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8/6/2019 Chapter No 03 Ext Assesment
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Ch 3 -1
Chapter 3
The External Assessment
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Ch 3 -2
External AssessmentThis chapter examines the tools and concepts needed to
conduct an external strategic-management audit..
called External Strategic Management Audit and also called
Environmental scanning
Industry analysis
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Ch 3 -3
Identification & Evaluation of different
factors and trends beyond the control of a single firm.
Purpose of external audit is development of finite list
of.
Opportunities to avail
Threats to be avoided
External Strategic Management Audit
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Ch 3 -4
Five Categories of External Forces
Economic
Social
Political and legal Technological
Competitive
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Ch 3 -5
Competitors
Suppliers
Distributors
Creditors
Customers
Communities
Stockholders
Products
Services
Key
External
Forces
Opportunities&
Threats
Relationship between Key External
Forces & the Organization
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Ch 3 -6
Process of Performing an External Audit
Sources of information include;
Magazines, journals and periodicals..
Internet Libraries
Suppliers
Distributors and retailers Customers
Govt organization
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Ch 3 -7
Economic forces
Monitor key economic variables: Type ofMarket Economy
Availability of credit (Interest rates)
Level of income
Inflation rate
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Ch 3 -8
Economic forces
Foreign Exchange Rate
GDP
unemployment trends
Foreign countries economic situation
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Ch 3 -10
Social, Cultural, Demographic &
Environmental Forces (contd)
World population > 6billion
US population < 300 million
Afghanistan population=32,738,376 (July2008 est.)
Great potential for domestic expension to
oth
er market Domestic only is a risky strategy
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Ch 3 -11
Social, Cultural, Demographic &
Environmental Forces (contd)
Key variables may be;
Number of marriages
Number of divorces Number of births
Number of deaths
Average level of education Buying habits (less book reading)
Life expectancy
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Ch 3 -12
Social, Cultural, Demographic &
Environmental Forces (contd)
Attitude towards saving (Japanese take savings
as a religious matter)
Attitude towards business (trend towards
entrepreneurship)
Demographic changes (likes and dislikes, age,
income etc).
Recycling(paper , glass), air and water pollutionare environmental issues.
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Ch 3 -13
Political, Government & Legal Forces
(contd)
Government Regulation can pose
Key opportunities and key threats
Tax rates (Tax law changes e.g. incometax, sales tax, wealth tax)
Antitrust legislation (suppressing curtailing
and monopolies) Patent law (Changes in patent laws)
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Ch 3 -14
Political, Government & Legal Forces
(contd)
Lobbying efforts (people make lobby in
senate and think of their own interests) Environmental protection laws
Import export regulation
Political condition in other countries Location and severity of terrorist activities
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Ch 3 -15
Technological forces
Revolutionary technological forces have
Profound impacts on organizations
Semiconductors: transistor and processor Internet
HTML/XMLs (extensive mark-up Lang)
technologies UWB (ultra wide band wireless)
communications
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Ch 3 -16
Competitive Forces
Collection and evaluation of information on
competitors is essential for successful
strategy formulation
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Ch 3 -17
Competitive Forces
Strengths
Weaknesses
Opportunities
Threats
Strategies
Identifying Rival Firms
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Ch 3 -18
Competitive Forces
1. Market share matters2. Understand what business you are in
(clear vision and mission)
3. Broke or not, fix it (continuous
improvement)
4. Innovate or evaporate
7 Characteristics of mostCompetitive U.S. Firms
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Ch 3 -19
Competitive Forces
5. Acquisition is essential to growth (toincrease market share)
6. People make a difference (employeesbehind the machine)
7. No substitute for quality
7 Characteristics of mostCompetitive U.S. Firms:
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Ch 3 -20
The Five-Forces Model of Competition
Potential developmentof substitute products
Rivalry amongcompeting firms
Bargaining powerof suppliers
Potential entry of newcompetitors
Bargaining powerof consumers
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Ch 3 -21
Explanation;
Rivalry among competing firms: the intensityof competition or level of competition.
Potential entry of new competitors: foradvertising companies(opportunities, and threat for the existing).
Potential development of substituteproduct: type writer and computer key board:
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Ch 3 -22
Collective Bargaining power of
suppliers: less number of suppliers will have more bargaining power andvice versa.
Bargaining power of consumer: (level of income)
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Ch 3 -23
The Global Challenge
Faced by any country & Afghani
Firms --
Gain & maintain exports to othernations
Defend domestic markets against
imported goods
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Ch 3 -24
Industry analysis (EFE)
Five step process:
List key external factors (10-20) O
pportunities and threats
Assign weight (importance) to each (0- 1.0)
Sum of all weights = 1.0
Assign rating 1-4 to each factor Firm current strategy/capabilities response to the
factor
Multiply each factors weight by its rating P
roduces a weighted score
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Ch 3 -25
Sum the weighted scores for each Determines the total weighted score for the
organization
observation
The highest possible weighted score for
the organization is 4 and the lowest is1,averaging 2.5
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Ch 3 -26
Industry Analysis: The External Factor
Evaluation (EFE) Matrix
CompetitivePoliticalCultural
TechnologicalEnvironmentalSocial
GovernmentalDemographicEconomic
Summarize & Evaluate
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Ch 3 -27
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Ch 3 -28
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Ch 3 -29
Total weighted score of 4.0 Organization response is outstanding to threats
and opportunities.
Industry Analysis EFE
Total weighted score of 1.0 Firms strategies not capitalizing on opportunities
or avoiding threats
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Ch 3 -30
Important
Understanding the factors used in the EFE
matrix is more important then the actual
weights and rating assigned.