Strategic management chapter 3

• External audit


  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
• The nature of an external audit

  Aimed at identifying key variables that offer actionable responses
• The nature of an external audit


  Firms should be able to respond either offensively or defensively to the factors by formulating strategies that take advantage of external opportunities or that minimize the impact of potential threats
• Environmental scanning


  Systematically surveys and interprets relevant data to identify external opportunities and threats that could influence future decisions
• Components of external scanning

  • Trends
  • Competition
  • Technology
  • Customers
  • Economy
  • Labor supply
  • Political/legislative arena
• External forces


  • Economic forces
  • Social, cultural, demographic, and natural environment forces
  • Political, governmental, and legal forces
  • Technological forces
  • Competitive forces
• EXTERNAL INDICATORS


  • M - MARKET (demand; market share)
  • C - COMPETITION
  • S - SOCIO-CULTURAL
  • T - TECHNOLOGY
  • E - ECONOMIC
  • E - ENVIRONMENTAL
  • P - POLITICAL / LEGAL
• Economic Forces


  • 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
• Key Social, Cultural, Demographic, and Natural Environmental 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
• Political, Government, and Legal Variables


  • 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
• Technological Forces


  • New technologies such as: the Internet of Things, 3D printing, the cloud, mobile devices, biotech, analytics, autotech, robotics and artificial intelligence
• Results of Technological Advances

  Major opportunities and threats that must be considered in formulating strategies
• Results of Technological Advances

  Can affect organizations' products, services, markets, suppliers, distributors, competitors, customers, manufacturing processes, marketing practices, and competitive position
• Results of Technological Advances

  Can create new markets, result in new and improved products, change the relative competitive cost positions, and render existing products and services obsolete
• Results of Technological Advances

  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
• Results of Technological Advances

  Can create new competitive advantages that are more powerful than existing advantages
• Characteristics of the most competitive companies

  • 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
• Key Questions About Competitors

  • 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?
• Industry analysis


  A market evaluation tool companies use to assess the level and intensity of competition in a specific industry
• Aspects of an 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
• The Five-Forces Model of Competition


  Identify key aspects or elements of each competitive force that impact the firm, evaluate how strong and important each element is for the firm, and decide whether the collective strength of the elements is worth the firm entering or staying in the industry
• Conditions That Cause High 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
• Barriers to Entry


  • 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
  • Government regulatory policies
  • Tariffs
  • Lack of access to raw materials
  • Possession of patents
  • Undesirable locations
  • Counterattack by entrenched firms
  • Potential saturation of the market
• Bargaining Power of Suppliers

  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 suppliers
• Bargaining power of consumers

  Customers being concentrated or buying in volume affects intensity of competition, Consumer power is higher where products are standard or undifferentiated
• Conditions Where Consumers Gain Bargaining Power


  • 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
• Sources of External Information

  • Unpublished sources include customer surveys, market research, speeches at professional and shareholders' meetings, television programs, interviews, and conversations with stakeholders
  • Published sources of strategic information include periodicals, journals, reports, government documents, abstracts, books, directories, newspapers, and manuals
• The activity videos will be forwarded to your Google classroom
• https://youtu.be/GfA0xjJh8qs (Activity in External Assessment)
• https://youtu.be/eDhnXeVYJCk (How to do Count If formula)
• Vision statement


  Short, preferably one sentence, answering "What do we want to become?"
• Vision statement


  • Dream big and focus on success
  • Use the present tense
  • Use clear, concise, jargon-free language
  • Should be inspiring and challenging
  • Believable enough
  • Achievable
  • Relevant
• Mission statement


  General statement of how you will achieve the vision
• The vision statement comes first, providing a destination for the organization. The mission statement comes next, providing a guiding light on how to get to the destination.
• CvSU Vision


  The premier University in historic Cavite, recognized for excellence in character development, academic, research, innovation, and sustainable community engagement.
• Mission statement


  • Future-oriented
  • Inspiring and challenging
  • Motivating and memorable
  • Purpose-driven
  • Unique
• Mission statement


  Declaration of an organization's business or "reason for being"
• Effective mission statement


  • Defines what the organization is and what it aspires to be
  • Broad in scope, no monetary amounts, numbers, percentages, ratios, or objectives
  • Fewer than 150 words
  • Purpose-driven
  • Clear
  • Realistic and achievable
• Mission statement components


  • Customers
  • Products or services
  • Markets
  • Technology
  • Survival, growth, and profitability
  • Philosophy
  • Self-concept (distinctive competence)
  • Public image
  • Employees