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ASSESSMENT
Economic forces
External Competitive
Forces forces
Relationship Between Key external Forces and an
Organization
Competitors
Suppliers
Distributors
Creditors
Economic forces Customers
Employees
Social, culture,
demographic and Communities
environmental forces Managers ORGANIZATIONS
Political, Stockholders OPPORTUNITIES &
governmental and Labor Unions THREAT
legal forces
Governments
Technological forces
Trade associations
Competitive forces SIG
Products
Services
Markets
Natural environment
Key External Forces
Changes in external forces:
Translate into changes in consumer demand for both
industrial and consumer products and services.
Affect:
The type of products developed
Market segmentation strategies
Type of services offered
Choice of businesses to acquire or sell
Other influencing
variables market
Obtaining a prioritized list of these factors. share, price
competitiveness,
Managers to rank from 1 to 20 (for most important to technology
least important opportunity/threat).
advancements,
population shifts,
interest rates.
Economic forces
External Competitive
Forces forces
Economic Forces
Economic factors have direct impact on the potential
attractiveness of various strategies:
When interest rates rise, funds needed for capital
expansion become more costly or unavailable.
When market rises, consumer and business wealth
expends.
Economic Forces
Potential
development
of substitute
products
Potential
entry of new
competitors
Competitive forces
1. Rivalry among competing firms
The most powerful of the 5 competitive forces.
Changes in strategy by one firm may be met with
countermoves:
i. Lowering price
ii. Enhancing quality
iii. Adding features
iv. Providing services
v. Extending warranties
vi. Increasing advertising
Competitive forces
1. Rivalry among competing firms
The intensity of rivalry among competing firms tends
to increase as:
1. The number of competitors increases
2. Competitors become more equal in size and
capability
3. Demand for the industrys products declines
4. Price cutting becomes common
5. Consumers can switch brands easily
6. Products sold are commodities (not easily
differentiated gasoline)
Competitive forces
2. Potential entry of new competitors
When new firms can enter easily to a particular industry,
the intensity of competitiveness among firm increases.
Barriers to entry:
New products,
Improved services,
Stronger competitors,
STEP 5
Sum the weighted scores for each variable to
determine the total weighted score for the
organization.
Example of EFE Matrix
Industry Analysis: The External Factor
Evaluation (EFE) Matrix
Regardless of the number of key opportunities and
threats included in an EFE Matrix:
i. The highest total weighted score is 4.0
ii. The lowest total weighted score is 1.0.
iii. The average total weighted score is 2.5.
A total weighted score of 4.0 -
The firms strategies effectively A total score of 1.0
take advantage of existing The firms strategies are not
opportunities and minimize the capitalizing on opportunities
potential effects of external or avoiding external threats.
threats.
The Competitive Profile Matrix (CPM)