MGMT 40000D Strategic Management
Week 3
By: Dr. Wael Ramadan, B.Eng., MBA, PhD, PMP, LSSBB, SPC, SDP, POPM, SA, SMC.
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Agenda: • Perform The External Audit CH 3 • StartSim Live and Strategy Game Decision Points • Group Formations And Leaders • Summary
Comprehensive Strategic Management Model:
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Chapter Objectives
1. Describe how to conduct an external strategic-management audit. 2. Discuss 10 major external forces that affect organizations: economic,
social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive.
3. Describe key sources of external information, including the Internet. 4. Discuss important forecasting tools used in strategic management. 5. Discuss the importance of monitoring external trends and events. 6. Explain how to develop an EFE Matrix. 7. Explain how to develop a Competitive Profile Matrix. 8. Discuss the importance of gathering competitive intelligence. 9. Describe the trend toward cooperation among competitors. 10. Discuss market commonality and resource similarity in relation to
competitive analysis.
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External Audit • focuses on identifying and evaluating trends and events beyond the
control of a single firm
• reveals key opportunities and threats confronting an organization so that managers can formulate strategies to take advantage of the opportunities and avoid or reduce the impact of threats
• is aimed at identifying key variables that offer actionable responses
• firms should be able to respond either offensively or defensively to the factors by formulating strategies that take advantage of external opportunities or that minimize the impact of potential threats.
Key External Forces: Five Broad Categories
economic forces
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social, cultural, demographic, and natural
environment (SCDE) Forces
political, governmental, and legal forces
technological forces
competitive forces
Relationships Between Key External Forces and an Organization
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The Process of Performing an External Audit
• First, gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends.
• Information should be assimilated and evaluated
• A final list of the most important key external factors should be communicated
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The Process of Performing an External Audit (2)
• Key external factors should be: 1. important to achieving long-term and annual objectives 2. measurable 3. applicable to all competing firms, and 4. hierarchical in the sense that some will pertain to the overall company and
others will be more narrowly focused on functional or divisional areas
• ACQD Test of external factors quality, when identifying & prioritizing key external factors, the following 4 factors are important: 1. Actionable 2. Quantitative 3. Comparative 4. Divisional
The Industrial Organization (I/O) View
Firm performance is based more on industry properties
Economies of scale
Barriers to market entry
Product differentiation
The economy
Level of competitiveness
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• The Industrial Organization (I/O) approach to competitive advantage advocates that external (industry) factors are more important than internal factors in a firm for achieving competitive advantage.
Economic Forces • Shift to service economy • Availability of credit • Level of disposable income • Propensity of people to spend • Interest rates • Inflation rates • GDP trends • Consumption patterns • Unemployment trends • Value of the dollar • Import/Export factors • Demand shifts for different
goods and services
• Income differences by region and consumer group
• Price fluctuations • Foreign countries’ economic
conditions • Monetary and Fiscal policy • Stock market trends • Tax rate variation by country
and state • European Economic
Community (EEC) policies • Organization of Petroleum
Exporting Countries (OPEC) policies
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Advantages of a Strong Canadian Dollar
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1. Leads to lower exports 2. Leads to higher imports 3. Makes Canadian goods expensive for foreign consumers 4. Helps keep inflation low 5. Allows Canadian firms to purchase raw materials cheaply
from other countries 6. Allows Canada to service its debt better 7. Spurs foreign investment 8. Encourages Canadians to travel abroad 9. Encourages Canadians to spend money because they can
buy more for their money
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Social, Cultural, Demographic, and Natural Environmental Forces
• Facts – World population 7 billion – World population = 8 billion by 2028 – World population = 9 billion by 2054
Key Social, Cultural, Demographic, and Natural Environmental Variables
• Population changes by race, age, and geographic area
• Regional changes in tastes and preferences
• Number of marriages • Number of divorces • Number of births • Number of deaths • Immigration and emigration
rates • Social Security programs • Life expectancy rates • Per capita income • Social media pervasiveness
• Attitudes toward retirement • Energy conservation • Attitudes toward product
quality • Attitudes toward customer
service • Pollution control • Attitudes toward foreign
peoples • Energy conservation • Social programs • Number of churches • Number of church members • Social responsibility issues
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Political, Government, & Legal Variables
• Environmental regulations
• Number of patents • Changes in patent laws • Equal employment laws • Level of defense
expenditures • Unionization trends • Antitrust legislation
• Canada vs. other country relationships
• Political conditions in foreign countries
• Global price of oil changes
• Local, state, and federal laws
• Import–export regulations • Tariffs • Local, and national
elections
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Technological Forces (1) The Internet has changed the very nature of opportunities and threats by:
–altering the life cycles of products, –increasing the speed of distribution, –creating new products and services, –erasing limitations of traditional geographic markets, –changing the historical trade-off between standardization & flexibility.
