Chapter 3 Flashcards
focuses on identifying and evaluating trends and events beyond the control of a single firm
External audit
reveals key opportunities and threats confronting an organization so that managers can formulate strategies to take advantage of the opportunities and avoid or reduce the impact of threats
External audit
This chapter examines the tools and concepts needed to conduct an external strategic management audit (sometimes called ________________).
environmental scanning or industry analysis
is aimed at identifying key variables that offer actionable responses
The external audit
Firms should be able to respond either offensively or defensively to the factors by formulating strategies that __________________ of external opportunities or that _________ the impact of potential threats.
take advantage; minimize
The purpose of an external audit is to ________________________ that could benefit a firm as well as threats that should be avoided.
develop a finite list of opportunities
As the term finite suggests, the external audit is not aimed at developing an exhaustive list of every possible factor that could influence the business; rather, it is aimed at _____________________ that offer actionable responses.
identifying key variables
A Comprehensive Strategic-Management Model
chapter 2 - develop vision and mission statements
chapter 3 - perform external audit
chapter 4 - perform internal audit
chapter 5 - establish long-term objectives
chapter 6 - generate, evaluate, and select strategies
chapter 7 - implement strategies; management issues
chapter 8 - implement strategies; marketing, finance, accounting, R&D, and MIS issues
chapter 9 - manage and evaluate performance
is a process that systematically surveys and interprets relevant data to identify external opportunities and threats that could influence future decisions. It is closely related to a S.W.O.T. analysis and should be used as part of the strategic planning process.
Environmental scanning
Components of external scanning
-trends
-competition
-technology
-customers
-economy
-labor supply
-political/legislative arena
What trends are occurring in the marketplace or industry that could affect the organization either positively or negatively?
trends
What is your competition doing that provides them an advantage?
Where can you exploit your competition’s weaknesses?
competition
What developments in technology may impact your business in the future?
Are there new technologies that can make your organization more efficient?
technology
How is your customer base changing?
What is impacting your ability to provide top-notch customer service?
customers
What is happening in the economy that could affect future business?
economy
What is the labor market like in the geographies where you operate?
How can you ensure ready access to high-demand workers?
labor supply
What impact will election outcomes have on your business?
Is there impending legislation that will affect your operations?
political/legislative arena
key external forces
-economic forces
-social, cultural, demographic, and natural environment forces
-political, government, and legal forces
-technological forces
-competitive forces
Important Note: When identifying and prioritizing key external factors in strategic planning, make sure the factors selected are
(1) specific (i.e., quantified to the extent possible);
(2) actionable (i.e., meaningful in terms of having strategic implications); and
(3) stated as external trends, events, or facts rather than as strategies the firm could pursue.
external indicators (mcsteep)
M – MARKET (demand; market share)
C - COMPETITION
S – SOCIO-CULTURAL
T - TECHNOLOGY
E - ECONOMIC
E - ENVIRONMENTAL
P – POLITICAL / LEGAL
Shift to service economy
Availability of credit
Level of disposable income
Propensity of people to spend
Interest rates
Inflation rates
GDP trends
Consumption patterns
Unemployment trends
Value of the dollar
Import/Export factors
Demand shifts for different goods and services
Income differences by region and consumer group
Price fluctuations
Foreign countries’ economic conditions
Monetary and Fiscal policy
Stock market trends
Tax rate variation by country and state
European Economic Community (EEC) policies
Organization of Petroleum Exporting Countries (OPEC) policies
Economic Forces
Be mindful that in strategic planning and case analysis, _____________________ such as those listed must be quantified and actionable to be useful.
relevant economic variables
Population changes by race, age, and geographic area
Regional changes in tastes and preferences
Number of marriages
Number of divorces
Number of births
Number of deaths
Immigration and emigration rates
Social Security programs
Life expectancy rates
Per capita income
Social media pervasiveness
Attitudes toward retirement
Energy conservation
Attitudes toward product quality
Attitudes toward customer service
Pollution control
Attitudes toward foreign peoples
Energy conservation
Social programs
Number of churches
Number of church members
Social responsibility issues
Key Social, Cultural, Demographic, and Natural Environmental Variables
Be mindful that in strategic planning and case analysis, __________________________________ for a particular business must be quantified and actionable to be useful.
relevant social, cultural, demographic, and natural environment factors
The increasing global interdependence among economies, markets, governments, and organizations makes it imperative that firms consider the possible impact of political variables on the formulation and implementation of competitive strategies.
