BUS475 Phoenix Week 2 Internal And External Environmental Analysis You work for a consulting firm whose primary objective is to help businesses improve the
BUS475 Phoenix Week 2 Internal And External Environmental Analysis You work for a consulting firm whose primary objective is to help businesses improve their strategic operations. Your firm recently was hired by a newspaper company named Hoosier Media Inc. The client’s print newspaper circulation and subscriptions have declined, resulting in 30% lower revenues over the last five years. Online ad revenues have increased but currently account for just 5% of the company’s revenue. You have been tasked with providing a comprehensive internal and external analysis to help the firm improve its business operations.
Create a 700- to 1,050-word analysis that includes the following:
Identify economic, legal, and regulatory forces and trends.
Critique how well the organization adapts to change.
Discuss the primary internal organizational considerations.
Discuss the primary external organization considerations.
Identify the major issues and/or opportunities the company faces based on your analysis.
Use at least 3 references
************ADDED ch.3 from coursebook as PowerPoint for reference if you wanted it************************** Strategic Management Concepts: A
Competitive Advantage Approach
Sixteenth Edition
Chapter 3
The External Assessment
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Learning Objectives (1 of 2)
3.1 Describe the nature and purpose of an external
assessment in formulating strategies.
3.2 Identify and discuss 10 external forces that must be
examined in formulating strategies: economic, social,
cultural, demographic, environmental, political,
governmental, legal, technological, and competitive.
3.3 Explain Porters Five Forces Model and its relevance in
formulating strategies.
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Learning Objectives (2 of 2)
3.4 Describe key sources of information used for locating
vital external information.
3.5 Discuss forecasting tools and techniques.
3.6 Explain how to develop and use an External Factor
Evaluation (EFE) Matrix.
3.7 Explain how to develop and use a Competitive Profile
Matrix.
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External Audit
External audit
focuses on identifying and evaluating trends and
events beyond the control of a single firm
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
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The Nature of an External Audit
The external audit is aimed at identifying key variables
that offer actionable responses.
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.
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Figure 3-1 A Comprehensive StrategicManagement Model
Source: Fred R. David, How Companies Define Their Mission, Long Range Planning 22, no. 3 (June 1988): 40. See
also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, Balance Scorecard of Davids
Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia, Journal of Mathematics
and Technology, no. 4 (October 2010): 20.
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Key External Forces
External forces can be divided into five broad categories:
1. economic forces
2. social, cultural, demographic, and natural environment
forces
3. political, governmental, and legal forces
4. technological forces
5. competitive forces
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Figure 3-2 Relationships Between Key
External Forces and an Organization
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The Process of Performing an External
Audit (1 of 2)
First, gather competitive intelligence and information
about economic, social, cultural, demographic,
environmental, political, governmental, legal, and
technological trends.
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The Process of Performing an External
Audit (2 of 2)
Information should be assimilated and evaluated
A final list of the most important key external factors should
be communicated
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The Industrial Organization (I/O) View
The Industrial Organization (I/O) approach to competitive
advantage advocates that external (industry) factors are
more important than internal factors in a firm for gaining
and sustaining competitive advantage.
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Economic Forces (1 of 2)
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
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Economic Forces (2 of 2)
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
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Advantages of a Strong Dollar (1 of 2)
1. Leads to lower exports
2. Leads to higher imports
3. Makes U.S. goods expensive for foreign consumers
4. Helps keep inflation low
5. Allows U.S. firms to purchase raw materials cheaply from other
countries
6. Allows U.S. to service its debt better
7. Spurs foreign investment
8. Encourages Americans to travel abroad
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Advantages of a Strong Dollar (2 of 2)
9. Leads to lower oil prices because oil globally is priced in
U.S. dollars
10.Encourages Americans to spend money because they
can buy more for their money
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Social, Cultural, Demographic, and Natural
Environmental Forces
U.S. Facts
Aging population
Less white
2050 = 20% population > 65 years
2075 = no ethnic or racial majority
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Key Social, Cultural, Demographic, and
Natural Environmental Variables (1 of 3)
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
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Key Social, Cultural, Demographic, and
Natural Environmental Variables (2 of 3)
Life expectancy rates
Per capita income
Social media pervasiveness
Attitudes toward retirement
Energy conservation
Attitudes toward product quality
Attitudes toward customer service
Pollution control
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Key Social, Cultural, Demographic, and
Natural Environmental Variables (3 of 3)
Attitudes toward foreign peoples
Energy conservation
Social programs
Number of churches
Number of church members
Social responsibility issues
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Political, Governmental, and Legal Forces
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.