•The Internet is altering economies of scale, changing entry barriers, and redefining the relationship between industries and various suppliers, creditors, customers, and competitors
•Many firms now have a Chief Information Officer (CIO) and a Chief Technology Officer (CTO) who work together to ensure that information needed to formulate, implement, and evaluate strategies is available where and when it is needed
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Technological Forces (2)
Technological advancements can:
• Create new markets, • Result in a proliferation of new & improved products • Change the relative competitive cost positions in an
industry • Render existing products and services obsolete.
New technologies such as: • the Internet of Things • 3D printing • the cloud • mobile devices • biotech • analytics • autotech • robotics and • artificial intelligence are fueling innovation in many industries, and impacting strategic-planning decisions.
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Technological Forces (3)
Results of Technological Advances
1. Major opportunities and threats that must be considered in formulating strategies.
2. Can affect organizations’ products, services, markets, suppliers, distributors, competitors, customers, manufacturing processes, marketing practices, and competitive position.
3. Can create new markets, result in new and improved products, change the relative competitive cost positions, and render existing products and services obsolete.
4. Can reduce or eliminate cost barriers between businesses, create shorter production runs, create shortages in technical skills, and result in changing values and expectations of employees, managers, and customers.
5. Can create new competitive advantages that are more powerful than existing advantages.
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Competitive Forces
• An important part of an external audit is identifying rival firms and determining their strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies
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Characteristics Of The Most Competitive Companies:
1.Market share matters 2.Understand & remember precisely what business you are in 3.Whether it’s broke or not, fix it–make it better 4.Innovate or evaporate 5.Acquisition is essential to growth 6.People make a difference 7.There is no substitute for quality
Key Questions About Competitors 1. What are the strengths of our major competitors? 2. What are the weaknesses of our major competitors? 3. What are the objectives and strategies of our major competitors? 4. How will our major competitors most likely respond to current economic, social,
cultural, demographic, environmental, political, governmental, legal, technological, and competitive trends affecting our industry?
5. How vulnerable are the major competitors to our alternative company strategies? 6. How vulnerable are our alternative strategies to successful counterattack by our
major competitors? 7. How are our products or services positioned relative to major competitors? 8. To what extent are new firms entering and old firms leaving this industry? 9. What key factors have resulted in our present competitive position in this industry? 10.How have the sales and profit rankings of our major competitors in the industry
changed over recent years? Why have these rankings changed that way? 11.What is the nature of supplier and distributor relationships in this industry? 12.To what extent could substitute products or services be a threat to our competitors?
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Competitive Intelligence Programs Competitive intelligence (CI)
– a systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’s own goals
The three basic objectives of a CI program are: 1. to provide a general understanding of an industry and its
competitors 2. to identify areas in which competitors are vulnerable and to
assess the impact strategic actions would have on competitors 3. to identify potential moves that a competitor might make that
would endanger a firm’s position in the market
Legal & Ethical Ways To Obtain Competitive Intelligence:
1. Reverse-engineer rival firms’ products. 2. Use surveys and interviews of customers, suppliers, and
distributors of rival firms. 3. Analyze rival firm’s Form 10-K (public report of financials). 4. Conduct fly-over and drive-by visits to rival firm operations. 5. Search online databases. 6. Contact government agencies for public information about
rival firms. 7. Monitor relevant trade publications, magazines, and
newspapers. 8. Purchase social-media data about customers of all firms in
the industry. 9. Hire top executives from rival firms.
