Chapter 3

The External Assessment

Strategic
Management:
Concepts & Cases
11th Edition
Fred David

Copyright 2007 Prentice Hall Ch 3 -1

External Strategic
Management Audit

Identify & Evaluate factors beyond

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

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 Key External Forces & the Organization

Competitors
Suppliers
Distributors
Creditors
Key Customers Opportunities
External Employees &
Forces
Communities Threats
Managers
Stockholders
Labor Unions
Special Interest Groups
Products
Services

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Performing External Audit

Long-term orientation

Measurable
External
Factors Applicable to
competing firms

Hierarchical

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I/O Perspective Firm Performance

Industry Properties

Economies of Scale

Barriers to market entry

Product differentiation

Level of competitiveness

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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

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Key Social, Cultural, Demographic &
Environmental Variables

Childbearing rates

Number of special interest groups

Number of marriages & divorces

Number of births & deaths

Immigration & emigration rates

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Political, Government & Legal
Forces

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

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Competitive Forces
Identifying Rival Firms

•Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies

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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

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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

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 The Five-Forces Model of Competition

Potential development
of substitute products

Bargaining power Rivalry among Bargaining power

of suppliers competing firms of consumers

Potential entry of new

competitors

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The Global Challenge

Faced by U.S. Firms --

•Gain & maintain exports to other
nations
•Defend domestic markets against
imported goods

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Industry Analysis: The External Factor
Evaluation (EFE) Matrix

Summarize & Evaluate

Economic Demographic Governmental

Social Environmental Technological

Cultural Political Competitive

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Industry Analysis EFE

Total weighted score of 4.0

• Organization response is outstanding to threats
and weaknesses

Total weighted score of 1.0

• Firm’s strategies not capitalizing on opportunities
or avoiding threats

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Industry Analysis: Competitive Profile
Matrix (CPM)

Identifies firm’s major competitors

and their strengths & weaknesses
in relation to a sample firm’s
strategic positions

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 Gateway Apple Dell
Wt’d Wt’d Wt’d
CSF’s Wt Rating
Score
Ratin
g Score
Rating
Score

Market share 0.15 3 0.45 2 0.30 4 0.60

Inventory sys 0.08 2 0.16 2 0.16 4 0.32
Fin. position 0.10 2 0.20 3 0.30 3 0.30
Prod. Quality 0.08 3 0.24 4 0.32 3 0.24
Cons. Loyalty 0.02 3 0.06 3 0.06 4 0.08
Sales Distr 0.10 3 0.30 2 0.20 3 0.30
Global Exp. 0.15 3 0.45 2 0.30 4 0.60
Org. Structure 0.05 3 0.15 3 0.15 3 0.15

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 Gateway Apple Dell
Wt’d Wt’d Wt’d
CSF’s (cont’d) Wt Rating
Score
Ratin
g Score
Rating
Score

Prod. Capacity 0.04 3 0.12 3 0.12 3 0.12

E-commerce 0.10 3 0.30 3 0.30 3 0.30
Customer Serv 0.10 3 0.30 2 0.20 4 0.40
Price
0.02 4 0.08 1 0.02 3 0.06
competitive
Mgt. 0.01 2 0.02 4 0.04 2 0.02
experience

Total 1.00 2.83 2.47 3.49

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