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Political, Government, and Legal Variables
(1 of 2)
Environmental regulations
Number of patents
Changes in patent laws
Equal employment laws
Level of defense expenditures
Unionization trends
Antitrust legislation
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Political, Government, and Legal Variables
(2 of 2)
USA versus 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
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Technological Forces (1 of 3)
New technologies are fueling innovation in many industries,
and impacting strategic-planning decisions; Technologies
such as:
the Internet of Things
3D printing
the cloud
mobile devices
biotech
analytics
autotech
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Technological Forces (2 of 3)
robotics and
artificial intelligence
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Technological Forces (3 of 3)
Many firms now have a Chief Information Officer (CIO)
and a Chief Technology Officer (CTO) who work together
to ensure that information needed to formulate, implement,
and evaluate strategies is available where and when it is
needed.
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Results of Technological Advances (1 of 2)
1. Major opportunities and threats that must be considered
in formulating strategies.
2. Can affect organizations products, services, markets,
suppliers, distributors, competitors, customers,
manufacturing processes, marketing practices, and
competitive position.
3. Can create new markets, result in new and improved
products, change the relative competitive cost positions,
and render existing products and services obsolete.
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Results of Technological Advances (2 of 2)
4. 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.
5. Can create new competitive advantages that are more
powerful than existing advantages.
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Competitive Forces (1 of 2)
An important part of an external audit is identifying rival
firms and determining their strengths, weaknesses,
capabilities, opportunities, threats, objectives, and
strategies.
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Competitive Forces (2 of 2)
Characteristics of the most competitive companies:
1. Strive to continually increase market share
2. Use the vision/mission as a guide for all decisions
3. Whether it’s broke or not, fix it-make it better
4. Continually adapt, innovate, improve
5. Acquisition is essential to growth
6. Hire and retain the best employees and managers possible
7. Strive to stay cost-competitive on a global basis
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Key Questions About Competitors (1 of 3)
1. What are the strengths of our major competitors?
2. What are the weaknesses of our major competitors?
3. What are the objectives and strategies of our major
competitors?
4. 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?
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Key Questions About Competitors (2 of 3)
5. How vulnerable are the major competitors to our
alternative company strategies?
6. How vulnerable are our alternative strategies to
successful counterattack by our major competitors?
7. How are our products or services positioned relative to
major competitors?
8. To what extent are new firms entering and old firms
leaving this industry?
9. What key factors have resulted in our present competitive
position in this industry?
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Key Questions About Competitors (3 of 3)
10.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?
11.What is the nature of supplier and distributor relationships
in this industry?
12.To what extent could substitute products or services be a
threat to our competitors?
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Competitive Intelligence Programs (1 of 2)
Competitive intelligence (CI)
a systematic and ethical process for gathering and
analyzing information about the competition’s activities and
general business trends to further a business’s own goals
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Competitive Intelligence Programs (2 of 2)
The three basic objectives of a CI program are:
1. To provide a general understanding of an industry and its
competitors
2. To identify areas in which competitors are vulnerable and
to assess the impact strategic actions would have on
competitors
3. To identify potential moves that a competitor might make
that would endanger a firm’s position in the market
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Figure 3-3 The Five-Forces Model of
Competition (1 of 2)
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The Five-Forces Model of Competition (2 of 2)
1. Identify key aspects or elements of each competitive force
that impact the firm.
