Lecture No 08

Lecture Outline

• Key Political, Government & Legal Variables• Technological Forces• Competitive Forces• Porter’s Five-Forces Model• Industry Analysis (EFE)• Industry Analysis (CPM)

Key Political, Government & Legal Variables

• 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

Technological Forces

Revolutionary technological forces:

• Profound impact on organizations• Internet• Semiconductors• XML technologies• UWB communications

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

Technological Forces

Capitalizing on Information Technology (IT)

• Chief Information Officer (CIO)

• Chief Technology Officer (CTO)

Technological Forces

Technology-based issues

– Underlie nearly every strategic decision

Competitive Forces

Collection and evaluation of information on competitors is essential for successful strategy formulation

Competitive Forces

Competition in virtually all industries can be described as intense.

Competitive Forces

Identifying rival firms• Strengths• Weaknesses• Capabilities• Opportunities• Threats• Objectives• Strategies

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

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

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

Competitive Forces

Sources of Corporate Information:• Moody’s Manuals• Standard Corporation Descriptions• Value Line Investment Surveys• Dun’s Business Rankings• Standard & Poor’s Industry Surveys• Industry Week• Forbes, Fortune, Business Week

Competitive Forces

7 Characteristics of most competitive U.S. firms:

1. Market share matters2. Understand what business you are in3. Broke or not, fix it4. Innovate or evaporate

Competitive Forces

7 Characteristics of most competitive U.S. firms:

5. Acquisition is essential to growth6. People make a difference7. No substitute for quality

Competitive Forces

Competitive Intelligence Programs:

• Systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’ own goals.

Competitive Analysis: Porter’s Five-Forces Model

Potential development of substitute products

Rivalry among competing firms

Bargaining power of suppliers

Potential entry of new competitors

Bargaining power of consumers

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

Industry Analysis (EFE)

External Factor Evaluation MatrixExternal Factor Evaluation MatrixSummarize & evaluate:

CompetitivePoliticalCultural

Technological

EnvironmentalSocial

Governmental

DemographicEconomic

Industry Analysis (EFE)

Five-Step process:

• List key external factors (10-20)Opportunities & threats

• Assign weight to each (0 to 1.0)Sum of all weights = 1.0

Industry Analysis (EFE)

Five-step process:

• Assign 1-4 rating to each factor• Firm’s current strategies response to the factor

• Multiply each factor’s weight by its rating• Produces a weighted score

Industry Analysis (EFE)

Five-step process:

• Sum the weighted scores for eachDetermines the total weighted score for

the organization.

• Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5

.201.20 Clinton Administration

.202.10 Bad media exposure from FDA

.102.05 Smokeless market SE region U.S.

.153.05 Production limits on tobacco

.202.10 Legislation against the tobacco industry

Threats

.303.10 More social pressure to quit smoking

2.101.00TOTAL

.604.15 Pinkerton leader in discount market

.051.05 Astronomical Internet growth

.153.05 Increased demand

.151.15 Global markets untapped

Weighted

scoreRatingWeight

UST—Key External FactorsOpportunities

Industry Analysis (EFE)

Total weighted score of 4.0 =Organization response is outstanding to threats & weaknesses

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

Industry Analysis (EFE)

UST (in the previous example), has a total weighted score of 2.10 indicating that the firm is below average in its effort to pursue strategies that capitalize on external opportunities and avoid threats.

Industry Analysis (EFE)

Important

• Understanding of the factors used in the EFE Matrix is more important than the actual weights and ratings assigned.

Industry Analysis (CPM)

Competitive Profile Matrix

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

(CPM) Procter Avon L’Oreal &

Gamble

2.803.25

3.15

1.00Total

0.1530.20

40.05

10.05Market Share

0.4020.40

20.80

40.20Global Expansion

0.2020.40

40.40

40.10Customer Loyalty

0.4530.45

30.60

40.15Financial Position

0.3030.30

30.40

40.10Management

0.4040.30

30.30

30.10Price Competition

0.3030.40

40.40

40.10Product Quality

0.6030.80

40.20

10.20Advertising

ScoreRating

Score

Rating

Score

Rating

Weight

Critical Success Factor

Key Terms

• America Online• Chief Information Officer (CIO)• Chief Technology Officer (CTO)• Competitive advantages• Competitive analysis• Competitive intelligence (CI)• Competitive Profile Matrix (CPM)

Key Terms

• Critical success factors• Cyberspace• Decruiting• Director of competitive analysis• Downsizing• Econometric models• Environmental scanning• External audit• External Factor Evaluation (EFE) Matrix

Key Terms

• External forces• Industry analysis• Information Technology (IT)• Industrial policies• Internet learning from the partner• Linear regression

Key Terms

• Porter’s Five-Forces Model• Netscape• On-Line databases• Rightsizing• Trend extrapolation• World Wide Web (www)

Thank You