ISSUES FOR REVIEW AND DISCUSSION 1.Explain how to conduct an external strategic-management audit.

Answer: An effective approach for conducting an external strategic-management audit consists of four basic steps: (1) select key variables, (2) select key sources of information, (3) use forecasting tools and techniques, and (4) construct an EFE Matrix. 2.Identify a recent economic, social, political, or technological trend that significantly affects financial institutions. Answer: EconomicInterest rates remain low. SocialMany states are passing no smoking ordinances. PoliticalEastern European countries are experiencing political instability. TechnologicalUse of the Internet is doubling every 100 days. 3.Discuss the following statement: Major opportunities and threats usually result from aninteraction among key environmental trends rather than from a single external event orfactor. Answer: This statement is accurate. It reveals how complex the external audit part of strategy formulation can be. There are an infinite number of interactions among key external factors. 4.Identify two industries experiencing rapid technological changes and three industries thatare experiencing little technological change. How does the need for technological forecastingdiffer in these industries?Why? Answer: The computer industry, communications industry, and aerospace industry are experiencing rapid technological change. Three industries that are experiencing little technological change are the forest products industry, the shipping industry, and the dairy industry. 5.Use Porters five-forces model to evaluate competitiveness within the U.S. banking industry. Answer: Porter identifies five competitive forces that determine the intensity of competition in an industry and the total value of profits created in a particular industry. The five forces are 1) newentrants, 2) substitute products or services, 3) bargaining power of suppliers, 4) bargaining powerof buyers, and 5) rivalry among existing firms.A key to selecting appropriate generic strategies isto analyze these competitive forces in terms of trends, opportunities, and threats facing the firm. Ask your students to apply an analysis of these forces to the banking industry 6.What major forecasting techniques would you use to identify (1) economic opportunitiesand threats and (2) demographic opportunities and threats?Why are these techniques mostappropriate? Answer: With the advent of sophisticated computers, simultaneous systems of regression equations have become the most widely used approach for forecasting economic variables.Scenario development is the most popular of all techniques for social and demographicforecasting, although surveys and market research are also widely used. 7.How does the external audit affect other components of the strategic-management process? Answer: In countless ways, external audit results can and often do affect all other components of the strategic-management model.

8.As the owner of a small business, explain how you would organize a strategic-information scanning system. How would you organize such a system in a large organization? Answer: In both small and large organizations, strategists could assign specific publications to particular individuals who could then monitor their assigned source and regularly report strategicinformation to a coordinator.Also, both small businesspeople and chief executive officers of largebusinesses could effectively use on-line databases. 9.Construct an EFE Matrix for an organization of your choice. Answer: An EFE Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information. There are five steps in developing an EFE Matrix as illustrated in Table 3-9. List key external factors as identified in the external-audit process. Include a total of 10-20 factors Assign to each factor a weight from .0 (not important) to 1.0 (very important). These weights Assign a 1-4 rating to each factor to indicate how effectively the firms current response strategy: from both the opportunities and threats. show the relative importance. The total of all the weights should equal 1.0. 1= the response is poor, 2 = the response is average, 3 = the response is above average, and 4 = the response is superior. Multiply each factors weight by its rating to get a weighted score. Sum the weighted scores for each variable to determine the total weighted score for the

organization. While each answer will vary for this question, students should follow these guidelines. 10. Make an appointment with a librarian at your university to learn how to use on-line databases.Report your findings in class. Answer: This is an interesting and beneficial library exercise. Many libraries have a business liaison who will come to your class to illustrate the use of these databases. 11. Give some advantages and disadvantages of cooperative versus competitive strategies. Answer: Cooperative strategies are generally less costly than competitive strategies. Cooperative strategies between domestic and foreign companies can facilitate entry into world markets.However, competitive strategies recognize that survival of the fittest is an underlying philosophyof business not only in the United States, but also in most of the world. Identifying competitorsstrengths and weaknesses is, thus, an integral and vital part of the external audit. 12. As strategist for a local bank, explain when you would use qualitative versus quantitative forecasts. Answer: Qualitative forecasts are most appropriate when historical data are not available and when relationships among key variables are expected to vary greatly in the future.In addition,when conditions are exploratory in nature, qualitative data can be very useful. Quantitativeforecasts require access to quantitative data. 13. What is your forecast for interest rates and the stock market in the next several months?Asthe stock market moves up, do interest rates always move down?Why? What are thestrategic implications of these trends?

