Chapter No 03 Ext Assesment

8/6/2019 Chapter No 03 Ext Assesment

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Chapter 3

The External Assessment


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External AssessmentThis chapter examines the tools and concepts needed to

conduct an external strategic-management audit..

called External Strategic Management Audit and also called

Environmental scanning

Industry analysis


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Identification & Evaluation of different

factors and trends beyond the control of a single firm.

Purpose of external audit is development of finite list

of.

Opportunities to avail

Threats to be avoided

External Strategic Management Audit


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Five Categories of External Forces

Economic

Social

Political and legal Technological

Competitive


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Competitors

Suppliers

Distributors

Creditors

Customers

Communities

Stockholders

Products

Services

Key

External

Forces

Opportunities&

Threats

Relationship between Key External

Forces & the Organization


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Process of Performing an External Audit

Sources of information include;

Magazines, journals and periodicals..

Internet Libraries

Suppliers

Distributors and retailers Customers

Govt organization


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Economic forces

Monitor key economic variables: Type ofMarket Economy

Availability of credit (Interest rates)

Level of income

Inflation rate


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Economic forces

Foreign Exchange Rate

GDP

unemployment trends

Foreign countries economic situation


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Social, Cultural, Demographic &

Environmental Forces (contd)

World population > 6billion

US population < 300 million

Afghanistan population=32,738,376 (July2008 est.)

Great potential for domestic expension to

oth

er market Domestic only is a risky strategy


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Key variables may be;

Number of marriages

Number of divorces Number of births

Number of deaths

Average level of education Buying habits (less book reading)

Life expectancy


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Attitude towards saving (Japanese take savings

as a religious matter)

Attitude towards business (trend towards

entrepreneurship)

Demographic changes (likes and dislikes, age,

income etc).

Recycling(paper , glass), air and water pollutionare environmental issues.


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Political, Government & Legal Forces

(contd)

Government Regulation can pose

Key opportunities and key threats

Tax rates (Tax law changes e.g. incometax, sales tax, wealth tax)

Antitrust legislation (suppressing curtailing

and monopolies) Patent law (Changes in patent laws)


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Political, Government & Legal Forces

(contd)

Lobbying efforts (people make lobby in

senate and think of their own interests) Environmental protection laws

Import export regulation

Political condition in other countries Location and severity of terrorist activities


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Technological forces

Revolutionary technological forces have

Profound impacts on organizations

Semiconductors: transistor and processor Internet

HTML/XMLs (extensive mark-up Lang)

technologies UWB (ultra wide band wireless)

communications


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Competitive Forces

Collection and evaluation of information on

competitors is essential for successful

strategy formulation


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Competitive Forces

Strengths

Weaknesses

Opportunities

Threats

Strategies

Identifying Rival Firms


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Competitive Forces

1. Market share matters2. Understand what business you are in

(clear vision and mission)

3. Broke or not, fix it (continuous

improvement)

4. Innovate or evaporate

7 Characteristics of mostCompetitive U.S. Firms


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Competitive Forces

5. Acquisition is essential to growth (toincrease market share)

6. People make a difference (employeesbehind the machine)

7. No substitute for quality

7 Characteristics of mostCompetitive U.S. Firms:


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The Five-Forces Model of Competition

Potential developmentof substitute products

Rivalry amongcompeting firms

Bargaining powerof suppliers

Potential entry of newcompetitors

Bargaining powerof consumers


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Explanation;

Rivalry among competing firms: the intensityof competition or level of competition.

Potential entry of new competitors: foradvertising companies(opportunities, and threat for the existing).

Potential development of substituteproduct: type writer and computer key board:


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Collective Bargaining power of

suppliers: less number of suppliers will have more bargaining power andvice versa.

Bargaining power of consumer: (level of income)


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The Global Challenge

Faced by any country & Afghani

Firms --

Gain & maintain exports to othernations

Defend domestic markets against

imported goods


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Industry analysis (EFE)

Five step process:

List key external factors (10-20) O

pportunities and threats

Assign weight (importance) to each (0- 1.0)

Sum of all weights = 1.0

Assign rating 1-4 to each factor Firm current strategy/capabilities response to the

factor

Multiply each factors weight by its rating P

roduces a weighted score


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Sum the weighted scores for each Determines the total weighted score for the

organization

observation

The highest possible weighted score for

the organization is 4 and the lowest is1,averaging 2.5


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Industry Analysis: The External Factor

Evaluation (EFE) Matrix

CompetitivePoliticalCultural

TechnologicalEnvironmentalSocial

GovernmentalDemographicEconomic

Summarize & Evaluate


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Total weighted score of 4.0 Organization response is outstanding to threats

and opportunities.

Industry Analysis EFE

Total weighted score of 1.0 Firms strategies not capitalizing on opportunities

or avoiding threats


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Important

Understanding the factors used in the EFE

matrix is more important then the actual

weights and rating assigned.

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Chapter No 03 Ext Assesment