Comprehensive Strategic Management Model

External Audit

Chapter 3

Vision & Mission Statements

Long-Term Objectives

Generate, Evaluate, Select Strategies

Implement Strategies: Mgmt Issues

Implement Strategies: Marketing, Fin/Acct, R&D, CIS

Measure & Evaluate Performance

Chapter 2

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Internal Audit

Chapter 4

Ch. 3-1 2001 Prentice Hall

External Assessment
If you're not faster than your competitor, youre in a tenuous position, and if youre only half as fast, youre terminal.
George Salk
Ch. 3-2 2001 Prentice Hall

External Assessment (Contd)

External Strategic-Management Audit

Environmental scanning Industry Analysis

Ch. 3-3 2001 Prentice Hall

External Assessment (Contd)

External audit:

Focuses on identifying & evaluating events beyond the immediate control of the firm
Ch. 3-4 2001 Prentice Hall

External Assessment (Contd)

External audit focuses on:

Increased foreign competition Population shifts Demographics (e.g., aging population) Information technology
Ch. 3-5 2001 Prentice Hall

External Assessment (Contd)

External audit reveals:
Key opportunities Key threats

Managers then formulate strategies:

Take advantage of opportunities Avoid/reduce impact of threats

Ch. 3-6 2001 Prentice Hall

External Assessment (Contd)

External Audit

Aimed at identifying key variables that offer actionable responses

Ch. 3-7 2001 Prentice Hall

External Assessment (Contd)

Key External Forces Five (5) broad categories: Economic forces Social, cultural, demographic, & environmental forces
Political, governmental, & legal forces

Technological forces
Competitive forces
Ch. 3-8 2001 Prentice Hall

Characteristics of Environment

Complexity & Uncertainty Dynamic Multi-Faceted Far-Reaching Impact

Ch. 3-9 2001 Prentice Hall

External Assessment (Contd)

Process of External Audit:

Involve as many managers & employees as possible Gather competitive intelligence Information about social, demographic, cultural, environmental, etc. Monitor sources of information (key magazines, articles, etc.) Utilization of Internet Suppliers, distributors, customers as sources of information
Ch. 3-10 2001 Prentice Hall

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
Ch. 3-11 2001 Prentice Hall

Economic Forces (Contd)

Monitor Key Economic Variables:

(Contd)

Unemployment trends Worker productivity levels Value of the dollar in world markets Stock market trends Foreign countries economic conditions Import/export factors Demand shifts for goods/services Income differences by region/customer
Ch. 3-12 2001 Prentice Hall

Social & Environmental Forces

Social, cultural, demographic, and environmental changes:

Major impact on:

Products Services Markets Customers
Ch. 3-13 2001 Prentice Hall

Social & Environmental Forces

(Contd)
Key social, cultural, demographic, & environmental variables: (Contd)

Life expectancy rates Per capita income Attitudes toward business Average disposable income Buying habits Ethical concerns Attitudes toward saving
Ch. 3-14 2001 Prentice Hall

Social & Environmental Forces

(Contd)
Key social, cultural, demographic, & environmental variables: (Contd)

Value placed on leisure time Recycling Waste management Air & water pollution Ozone depletion Endangered species
Ch. 3-15 2001 Prentice Hall

Political, Govt., & Legal Forces

Government Regulation

Key opportunities & key threats

Antitrust

legislation (Microsoft) Tax rates Lobbying efforts Patent laws

Ch. 3-16 2001 Prentice Hall

Political, Govt., & Legal Forces

(Contd) Increasing Global Interdependence

Strategists in a global economy

Forecast

political climates Legalistic skills Diverse world cultures

Ch. 3-17 2001 Prentice Hall

Political, Govt., & Legal Forces

(Contd)

Key Political, govt., & legal variables:

Government regulation/deregulation Tax law changes Special tariffs Political Action Committees (PACs) Voter participation rates Number of patents Changes in patent laws
Ch. 3-18 2001 Prentice Hall

Technological Forces
Technological Change

Dramatic effect on business

Fiber

optics Biometrics EFT Computer engineering Superconductivity advancements

Ch. 3-19 2001 Prentice Hall

Technological Forces (Contd)

Internet impact on opportunities & threats:

Altering life cycles of products Increasing speed of distribution Creating new products & services Erasing limitations of traditional geographic markets

Ch. 3-20 2001 Prentice Hall

Competitive Forces
External Audit & Competing Firms

Identifying rival firms

Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies
Ch. 3-21 2001 Prentice Hall

Techniques for Environmental Scanning

Forecasting Delphi Method Scenario Planning (QUEST) Brainstorming Benchmarking

Ch. 3-22 2001 Prentice Hall

SCENARIO PLANNING (QUEST)

Quick Environmental Scanning Technique based on PEST analysis. Observation Major trends & Events. Experts speculate issues affecting Firm. Pen down issues and implication & build 3 to 5 scenarios. Another Group reviews and rank the options and select the most appropriate option. Develop strategy according to selected option.

A tool for ordering ones perception about alternative future environments in which ones decision might be played out. Nanus
Ch. 3-23 2001 Prentice Hall

BENEFITSSCENARIO PLANNING (QUEST)

Incorporate subjective assessment of participants. Scenarios constructed based on facts and proven assumptions. Extrapolated to create series of alternate futures that are mutually consistent.
Ch. 3-24 2001 Prentice Hall

BENCH MARKING

1.
2. 3. 4.

1970 Xeros Corporation, Studied Jap Cos. STEPS Understand own processes in detail. Select best firms in the industry. Analyse factors responsible for better performance. Take corrective measures.
Ch. 3-25 2001 Prentice Hall

BENCH MARKING

Customer service performance Product/ service performance Core business process performance Support processes Employee performance Supplier performance Technology performance Innovation performance Cost performance Financial performance
Ch. 3-26 2001 Prentice Hall

Competitive Analysis: Porters Five-Forces Model

Potential development of substitute products

Bargaining power of suppliers

Rivalry among competing firms

Bargaining power of consumers

Potential entry of new competitors

Ch. 3-27 2001 Prentice Hall

Customers

Needs, trends, Loyalties, Price sensitiveness Quality conscious Psyche Attitudes

Ch. 3-28 2001 Prentice Hall

New Entrants

Monopolistic and Oligipolistic Climate Entry barriers to entrepreneurs 1. Economies of scale 2. Brand Loyalty 3. Absolute Cost advantage 4. Product differentiation 5. Access to distribution 6. Capital requirement
Ch. 3-29 2001 Prentice Hall

Rivalry among firms

Demand of product determine intensity of rivalry. Exit barriers high- difficult to exit. Industry competitive structure

Ch. 3-30 2001 Prentice Hall

Bargaining Power- Buyers & Suppliers

Relative Power status Bulk purchase can lead to price reduction Substitutes availability Few suppliers and buyers

Ch. 3-31 2001 Prentice Hall

SUBSTITUTES

Few substitutes increases bargaining power.

Substitutes limit the potential returns of an industry by placing a ceiling on the prices firms in the industry can profitably charge Porter

Ch. 3-32 2001 Prentice Hall

CONCLUSION

The opportunities and threats existing in any situation always exceed the resources needed to exploit the opportunities or avoid the threats. Thus, strategy is essentially a problem of allocating the resources. If strategy is to be successful, it must allocate superior resources against a decisive opportunity.

William Cohen

Ch. 3-33 2001 Prentice Hall