Answer: As the stock market goes up, interest rates usually go down. An underlying reason for this trend is that investors find stocks more attractive than certificates of deposit as investmentopportunities when stock prices rise. The primary strategic implications of these trends concernthe relative attractiveness of stock versus debt as a source of capital to finance strategyimplementation.As stock prices move up and interest rates move down, debt becomes moreattractive as a source of capital. 14. Explain how information technology affects strategies of the organization where you have worked most recently. Answer: Answers will vary for each student. If asking this question as a class exercise, encourage students to think about how information technology might have represented a strength orweakness for that organization. In addition, mention that rapidly changing information technologycan represent a threat or opportunity for a firm. 15. Lets say your boss develops an EFE Matrix that includes 62 factors.How would you suggest reducing the number of factors to20? Answer: Let a group of knowledgeable individuals in the organization evaluate the relative importance of each factor by assigning a 1 = not important, 2 = somewhat important, and 3 = veryimportant. Then add the ratings each factor receives. The 20 factors with the highest sum scoreshould be included in the EFE Matrix. 16.Discuss the ethics of gathering competitive intelligence. Answer: Gathering competitive intelligence information is not corporate espionage because all the information needed is available by ethical means, mostly accessible through the Internet. Firmsowe it to all their stakeholders to gather competitive intelligence and to perform this activitysystematically and ethically. 17.Discuss the ethics of cooperating with rival firms. Answer: The norms of personal ethics serve as a foundation for business ethics and provide a basis for cooperating with rival firms. Engaging in unethical practices, even with rival firms, will jeopardize a firms credibility and respect in the industry. 18. Visit the SEC website at www.sec.gov and discuss the benefits of using information provided here. Answer: This is a good Internet exercise for students.The SEC website contains a plethora of information including SEC forms and filings, information for investors, accountants, mutual fundmanagers, etc. While the information can be useful for conducting company business andplanning, it is also a good source of environmental information particularly related to regulationsand the financial environment. 19. What are the major differences between U.S. and multinational operations that affect strategic management? Answer: The external environment is much broader for a firm that conducts multinational operations than for a firm that only sells domestically.As a result, a firm that conductsmultinational operations must consider a broader range of information in its external analysis,which may affect how its strategies are structured and implemented. 20. Why is globalization of industries a common factor today? Answer: The following are trends that are contributing to the globalization of industries around the world:

y y y

Corporations in every corner of the globe are taking advantage of the opportunity to share in Markets are shifting rapidly and in many cases are converging in terms of tastes, trends, and Innovative transport systems are accelerating the transfer of technology, and shifts in the

the benefits of worldwide economic development. prices. nature and location of production systems are reducing the response time to changing market conditions. y y More and more countries around the world are welcoming foreign investment and capital. E-commerce and the instant transmission of money and information across continents.

21. Do you agree with I/O theorists that external factors are more important than internal factors in a firm achieving competitive advantage? Explain both your and their position. Answer:While I/O theorists claim that industry factors are more important than internal factors, research findings suggest that only 20%of a firms profitability can be explained by industryfactors and 36% explained by internal factors. Regardless, it is not a question of whether externalor internal factors are more important. Rather, effective integration and understanding of bothexternal and internal factors is the key to securing and keeping a competitive advantage. 22. Define, compare, and contrast the Weights vs Ratings in an EFEM vs IFEM. Answer: The weight in an EFE Matrix indicates the relative importance of that factor to being successful in the firms industry. The rating indicates how effectively the firms current strategiesrespond to each key external factor. Thus, the weight allows more important factors to receivemore consideration while the rating evaluates how well the firm handles each factor. Weights areindustry-based but ratings are company-based. The weight in an IFE also indicates the relative importance of the factor to the firmssuccessfulness in the industry. However, in the IFE the factors under consideration are internalfactors rather than external factors. Ratings in the IFE indicate whether the factor is a major orminor weakness or strength. Like in the EFE, weights industry-based while ratings are company-based. The IFE is presented in Chapter 4. 23. List the 10 external areas that give rise to opportunities and threats. Answer: The ten external areas are economic, social, cultural, demographic, environmental, political, government, legal, and technological.