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Unlocking the Future - Dr Max Blumberg, Founder of Blumberg Partnership
Strategic Management Slides - Chapter 3 "the External Assessment"
1. Fred R. David
Prentice Hall
Ch.3-1
Chapter 3
The External Assessment
Strategic Management:
Concepts and Cases. 9th edition
Fred R. David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
2. Fred R. David
Prentice Hall
Ch.3-2
Chapter Outline
• The Nature of an External Audit
• The Industrial Organization View
• Economic Forces
• Social, Cultural, Demographic, and
Environmental Forces
3. Fred R. David
Prentice Hall
Ch.3-3
Chapter Outline
• Political, Governmental, and Legal
Forces
• Technological Forces
• Competitive Forces
4. Fred R. David
Prentice Hall
Ch.3-4
The External Assessment
Prediction is very difficult, especially
about the future.
-- Neils Bohr
5. Fred R. David
Prentice Hall
Ch.3-5
External Strategic Management Audit
Also called:
– Environmental scanning
– Industry analysis
6. Fred R. David
Prentice Hall
Ch.3-6
External Strategic Management Audit
External Audit:
– Identification and evaluation of trends and
events beyond control of single firm
• Increased foreign competition
• Populations shifts
• Aging society
• Information technology
• Computer revolution
7. The Industrial Organization
(I/O) View
• The Industrial Organization (I/O)
approach to competitive advantage
advocates that external (industry)
factors are more important than internal
factors in a firm achieving competitive
advantage.
Fred R. David
Prentice Hall
Ch.3-7
8. Fred R. David
Prentice Hall
Ch.3-8
Purpose:
– Development of Finite List:
• Opportunities
• Threats to be avoided
Nature of External Audit
9. Fred R. David
Prentice Hall
Ch.3-9
Five (5) broad categories:
1. Economic forces
2. Social, cultural, demographic, &
environmental forces
3. Political, governmental, and legal forces
4. Technological factors
5. Competitive forces
Key External Forces
10. Fred R. David
Prentice Hall
Ch.3-10
Relationships Between Key External Forces
and an Organization
Key
External
Forces
Competitors
Suppliers
Distributors
Creditors
Customers
Employees
Communities
Managers
Stockholders
Labor Unions
Special Interest Groups
Products
Services
Opportunities
&
Threats
11. Fred R. David
Prentice Hall
Ch.3-11
Performing an External Audit
Gather competitive intelligence on factors:
– Social
– Cultural
– Demographic
– Environmental
– Economic
– Political, legal, governmental
– technological
12. Fred R. David
Prentice Hall
Ch.3-12
Performing an External Audit
Key factors:
– Vary over time
– Vary by industry
13. Fred R. David
Prentice Hall
Ch.3-13
Performing an External Audit
Variables include:
– Market share
– Breadth of competing products
– World economies
– Foreign affiliates
– Proprietary account advantages
– Price competitiveness
– Technological advancements
– Interest rates
– Pollution abatement
14. Fred R. David
Prentice Hall
Ch.3-14
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
15. Fred R. David
Prentice Hall
Ch.3-15
Monitor Key Economic Variables:
• 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
•
16. Fred R. David
Prentice Hall
Ch.3-16
Monitor Key Economic Variables:
• Price fluctuations
• Exportation of labor & capital
• Monetary policies
• Fiscal policies
• Tax rates
• ECC policies
• OPEC policies
• LDC policies
17. Fred R. David
Prentice Hall
Ch.3-17
Social, Cultural, Demographic &
Environmental Forces
Major impact on:
– Products
– Services
– Markets
– customers
18. Fred R. David
Prentice Hall
Ch.3-18
Social, Cultural, Demographic &
Environmental Forces
• World population > 6 billion
• U.S. population < 300 million
• Great potential for domestic production
expansion to other markets
• Domestic only is a risky strategy
19. Fred R. David
Prentice Hall
Ch.3-19
Social, Cultural, Demographic &
Environmental Forces
Trends for the 2000’s –
– More educated consumers
– Population aging
– Minorities more influential
– Local rather than federal solutions
– Fixation with youth decreasing
– Hispanics increase to 15% by 2021
– African Americans increase to 14% by 2021
20. Fred R. David
Prentice Hall
Ch.3-20
Social, Cultural, Demographic &
Environmental Forces
Key variables –
• Childbearing rates
• Number of special-interest groups
• Number of marriages
• Number of divorces
• Number of births
• Number of deaths
• Immigration & emigration rates
21. Fred R. David
Prentice Hall
Ch.3-21
Monitor Key Variables
• Life expectancy rates
• Per capita income
