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					Chapter 3
The External Assessment


     Strategic
    Management:
  Concepts & Cases
    11th Edition
    Fred David




                          Ch 3 -1
External Strategic
Management Audit


 Identify & Evaluate factors beyond
 the control of a single firm
  – Increased foreign competition
  – Population shifts
  – Information technology



                                      Ch 3 -2
Key External Forces & the Organization
                                Beyond control of organization!

                     Competitors
                       Suppliers
                     Distributors
                       Creditors
   Key                Customers                 Opportunities
 External             Employees                      &
  Forces
                    Communities                   Threats
                      Managers
                    Stockholders
                    Labor Unions
                Special Interest Groups
                       Products
                       Services


                                                            Ch 3 -3
Performing External Audit


                     Long-term orientation


                         Measurable
     External
     Factors            Applicable to
                       competing firms


                         Hierarchical




                                             Ch 3 -4
I/O Perspective Firm Performance



    Industry Properties

                            Economies of Scale

                          Barriers to market entry

                           Product differentiation

                          Level of competitiveness




                                                     Ch 3 -5
  Porter’s Five Forces
                   Potential development
                   of substitute products




Bargaining power      Rivalry among         Bargaining power
   of suppliers      competing firms          of consumers




                   Potential entry of new
                       competitors

                                                       Ch 6 -6
                                                       Ch 3
Social, Cultural, Demographic
& Environmental Forces

 U.S. Facts
   •Aging population
   •Less Caucasian
   •Widening gap between rich & poor
   •2025 = 18.5% population >65 years
   •2075 = no ethnic or racial majority

                                          Ch 3 -7
Key Social, Cultural, Demographic &
Environmental Variables

  Childbearing rates

  Number of special interest groups

  Number of marriages & divorces

  Number of births & deaths

  Immigration & emigration rates

                                      Ch 3 -8
Political, Government & Legal
Forces

Globalization of Industry
• Worldwide trend toward similar
  consumption patterns
• Global buyers and sellers
• E-commerce
• Technology for instant currency transfers


                                              Ch 3 -9
Competitive Forces
Identifying Rival Firms

 •Strengths
 •Weaknesses
 •Capabilities
 •Opportunities
 •Threats
 •Objectives
 •Strategies

                          Ch 3 -10
Competitive Forces
7 Characteristics of most
Competitive U.S. Firms:


 •   Market share matters
 •   Understand what business you are in
 •   Broke or not, fix it
 •   Innovate or evaporate




                                           Ch 3 -11
Competitive Forces
7 Characteristics of most
Competitive U.S. Firms:


 5. Acquisition is essential to growth
 6. People make a difference
 7. No substitute for quality




                                         Ch 3 -12
  The Five-Forces Model of Competition (Porter)


                     Potential development
                     of substitute products




Bargaining power         Rivalry among            Bargaining power
   of suppliers         competing firms             of consumers




                     Potential entry of new
                         competitors

                                                            Ch 3 -13
The Global Challenge


 Faced by U.S. Firms --
   •Gain & maintain exports to other
   nations
   •Defend domestic markets against
   imported goods




                                       Ch 3 -14
Industry Analysis: The External Factor
Evaluation (EFE) Matrix

Summarize & Evaluate


 Economic    Demographic     Governmental

   Social    Environmental   Technological

  Cultural      Political    Competitive


                                           Ch 3 -15
Ch 3 -16
External Factors

• It’s hard to write them!
• Weekend Exercise for Intuit




                                Ch 3 -17
Ch 3 -18
Industry Analysis EFE


 Total weighted score of 4.0
    • Organization response is outstanding to threats
      and weaknesses




 Total weighted score of 1.0
    • Firm’s strategies not capitalizing on opportunities
      or avoiding threats


                                                      Ch 3 -19
Industry Analysis: Competitive Profile
Matrix (CPM)


  Identifies firm’s major competitors
  and their strengths & weaknesses
  in relation to a sample firm’s
  strategic positions



