
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Ch. 3-24
BENEFITS-
SCENARIO PLANNING (QUEST) Incorporate subjective assessment of
participants.
Scenarios constructed based on factsand proven assumptions.
Extrapolated to create series of
alternate futures that are mutuallyconsistent.
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Ch. 3-25
BENCH MARKING
1970 Xeros Corporation, Studied JapCos.
STEPS1. Understand own processes in detail.
2. Select best firms in the industry.
3. Analyse factors responsible for betterperformance.
4. Take corrective measures.
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Ch. 3-26
BENCH MARKING
Customer service performance
Product/ service performance
Core business process performance
Support processes
Employee performance
Supplier performance
Technology performance
Innovation performance
Cost performance
Financial performance
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Ch. 3-27
Competitive Analysis: Porters Five-Forces Model
Potential developmentof substitute products
Rivalry amongcompeting firms
Bargaining powerof suppliers
Potential entry of newcompetitors
Bargaining powerof consumers
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Ch. 3-28
Customers
Needs, trends, Loyalties,
Price sensitiveness
Quality conscious
Psyche
Attitudes
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Ch. 3-29
New Entrants
Monopolistic and Oligipolistic Climate
Entry barriers to entrepreneurs
1. Economies of scale2. Brand Loyalty
3. Absolute Cost advantage
4. Product differentiation5. Access to distribution
6. Capital requirement
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Ch. 3-30
Rivalry among firms
Demand of product determine intensityof rivalry.
Exit barriers high- difficult to exit.
Industry competitive structure
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Ch. 3-31
Bargaining Power- Buyers &
Suppliers Relative Power status
Bulk purchase can lead to price
reduction
Substitutes availability
Few suppliers and buyers
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Ch. 3-32
SUBSTITUTES
Few substitutes increases bargainingpower.
Substitutes limit the potential returns of an industry byplacing a ceiling on the prices firms in the industry can
profitably charge Porter
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Ch 3-33
CONCLUSION
The opportunities and threats existing in any
situation always exceed the resources
needed to exploit the opportunities or avoidthe threats. Thus, strategy is essentially a
problem of allocating the resources. If
strategy is to be successful, it must allocate
superior resources against a decisiveopportunity.
William Cohen