Political, Governmental, and Legal Forces
____________________ are major regulators, deregulators, subsidizers, employers, and customers of organizations. ________________, therefore, can represent major opportunities or threats for both small and large organizations.
Federal, state, local, and foreign governments; Political, governmental, and legal factors
Environmental regulations
Number of patents
Changes in patent laws
Equal employment laws
Level of defense expenditures
Unionization trends
Antitrust legislation
USA vs. other country relationships
Political conditions in foreign countries
Global price of oil changes
Local, state, and federal laws
Import–export regulations
Tariffs
Local, state, and national elections
Political, Government, and Legal Variables
Some __________________ that can represent key opportunities or threats to organizations are provided on this slide, but in stating these for a particular company, the factors should be both quantitative and actionable.
political, governmental, and legal variables
the Internet of Things
3D printing
the cloud
mobile devices
biotech
analytics
autotech
robotics and
artificial intelligence
are fueling innovation in many industries, and impacting strategic-planning decisions.
Technological Forces
No company or industry today is insulated against emerging technological developments. In high-tech industries, __________________________opportunities and threats can be the most important part of the external strategic-management audit.
dentification and evaluation of key technological
An important part of an external audit is identifying rival firms and determining their strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies
Competitive Forces
- Major opportunities and threats that must be considered in formulating strategies.
- Can affect organizations’ products, services, markets, suppliers, distributors, competitors, customers, manufacturing processes, marketing practices, and competitive position.
- Can create new markets, result in new and improved products, change the relative competitive cost positions, and render existing products and services obsolete.
- Can reduce or eliminate cost barriers between businesses, create shorter production runs, create shortages in technical skills, and result in changing values and expectations of employees, managers, and customers.
- Can create new competitive advantages that are more powerful than existing advantages.
Results of Technological Advances
________________________________ is essential for successful strategy formulation. Identifying major competitors is not always easy because many firms have divisions that compete in different industries.
Collecting and evaluating information on competitors
Strive to continually increase market share
Use the vision/mission as a guide for all decisions
Whether it’s broke or not, fix it–make it better
Continually adapt, innovate, improve
Acquisition is essential to growth
Hire and retain the best employees and managers possible
Strive to stay cost-competitive on a global basis
Competitive Forces (Characteristics)
What are the strengths of our major competitors?
What are the weaknesses of our major competitors?
What are the objectives and strategies of our major competitors?
How will our major competitors most likely respond to current economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive trends affecting our industry?
How vulnerable are the major competitors to our alternative company strategies?
How vulnerable are our alternative strategies to successful counterattack by our major competitors?
How are our products or services positioned relative to major competitors?
To what extent are new firms entering and old firms leaving this industry?
What key factors have resulted in our present competitive position in this industry?
How have the sales and profit rankings of our major competitors in the industry changed over recent years? Why have these rankings changed that way?
What is the nature of supplier and distributor relationships in this industry?
To what extent could substitute products or services be a threat to our competitors?
Key Questions About Competitors
Addressing questions about ________, such as those presented on this slide, is important in performing an external audit.
competitors
is a market evaluation tool companies use to assess the level and intensity of competition in a specific industry.
Industry Analysis
Demand-supply statistics
Degree of competition within the industry
State of competition between the industry and emerging industries
Future prospects based on things like technological advances
Credit systems
Influence of other external factors in the past and possibly the future
Aspects of Industry Analysis
is a widely used approach for developing strategies in many industries.