                                         Ch 3 -20
                         Gateway           Apple               Dell
                 Wt     Rating   Wt’d    Ratin   Wt’d    Rating   Wt’d
CSF’s                            Score    g      Score            Score

Market share     0.15     3      0.45     2      0.30      4       0.60
Inventory sys    0.08     2      0.16     2      0.16      4       0.32
Fin. position    0.10     2      0.20     3      0.30      3       0.30
Prod. Quality    0.08     3      0.24     4      0.32      3       0.24
Cons. Loyalty    0.02     3      0.06     3      0.06      4       0.08
Sales Distr      0.10     3      0.30     2      0.20      3       0.30
Global Exp.      0.15     3      0.45     2      0.30      4       0.60
Org. Structure   0.05     3      0.15     3      0.15      3       0.15


                                                                  Ch 3 -21
                         Gateway           Apple               Dell
                 Wt     Rating   Wt’d    Ratin   Wt’d    Rating   Wt’d
CSF’s (cont’d)                   Score    g      Score            Score

Prod. Capacity   0.04     3      0.12     3      0.12      3       0.12
E-commerce       0.10     3      0.30     3      0.30      3       0.30
Customer Serv 0.10        3      0.30     2      0.20      4       0.40
Price
                 0.02     4      0.08     1      0.02      3       0.06
competitive
Mgt.             0.01     2      0.02     4      0.04      2       0.02
experience


Total            1.00            2.83            2.47              3.49

                                                                  Ch 3 -22
  UST—Key External Factors                                    Weighted
                                            Weight   Rating
Opportunities                                                  score

 Global markets untapped                     .15       1        .15
 Increased demand                            .05       3        .15
 Astronomical Internet growth                .05       1        .05
 Pinkerton leader in discount market         .15       4        .60
 More social pressure to quit smoking        .10       3        .30
Threats
 Legislation against the tobacco industry    .10       2        .20
 Production limits on tobacco                .05       3        .15
 Smokeless market SE region U.S.             .05       2        .10
 Bad media exposure from FDA                 .10       2        .20
 Clinton Administration                      .20       1        .20
TOTAL                                       1.00               2.10
                                                                Ch 6 -23
                                                                Ch 3 -23
       (CPM)                                            Procter
                               Avon         L’Oreal    & Gamble
Critical Success     Weight Rating Score Rating Score Rating Score
Factor
Advertising          0.20     1    0.20    4    0.80    3     0.60
Product Quality      0.10     4    0.40    4    0.40    3     0.30
Price Competition    0.10     3    0.30    3    0.30    4     0.40
Management           0.10     4    0.40    3    0.30    3     0.30
Financial Position   0.15     4    0.60    3    0.45    3     0.45
Customer Loyalty     0.10     4    0.40    4    0.40    2     0.20
Global Expansion     0.20     4    0.80    2    0.40    2     0.40
Market Share         0.05     1    0.05    4    0.20    3     0.15
Total                1.00          3.15         3.25          2.80
                                                            Ch 6 -24
                                                            Ch 3 -24
Mission Statement (proposed)

Our mission is to provide cruise and travel services (2) to travelers
worldwide (1, 3), to develop household name brand awareness, to
respect and protect the earth and seas on which we sail (6), to serve the
communities in which our consumers and employees reside (8,9), and to
stay an innovator by bringing cutting edge technology and research for
our consumer’s benefit (4). We recognize that we must stay financially
solvent and must make those decisions that will capitalize on
opportunities for growth and longevity (5). We believe we must exceed
every consumer’s expectations, supplying lasting memories, and
enticing repeat business all at a fair value. We recruit, compensate and
retain the best staff and ship employees in the business (7, 9).




                                                                 Ch 3 -25
Competitive Profile Matrix – Royal Caribbean




                                               Ch 3 -26
EFE Matrix




             Ch 3 -27

				
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