Market Commonality & Resource Similarity
Market commonality
Resource similarity
the number and significance of
markets that a firm competes in with
rivals
the extent to which the type and amount
of a firm’s internal resources are
comparable to a rival
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The Five-Forces Model of Competition
• Rivalry among competing firms – Most powerful of the five forces – Focus on competitive advantage of strategies over other firms
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Common “Weapons” for Competing with Rivals
Competitive Weapons Primary Effects
Price discounting, clearance sales, “blowout” sales
Lowers price (P), acts to boost total sales volume and market share, lowers profit margins per unit sold when price cuts are big and/or increases in sales volume are relatively small
Couponing, advertising items on sale Acts to increase unit sales volume and total revenues, lowers price (P), increases unit costs (C), may lower profit margins per unit sold (P – C)
Advertising product or service characteristics, using ads to enhance a company’s image or reputation
Boosts buyer demand, increases product differentiation and perceived value (V), acts to increase total sales volume and market share, may increase unit costs (C) and/or lower profit margins per unit sold
Innovating to improve product performance and quality
Acts to increase product differentiation and value (V), boosts buyer demand, acts to boost total sales volume, likely to increase unit costs (C)
Introducing new or improved features, increasing the number of styles or models to provide greater product selection
Acts to increase product differentiation and value (V), strengthens buyer demand, acts to boost total sales volume and market share, likely to increase unit costs (C)
Increasing customization of product or service
Acts to increase product differentiation and value (V), increases switching costs, acts to boost total sales volume, often increases unit costs (C)
Building a bigger, better dealer network Broadens access to buyers, acts to boost total sales volume and market share, may increase unit costs (C)
Improving warranties, offering low- interest financing
Acts to increase product differentiation and value (V), increases unit costs (C), increases buyer costs to switch brands, acts to boost total sales volume and market share
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Sources of External Information • Unpublished sources include customer surveys, market research,
speeches at professional and shareholders’meetings, television programs, interviews, and conversations with stakeholders.
• Published sources of strategic information include periodicals, journals, reports, government documents, abstracts, books, directories, newspapers, and manuals.
• Internet – marketwatch.multexinvestor.com – moneycentral.msn.com – finance.yahoo.com – www.clearstation.com – us.etrade.com/e/t/invest/markets – www.hoovers.com – globaledge.msu.edu/industries/
http://www.clearstation.com/
http://www.hoovers.com/
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Industry Analysis: The External Factor Assessment (EFE) Matrix
• Economic • Social • Cultural • Demographic • Environmental • Political • Governmental • Technological • Competitive • Legal
• Steps 1. List key external factors 2. W eight from 0 to 1 3. Rate effectiveness of
current strategies 4. Multiply weight * rating 5. Sum weighted scores
EFE Matrix for a Local Ten-Theater Cinema Complex
Weight 0 not impt, 1 very impt, industry based. Rating, firm based, 1=poor response, 4=superior response from firm strategies to the fac2t6or.
EFE Total Weighted Score Interpretation:
• “A Total Weighted Score of 4.0 indicates that an organization is responding in an outstanding way to existing opportunities and threats in its industry.
• In other words, the firm’s strategies effectively take advantage of existing opportunities and minimize the potential of adverse effects of external threats.
• A Total weighted Score of 1.0 indicates that the firm’s strategies are not capitalizing on opportunities or avoiding external threats.”
• (See Textbook, p. 80-81)
An Example Competitive Profile Matrix Identifies firm’s major competitors & their strengths & weaknesses in relation to a firm’s strategic positions. Critical success factors include internal & external issues. Ratings are company based and weights are industry based.
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MGMT 40000D Strategic Management
Agenda:
Comprehensive Strategic Management Model:
Chapter Objectives
External Audit
Key External Forces: Five Broad Categories
Relationships Between Key External Forces and an Organization
The Process of Performing an External Audit
The Process of Performing an External Audit (2)
The Industrial Organization (I/O) View
Economic Forces
Advantages of a Strong Canadian Dollar
Social, Cultural, Demographic, and Natural Environmental Forces
Key Social, Cultural, Demographic, and Natural Environmental Variables
Political, Government, & Legal Variables
Technological Forces (1)
Technological Forces (2)
Slide Number 18
Results of Technological Advances
Competitive Forces
Characteristics Of The Most Competitive Companies:
Key Questions About Competitors
Competitive Intelligence Programs
Legal & Ethical Ways To Obtain Competitive Intelligence:
Market Commonality & Resource Similarity
The Five-Forces Model of Competition
Common “Weapons” for Competing with Rivals
Sources of External Information
Industry Analysis: The External Factor Assessment (EFE) Matrix
EFE Matrix for a Local Ten-Theater Cinema Complex
EFE Total Weighted Score Interpretation:
Slide Number 32
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Strategic Management (MGMT 40000D)
Week three
Dr. Wael Ramadan has a B.Eng., MBA, PhD, PMP, LSSBB, SPC, SDP, POPM, SA, and SMC.
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• Perform the external audit CH 3 • StartSim Live and Strategy Game Decision Points • Group Formations and Leaders • Summary
Model of Comprehensive Strategic Management:
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Objectives of the Chapter
1. Explain how to carry out an external strategic-management audit. 2. Discuss the ten key external forces that influence organizations: economic, political, and social.
Social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive considerations
3. Describe major external information sources, such as the Internet. 4. Go over key forecasting tools used in strategic management. 5. Discuss the significance of keeping an eye on external trends and events. 6. Describe how to create an EFE Matrix. 7. Describe how to create a Competitive Profile Matrix. 8. Go over the
