External Assessment

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Chapter 3
The External Assessment

Chapter Outline
The Nature of the External Audit

Strategic Management:
Concepts & Cases
10th Edition
Fred David

The Industrial Organization (I/O) View

PowerPoint Slides by
Anthony F. Chelte
Western New England College

Copyright 2005 Prentice Hall

Social, Cultural, Demographic &
Environmental Forces
Ch 3 -1

Chapter Outline (cont’d)

Copyright 2005 Prentice Hall

Ch 3 -2

Chapter Outline (cont’d)

Political, Governmental, and Legal Forces

Porter’s Five-Forces Model

Technological Forces

Sources of External Information

Competitive Forces

Forecasting Tools & Techniques

Copyright 2005 Prentice Hall

Ch 3 -3

Copyright 2005 Prentice Hall

Ch 3 -4

External Assessment

Chapter Outline (cont’d)

It is not the strongest of the species that
survive, nor the most intelligent, but the one
most responsive to change. –
Charles Darwin

Global Challenge

The External Factor Evaluation (EFE) Matrix
Nothing focuses the mind better than the
constant sight of a competitor who wants to
wipe you off the map. –
Wayne Calloway, Former CEO, PepsiCo

Competitive Profile Matrix (CPM)

Copyright 2005 Prentice Hall

Ch 3 -5

Copyright 2005 Prentice Hall

Ch 3 -6

1

External Strategic
Management Audit

External Strategic
Management Audit

Identify & Evaluate factors beyond the
control of a single firm

-- Environmental Scanning

Increased foreign competition
Population shifts
Information technology

-- Industry Analysis

Copyright 2005 Prentice Hall

Ch 3 -7

External Strategic
Management Audit

Copyright 2005 Prentice Hall

Ch 3 -8

Key External Forces

•Economic forces
•Social, cultural, demographic &
environmental forces

Purpose of External Audit
Identify

•Political, governmental & legal forces

Opportunities
Threats

•Technological forces
•Competitive forces

Copyright 2005 Prentice Hall

Ch 3 -9

Key External Forces & the Organization

Key
External
Forces

Competitors
Suppliers
Distributors
Creditors
Customers
Employees
Communities
Managers
Stockholders
Labor Unions
Special Interest Groups
Products
Services

Copyright 2005 Prentice Hall

Copyright 2005 Prentice Hall

Ch 3 -10

External Audit
Gather competitive
intelligence –
Opportunities
&
Threats

Ch 3 -11

Social
Cultural
Demographic
Environmental
Economic
Political, legal governmental
Technological

Copyright 2005 Prentice Hall

Ch 3 -12

2

External Audit – Sources of
Information

Performing External Audit

•Internet
•Libraries

-- Key Factors
Vary over time
Vary by industry

•Suppliers
•Distributors
•Customers
•Competition
Ch 3 -13

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Performing External Audit -Variables

Copyright 2005 Prentice Hall

Ch 3 -14

Performing External Audit -Variables

•Market share

•Price competitiveness

•Breadth of competing products

•Technological advancements

•World economies

•Interest rates

•Foreign affiliates

•Pollution abatement

•Proprietary account advantages
Ch 3 -15

Copyright 2005 Prentice Hall

Copyright 2005 Prentice Hall

Ch 3 -16

Industrial Organization (I/O)
View

Performing External Audit

Long-term orientation

External
Factors

-- Industry factors more important than
internal factors

Measurable
Applicable to
competing firms

Performance determined by industry forces

Hierarchical

Copyright 2005 Prentice Hall

Ch 3 -17

Copyright 2005 Prentice Hall

Ch 3 -18

3

I/O Perspective Firm Performance

Economic Forces

Industry Properties

•Availability of credit
•Level of disposable income

Economies of Scale
Barriers to market entry

•Interest rates

Product differentiation

•Inflation rates

Level of competitiveness

Copyright 2005 Prentice Hall

Ch 3 -19

Copyright 2005 Prentice Hall

Ch 3 -20

Key Economic Variables...
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