Porter’s Five-Forces Model of competitive analysis
Identify key aspects or elements of each competitive force that impact the firm.
Evaluate how strong and important each element is for the firm.
Decide whether the collective strength of the elements is worth the firm entering or staying in the industry.
The Five-Forces Model of Competition
Most powerful of the five forces
Focus on the competitive advantage of strategies over other firms
Rivalry among competing firms
The_____________________________ tends to increase as the number of competitors increases, as competitors become more equal in size and capability, as demand for the industry’s products declines, and as price cutting becomes common.
intensity of rivalry among competing firms
- When the number of competing firms is high
- When competing firms are of similar size
- When competing firms have similar capabilities
- When the demand for an industry’s products is falling
- When the product or service prices in the industry are falling
- When consumers can switch brands easily
- When barriers to leaving the market are high
- When barriers to entering the market are low
- When fixed costs are high among competing firms
- When the product is perishable
- When rivals have excess capacity
- When consumer demand is falling
- When rivals have excess inventory
- When rivals sell similar products/services
- When mergers are common in the industry
Conditions That Cause High Rivalry Among Competing Firms
Barriers to entry are important
Quality, pricing, and marketing can overcome barriers
Potential Entry of New Competitors
Whenever new firms can ________________, the intensity of competitiveness among firms increases.
easily enter a particular industry
Need to gain economies of scale quickly
Need to gain technology and specialized know-how
Lack of experience
Strong customer loyalty
Strong brand preferences
Large capital requirements
Lack of adequate distribution channels
Barriers to Entry
_______________ however, can include the need to gain economies of scale quickly, the need to gain technology and specialized know-how, the lack of experience, strong customer loyalty, strong brand preferences, large capital requirements, lack of adequate distribution channels, government regulatory policies, tariffs, lack of access to raw materials, possession of patents, undesirable locations, counterattack by entrenched firms, and potential saturation of the market._
Barriers to Entry
Government regulatory policies
Tariffs
Lack of access to raw materials
Possession of patents
Undesirable locations
Counterattack by entrenched firms
Potential saturation of the market
Barriers to Entry
Pressure increases when:
Prices of substitutes decrease
Consumers’ switching costs decrease
Potential development of substitute products
In many industries, firms are in close ____________________ in other industries. The presence of substitute products puts a ceiling on the price that can be charged before consumers will switch to the substitute product.
competition with producers of substitute products
is increased/high when there are:
Few suppliers
Few substitutes
Costs of switching raw materials are high
Backward integration is gaining control or ownership of
Bargaining Power of Suppliers
It is often in the best interest of both suppliers and producers to assist each other with reasonable prices, improved quality, development of new services, just-in-time deliveries, and reduced inventory costs, thus enhancing long-term profitability for all concerned.
true or false
true
Customers being concentrated or buying in volume affects intensity of competition
Consumer power is higher where products are standard or undifferentiated
Bargaining power of consumers
When customers are _______________________ , their bargaining power represents a major force affecting the intensity of competition in an industry.
concentrated or large in number or buy in volume
If buyers can inexpensively switch
If buyers are particularly important
If sellers are struggling in the face of falling consumer demand
If buyers are informed about sellers’ products, prices, and costs
If buyers have discretion in whether and when they purchase the product
Conditions Where Consumers Gain Bargaining Power
The ___________________ can be the most important force affecting competitive advantage.
bargaining power of consumers
Sources of External Information
unpublished and published
sources include customer surveys, market research, speeches at professional and shareholders’ meetings, television programs, interviews, and conversations with stakeholders.
Unpublished
sources of strategic information include periodicals, journals, reports, government documents, abstracts, books, directories, newspapers, and manuals.
Published
A ________________ is available to organizations from both published and unpublished sources.
wealth of strategic information