• Attitudes toward business
• Average disposable income
• Buying habits
• Ethical concerns
• Attitudes toward saving
22. Fred R. David
Prentice Hall
Ch.3-22
Monitor Key Variables
• Racial equality
• Average level of education
• Government regulation
• Attitudes toward customer service
• Attitudes toward product quality
• Energy conservation
• Social responsibility
23. Fred R. David
Prentice Hall
Ch.3-23
Monitor Key Variables
• Value placed on leisure time
• Recycling
• Waste management
• Air & water pollution
• Ozone depletion
• Endangered species
24. Fred R. David
Prentice Hall
Ch.3-24
Political, Govt., & Legal Forces
Government Regulation
• Key opportunities & key threats
• Antitrust legislation (Microsoft)
• Tax rates
• Lobbying efforts
• Patent laws
25. Fred R. David
Prentice Hall
Ch.3-25
Political, Govt., & Legal Forces
Increasing Global Interdependence
• Impact of political variables
– Formulation of Strategies
– Implementation of Strategies
26. Fred R. David
Prentice Hall
Ch.3-26
Political, Govt., & Legal Forces
Increasing Global Interdependence
• Strategists in a global economy
• Forecast political climates
• Legalistic skills
• Diverse world cultures
27. Fred R. David
Prentice Hall
Ch.3-27
Political, Govt., & Legal Forces
Globalization of Industry
• Worldwide trend toward similar
consumption patterns
• Global buyers & sellers
• E-commerce
• Instant transmission of money &
information across continents
28. Fred R. David
Prentice Hall
Ch.3-28
Political, Govt., & Legal Forces
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
29. Fred R. David
Prentice Hall
Ch.3-29
Technological Forces
Internet changes the nature of opportunities and
threats --
• Alters life cycle of products
• Increases speed of distribution
• Creates new products and services
• Eases limitations of geographic markets
• Alters economies of scale
• Changes entry barriers
30. Fred R. David
Prentice Hall
Ch.3-30
Technological Forces
Capitalizing on Information Technology (IT)
• Chief Information Officer (CIO)
• Chief Technology Officer (CTO)
31. Fred R. David
Prentice Hall
Ch.3-31
Technological Forces
Technology-based issues
– Underlie nearly every strategic decision
32. Strategy and Future Forecast
• Linear regression is based on the
assumption that the future will be just
like the past.
Fred R. David
Prentice Hall
Ch.3-32
33. Fred R. David
Prentice Hall
Ch.3-33
Competitive Forces
Collection and evaluation of information on
competitors is essential for successful
strategy formulation
34. Fred R. David
Prentice Hall
Ch.3-34
Competitive Forces
Competition in virtually all industries can be
described as intense.
35. Fred R. David
Prentice Hall
Ch.3-35
Competitive Forces
Identifying rival firms
• Strengths
• Weaknesses
• Capabilities
• Opportunities
• Threats
• Objectives
• Strategies
36. Fred R. David
Prentice Hall
Ch.3-36
Competitive Forces
Key Questions About Competitors:
• Their strengths
• Their weaknesses
• Their objectives and strategies
• Their responses to all external variables
(e.g. social, political, demographic, etc.)
• Their vulnerability to our alternative
strategies
37. Fred R. David
Prentice Hall
Ch.3-37
Competitive Forces
Key Questions About Competitors:
• Our vulnerability to successful strategic
counterattack
• Our product and service positioning relative
to competitors
• Entry and exit of firms in the industry
• Key factors for our current position in
industry
38. Fred R. David
Prentice Hall
Ch.3-38
Competitive Forces
Key Questions About Competitors:
• Sales and profit rankings of competitors
over time
• Nature of supplier and distributor
relationships
• The threat of substitute products or
services
39. Fred R. David
Prentice Hall
Ch.3-39
Competitive Forces
Sources of Corporate Information:
• Moody’s Manuals
• Standard Corporation Descriptions
• Value Line Investment Surveys
• Dun’s Business Rankings
• Standard & Poor’s Industry Surveys
• Industry Week
• Forbes, Fortune, Business Week
40. Fred R. David
Prentice Hall
Ch.3-40
Competitive Forces
Competitive Intelligence Programs:
• Systematic and ethical process for
gathering and analyzing information
about the competition’s activities
and general business trends to
further a business’ own goals.
41. Fred R. David
Prentice Hall
Ch.3-41
Competitive Analysis: Porter’s Five-
Forces Model
Potential development
of substitute products
Rivalry among
competing firms
Bargaining power
of suppliers
Potential entry of new
competitors
Bargaining power
of consumers