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Chapter03-External Assessment PDF
Chapter03-External Assessment PDF
Chapter03-External Assessment PDF
Chapter Outline
The Nature of an External Audit
Economic Forces Social, Cultural, Demographic, and Environmental Forces
Fred R. David Prentice Hall
Ch.3-2
Chapter Outline
Political, Governmental, and Legal Forces
Technological Forces
Competitive Forces
Fred R. David Prentice Hall
Ch.3-3
Chapter Outline
Competitive Analysis:
Porters Five-Forces Model
Chapter Outline
The Global Challenge
Industry Analysis:
The External Factor Evaluation Matrix
Ch.3-6
Also called:
Environmental scanning Industry analysis
Ch.3-7
Ch.3-9
Ch.3-11
Ch.3-14
Ch.3-15
Oriented to long-term & annual objectives Measurable Applicable to all competing firms Hierarchical
Overall company Divisional or functional areas
Ch.3-16
Economic Forces
Monitor Key Economic Variables:
Availability of credit Level of disposable income Interest rates Inflation rates Money market rates Federal government budget deficits Gross domestic product trend Consumption patterns
Fred R. David Prentice Hall
Ch.3-17
Price fluctuations Exportation of labor & capital Monetary policies Fiscal policies Tax rates ECC policies OPEC policies LDC policies
Ch.3-19
Ch.3-20
United States
Population growing older Less Caucasian Gap between rich and poor widening 65 and older will rise to 18.5% of population by 2025 By 2075, no racial or ethnic majority
Fred R. David Prentice Hall
Ch.3-21
NAFTA
Ch.3-23
More educated consumers Population aging Minorities more influential Local rather than federal solutions Fixation with youth decreasing Hispanics increase to 15% by 2021 African Americans increase to 14% by 2021
Fred R. David Prentice Hall
Ch.3-24
Childbearing rates Number of special-interest groups Number of marriages Number of divorces Number of births Number of deaths Immigration & emigration rates
Fred R. David Prentice Hall
Ch.3-25
Life expectancy rates Per capita income Attitudes toward business Average disposable income Buying habits Ethical concerns Attitudes toward saving
Fred R. David Prentice Hall
Ch.3-26
Racial equality Average level of education Government regulation Attitudes toward customer service Attitudes toward product quality Energy conservation Social responsibility
Fred R. David Prentice Hall
Ch.3-27
Value placed on leisure time Recycling Waste management Air & water pollution Ozone depletion Endangered species
Ch.3-28
Ch.3-30
Ch.3-31
Environmental protection laws Equal employment legislation Level of government subsidies Antitrust legislation/enforcement Sino-American relationships Russian-American relationships European-American relationships
Fred R. David Prentice Hall
Ch.3-34
African-American relationships Import-export regulations Monetary policy Political conditions in other countries Government budgets World oil, currency, & labor markets Location and severity of terrorist activities
Ch.3-35
Technological Forces
Revolutionary technological forces:
Technological Forces
Internet changes the nature of opportunities and threats -
Alters life cycle of products Increases speed of distribution Creates new products and services Eases limitations of geographic markets Alters economies of scale Changes entry barriers
Fred R. David Prentice Hall
Ch.3-37
Technological Forces
Capitalizing on Information Technology (IT)
Technological Forces
Technology-based issues
Underlie nearly every strategic decision
Ch.3-39
Competitive Forces
Collection and evaluation of information on competitors is essential for successful strategy formulation
Ch.3-40
Competitive Forces
Ch.3-41
Competitive Forces
Identifying rival firms
Competitive Forces
Key Questions About Competitors:
Their strengths Their weaknesses Their objectives and strategies Their responses to all external variables (e.g. social, political, demographic, etc.) Their vulnerability to our alternative strategies
Fred R. David Prentice Hall
Ch.3-43
Competitive Forces
Key Questions About Competitors:
Our vulnerability to successful strategic counterattack Our product and service positioning relative to competitors Entry and exit of firms in the industry Key factors for our current position in industry
Fred R. David Prentice Hall
Ch.3-44
Competitive Forces
Key Questions About Competitors:
Sales and profit rankings of competitors over time Nature of supplier and distributor relationships The threat of substitute products or services
Ch.3-45
Competitive Forces
Sources of Corporate Information:
Moodys Manuals Standard Corporation Descriptions Value Line Investment Surveys Duns Business Rankings Standard & Poors Industry Surveys Industry Week Forbes, Fortune, Business Week
Fred R. David Prentice Hall
Ch.3-46
Competitive Forces
7 Characteristics of most competitive U.S. firms: Market share matters 2. Understand what business you are in 3. Broke or not, fix it 4. Innovate or evaporate
1.
Fred R. David Prentice Hall
Ch.3-47
Competitive Forces
7 Characteristics of most competitive U.S. firms:
Acquisition is essential to growth 6. People make a difference 7. No substitute for quality
5.
Fred R. David Prentice Hall
Ch.3-48
Competitive Forces
Competitive Intelligence Programs:
Systematic and ethical process for gathering and analyzing information about the competitions activities and general business trends to further a business own goals.
Fred R. David Prentice Hall
Ch.3-49
Global Challenge
International Challenge faced by U.S. firms:
How to gain and maintain exports to other nations
How to defend domestic markets against imported goods
Ch.3-51
Cultural
Political
Competitive
Ch.3-52
& threats
Ch.3-54
Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5
Fred R. David Prentice Hall
Ch.3-55
Weight .15
Rating
Weighted score
1 3 1
.05 .05
.15
.10 .10 .05 .05 .10 .20
4
3 2 3 2 2 1
.60
.30 .20 .15 .10 .20 .20
Threats
Legislation against the tobacco industry Production limits on tobacco Smokeless market SE region U.S. Bad media exposure from FDA Clinton Administration
TOTAL
Fred R. David Prentice Hall
1.00
2.10
Ch.3-56
Important
Understanding of the factors used in the EFE Matrix is more important than the actual weights and ratings assigned.
Ch.3-59
Identifies firms major competitors and their strengths & weaknesses in relation to a sample firms strategic position
Ch.3-60
(CPM)
Critical Success Factor
Avon
LOreal
Advertising
Product Quality Price Competition
0.20
0.10 0.10
Management
Financial Position Customer Loyalty
0.10
0.15 0.10
Global Expansion
Market Share
0.20
0.05 1.00
1 4 3 4 4 4 4 1
0.20
0.40 0.30
0.40
0.60 0.40
0.80
0.05 3.15
4 4 3 3 3 4 2 4
0.80
0.40 0.30
3
3 4
0.60
0.30 0.40
0.30
0.45 0.40
3
3 2
0.30
0.45 0.20
0.40
0.20 3.25
2
3
0.40
0.15 2.80
Ch.3-61
Total
Key Terms
America Online Chief Information Officer (CIO) Chief Technology Officer (CTO) Competitive advantages Competitive analysis Competitive intelligence (CI) Competitive Profile Matrix (CPM)
Fred R. David Prentice Hall
Ch.3-62
Key Terms
Critical success factors Cyberspace Decruiting Director of competitive analysis Downsizing Econometric models Environmental scanning External audit External Factor Evaluation (EFE) Matrix
Fred R. David Prentice Hall
Ch.3-63
Key Terms
External forces Industry analysis Information Technology (IT) Industrial policies Internet learning from the partner Linear regression
Ch.3-64
Key Terms
Porters Five-Forces Model Netscape On-Line databases Rightsizing Trend extrapolation World Wide Web (www)
Ch.3-65