The External

Assessment It is not the strongest

of the species that
Reported by: survive, nor the most
Donna Marie Masancay intelligent, but the one
Maila Cadenas most responsive to
change.
Jiezel Estebe
~ Charles Darwin
Marjorie Cantero
Kimberly Brooke Go
 Describe how to conduct an external strategic-
management audit.
Discuss 10 major external forces that affect
organizations.
Describe key sources of information.
Discuss important forecasting tools used in
strategic management.

Chapter Objectives
 Discuss the importance of monitoring external
trends and events.
Explain how to develop an EFE Matrix.
Explain how to develop a Competitive Profile
Matrix.
Discuss the importance of gathering
competitive intelligence.

Chapter Objectives
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
External Strategic management Audit
Purpose:
Develop a finite list of
Opportunities that could benefit a firm
Threats that should be avoided
External Strategic management Audit
Process:
Gather
Assimilate
Evaluate
INFORMATION
Industrial Organization (I/O) View
Industry factors are more important
than internal factors

Organizational performance will be

primarily determined by industry forces
(Michael Porter)
Key External Forces: Economic

Attractiveness of different strategies is

directly affected
Key External Forces: Economic
Some Important Key Economic Forces:
Economic conditions of foreign countries
Export/import factors
Income differences by customer/region
Demand shift for goods & services
Monetary policies
Price fluctuations
Key External Forces: Social, Cultural,
Demographic and Natural Environment

Major Impacts:
Products
Services
Markets
Customers
Key Social, Cultural, Demographic and
Natural Environment Variables
1. Number of Marriages
2. Number of Divorces
3. Number of Births
4. Number of Deaths
Key Social, Cultural, Demographic and
Natural Environment Variables
5. Immigration and Emigration rates
6. Life expectancy rates
7. Attitudes toward government
8. Ethical Concerns
Key External Forces: Political ,Legal and
Governmental
Government Regulations
Key opportunities and threats:
Anti-trust legislation
Tax rates
Lobbying efforts
Patent laws
 Increasing Global Interdependence
Political variables impacts :
Formulation of strategies
Implementation of strategies

Strategists in a global economy :

Legalistic skills
Diverse world cultures
Some Key (PLG) Variables:
Regulations/Deregulations
Environmental protection laws
Equal employment legislation
Global relationships
Location and severity of terrorist activity
Key External Forces: Technological

Major Impact:
Internet
Communication
Significance of IT:
Chief Information Officer (CIO)
Chief Technology Officer (CTO)
Impact of Wireless Technology
Banking
Education
Automotive
Publishing
Health Care
Key External Forces: Competitors

Collection and evaluation of data on

competitors is essential for successful strategy
formulation.
Key External Forces: Competitors
Identifying rival firms
Determining:
Strengths Threats
Weaknesses Capabilities
Opportunities Objectives
Strategies
Key External Forces: Competitors
Seven Characteristics to describe the most
competitive companies:
1. Market share matters.
2. Understand what business you
are in.
3. Broke or not, fix it.
Key External Forces: Competitors
Seven Characteristics to describe the most
competitive companies:
4.Innovate or evaporate.
5.Acquisition is essential to growth.
6.People make a difference.
7.No substitute for quality
Key External Forces: Competitors
COMPETITIVE INTELLIGENCE (CI)
systematic and ethical process for
gathering and analyzing
information about the
competitions activities and
general business trends to further a
businesss own goals.
Key External Forces: Competitors
Three Strong Misperceptions about
Business Intelligence:
1.Requires lots of people, computers, and other

resources.
2.Collecting intelligence violates antitrust laws;

business intelligence equals espionage.

3.Unethical business practice.
 Three Basic Objectives of a CI Program:
1.Provide a general understanding of

an industry and its competitors.

2.Identify areas in which competitors

are vulnerable.
3.Identify potential moves that a

competitor might make.

MARKET COMMONALITY AND RESOURCE
SIMILARITY
Market commonality:
- number and significance of markets
that a firm competes in with rivals.
Resource similarity:
- extent to which the type and
amount of a firms internal resources
are comparable to a rival.
PORTERS FIVE FORCES MODEL
Three Steps for Using Porters Five Forces Model:
1.Identify key aspects that impact the firm.

2.Evaluate how strong and important each

element is for the firm.

3.Decide whether the collective strength of

the elements is worth entering or staying

for.
The Five Forces Model
1. Rivalry Among Competing Firms
Most Powerful of the five forces
Focus on competitive advantage of
strategies over other firms
15 Conditions that Cause High Rivalry among
Competing Firms
High Number of competing firms
Similar size of Firms
Similar Capability
Falling demand for the industrys product
Falling product/service prices
15 Conditions that Cause High Rivalry among
Competing Firms
Consumers can switch brands easily
High barriers for leaving the market
Low barrier for entering the market
High Fixed cost
Perishable Products
15 Conditions that Cause High Rivalry among
Competing Firms
Rivals have excess capacity
Consumer demand is falling
Rivals have excess inventory
Rivals sell similar products/services
Mergers are common
The Five Forces Model
2. Potential Entry of New Competitors
Barriers to entry are important
Quality, pricing, and marketing can
overcome barriers
The Five Forces Model
3. Potential Development of Substitute Products
Pressure increases when:
Prices of substitute decreases
Consumers switching costs
The Five Forces Model
4. Bargaining Power of Supplies
Increases when there are:
Large number of suppliers
Few substitutes
Costs of switching raw materials is high
The Five Forces Model
5. Bargaining Power of Consumers
Concentrated customers or bulk buying
affects intensity of competition
High consumer power where products are
standard or undifferentiated
Conditions Where Consumers Gain Bargaining
P0wer
Buyers can inexpensively switch
Buyers are particularly important
Sellers struggles in falling consumer demand
Buyers are informed about sellers products, prices
and costs
Buyers have discretion when purchasing the product
 Sources of External Information
Published Abstracts Unpublished Speeches at
Customer professional/
Periodicals Books shareholder
Surveys meetings
Journals Directories Market
Newspapers Research Interviews and
Reports conversation
Manuals Television with
Government Programs stakeholders
Documents

Websites
http://marketwatch.multexinvestor.com
http://moneycentral.msn.com
Forecasting Tools and Techniques
Forecasts are educated assumptions about
future trends and events

Quantitative Techniques
Qualitative Techniques
Assumptions

Estimates of Future events based

upon the best available information in the
present
Industry Analysis: The External Factor Evaluation
(EFE) Matrix
EFE Matrix Steps:
List Key External Factors
Weight 0 to 1
Rate Effectiveness of current
strategies
Multiply Weight * Rating
Sum Weighted Scores
Industry Analysis: The External Factor Evaluation
(EFE) Matrix
EFE Matrix Steps:
List Key External Factors
Weight 0 to 1
Rate Effectiveness of current
strategies
Multiply Weight * Rating
Sum Weighted Scores
Industry Analysis: The External Factor Evaluation
(EFE) Matrix
EFE Matrix Steps:
List Key External Factors
Weight 0 to 1
Rate Effectiveness of current
strategies
Multiply Weight * Rating
Sum Weighted Scores
Industry Analysis: Competitive Profile Matrix
(CPM)
Identifies firms major competitors and
their strengths & weaknesses in relation
to a sample firms strategic positions

Critical success factors include internal

and external issues
Industry Analysis: Competitive Profile Matrix
(CPM)
Identifies firms major competitors and
their strengths & weaknesses in relation
to a sample firms strategic positions

Critical success factors include internal

and external issues