2. Evaluate how strong and important each element is for
the firm.
3. Decide whether the collective strength of the elements is
worth the firm entering or staying in the industry.
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The Five-Forces Model (1 of 6)
Rivalry among competing firms
Most powerful of the five forces
Focus on competitive advantage of strategies over
other firms
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Table 3-7 The Five-Forces Model (2 of 6)
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 industrys 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
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The Five-Forces Model (3 of 6)
Potential Entry of New Competitors
Barriers to entry are important
Quality, pricing, and marketing can overcome barriers
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Barriers to Entry (1 of 2)
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
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Barriers to Entry (2 of 2)
Government regulatory policies
Tariffs
Lack of access to raw materials
Possession of patents
Undesirable locations
Counterattack by entrenched firms
Potential saturation of the market
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The Five-Forces Model (4 of 6)
Potential development of substitute products
Pressure increases when:
? Prices of substitutes decrease
? Consumers’ switching costs decrease
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The Five-Forces Model (5 of 6)
Bargaining Power of Suppliers is increased when (there
are):
Few suppliers
Few substitutes
Costs of switching raw materials is high
Backward integration is gaining control or ownership of
suppliers
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The Five-Forces Model (6 of 6)
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
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Conditions Where Consumers Gain
Bargaining Power
1. If buyers can inexpensively switch
2. If buyers are particularly important
3. If sellers are struggling in the face of falling consumer
demand
4. If buyers are informed about sellers’ products, prices, and
costs
5. If buyers have discretion in whether and when they
purchase the product
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Sources of External Information (1 of 2)
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.
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Sources of External Information (2 of 2)
finance.yahoo.com
hoovers.com
globaledge.msu.edu/industries/
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Forecasting Tools and Techniques
Forecasts
educated assumptions about future trends and events
no forecast is perfect
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Making Assumptions
Assumptions
Best estimates of the impact of major external factors,
over which the manager has little if any control but
which may exert a significant impact on performance or
the ability to achieve desired results
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Business Analytics
Using software to mine huge volumes of data
Helps executives make decisions
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Industry Analysis: The External Factor
Evaluation (EFE) Matrix
Summarize and evaluate these factors:
Social
Political
Cultural
Governmental
Demographic
Legal
Economic
Technological
Environmental
Competitive
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EFE Matrix Steps
1. List 20 key external factors
2. Weight from 0.0 to 1.0
3. Rate the effectiveness of current strategies from 1-4
4. Multiply weight * rating
5. Sum weighted scores
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Table 3-9 EFE Matrix for a Local 10Theater Cinema Complex (1 of 2)
Key External Factors
Weight
Rating
Weighted Score
Opportunities
Blank
Blank
Blank
1. Two new neighborhoods
developing within 3 miles
0.09
1
0.09
2. TDB University is expanding
6% annually
0.08
4
0.32
3. Major competitor across
town recently closed
0.08
3
0.24
4. Demand for going to
cinemas growing 10%
0.07
2
0.14
5. Disposable income among
citizens up 5% in prior year
0.06
3
0.18
6. Rowan County is growing
8% annually in population
0.05
3
0.15
7. Unemployment rate in
county declined to 3.1%
0.03
2
0.06
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Table 3-9 EFE Matrix for a Local 10-Theater
Cinema Complex (2 of 2)
Key External Factors
Weight
Rating
Weighted
Score
Threats
Blank
Blank
Blank
8. Trend toward healthy eating eroding concession sales
0.12
4
0.48
9. Demand for online movies and DVDs growing 10%
0.06
2
0.12
10. Commercial property adjacent to cinemas for sale
0.06
3
0.18
11. TDB University installing an on-campus movie theater
0.04
3
0.12
12. County and city property taxes increasing 25%
0.08
2
0.16
13. Local religious groups object to R-rated movies
0.04
3
0.12
14. Movies rented at local Red Boxs up 12%
0.08
2
0.16
15. Movies rented last quarter from Time Warner up 15%
0.06
1
0.06
Tot…
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