Chapter 3

The External Assessment

Strategic
Management:
Concepts & Cases
11th Edition
Fred David

Ch 3 -1

External Strategic
Management Audit

Identify & Evaluate factors beyond

the control of a single firm
Increased foreign competition
Population shifts
Information technology

Ch 3 -2

Key External Forces & the Organization

Key
External
Forces

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

Opportunities
&
Threats

Ch 3 -3

Performing External Audit

Long-term orientation

External
Factors

Measurable
Applicable to
competing firms
Hierarchical

Ch 3 -4

I/O Perspective Firm Performance

Industry Properties
Economies of Scale
Barriers to market entry
Product differentiation
Level of competitiveness

Ch 3 -5

Social, Cultural, Demographic

& Environmental Forces
U.S. Facts

Aging population
Less Caucasian
Widening gap between rich & poor
2025 = 18.5% population >65 years
2075 = no ethnic or racial majority
Ch 3 -6

Key Social, Cultural, Demographic &

Environmental Variables

Childbearing rates
Number of special interest groups
Number of marriages & divorces
Number of births & deaths
Immigration & emigration rates
Ch 3 -7

Political, Government & Legal

Forces
Globalization of Industry
Worldwide trend toward similar
consumption patterns
Global buyers and sellers
E-commerce
Technology for instant currency transfers

Ch 3 -8

Competitive Forces
Identifying Rival Firms
Strengths
Weaknesses
Capabilities
Opportunities
Threats
Objectives
Strategies
Ch 3 -9

Competitive Forces
7 Characteristics of most
Competitive U.S. Firms:
1. Market share matters
2. Understand what business you are in
3. Broke or not, fix it
4. Innovate or evaporate

Ch 3 -10

Competitive Forces
7 Characteristics of most
Competitive U.S. Firms:
5. Acquisition is essential to growth
6. People make a difference
7. No substitute for quality

Ch 3 -11

The Five-Forces Model of Competition

Potential development
of substitute products

Bargaining power
of suppliers

Rivalry among
competing firms

Bargaining power
of consumers

Potential entry of new

competitors
Ch 3 -12

The Global Challenge

Faced by U.S. Firms --

Gain & maintain exports to other

nations
Defend domestic markets against
imported goods

Ch 3 -13

Industry Analysis: The External Factor

Evaluation (EFE) Matrix
Summarize & Evaluate
Economic
Social
Cultural

Government
Demographic
al
Technologica
Environmental
l
Political

Competitive

Ch 3 -14

Ch 3 -15

Ch 3 -16

Industry Analysis EFE

Total weighted score of 4.0
Organization response is outstanding to threats
and weaknesses

Total weighted score of 1.0

Firms strategies not capitalizing on opportunities
or avoiding threats

Ch 3 -17

Industry Analysis: Competitive Profile

Matrix (CPM)

Identifies firms major competitors

and their strengths & weaknesses
in relation to a sample firms
strategic positions

Ch 3 -18

Gateway

CSFs

Apple

Dell

Wt

Rating

Wtd
Score

Ratin
g

Wtd
Score

Rating

Wtd
Score

Market share

0.15

0.45

0.30

0.60

Inventory sys

0.08

0.16

0.16

0.32

Fin. position

0.10

0.20

0.30

0.30

Prod. Quality

0.08

0.24

0.32

0.24

Cons. Loyalty

0.02

0.06

0.06

0.08

Sales Distr

0.10

0.30

0.20

0.30

Global Exp.

0.15

0.45

0.30

0.60

Org. Structure

0.05

0.15

0.15

0.15

Ch 3 -19

Gateway

Apple

Dell

CSFs (contd)

Wt

Rating

Wtd
Score

Ratin
g

Wtd
Score

Rating

Wtd
Score

Prod. Capacity

0.04

0.12

0.12

0.12

E-commerce

0.10

0.30

0.30

0.30

Customer Serv 0.10

0.30

0.20

0.40

Price
competitive

0.02

0.08

0.02

0.06

Mgt.
experience

0.01

0.02

0.04

0.02

Total

1.00

2.83

2.47

3.49
Ch 3 -20