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

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

Ch 3 -3
Performing External Audit

Long-term orientation

Measurable
External
Factors 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 Rivalry among Bargaining power

of suppliers competing firms 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 Demographic Governmental

Social Environmental Technological

Cultural 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 Apple Dell
CSFs Wt Rating Wtd
Score
Ratin
g
Wtd
Score
Rating Wtd
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

Ch 3 -19
 Gateway Apple Dell
CSFs (contd) Wt Rating Wtd
Score
Ratin
g
Wtd
Score
Rating Wtd
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

Ch 3 -20