Transcript External evaluation

Strategic formualtion
External Evaluation
Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
External Assessment
It is not the strongest of the species that
survive, nor the most intelligent, but the
one most responsive to change. –
Charles Darwin
Nothing focuses the mind better than the
constant sight of a competitor who wants
to wipe you off the map. –
Wayne Calloway, Former CEO, PepsiCo
External Strategic Management Audit
•
Identify & Evaluate factors beyond the control of
a single firm such as:
 Increased foreign competition
 Population shifts
 Aging society
 Stock market volatility
 Determine if such factors are:
• Opportunities
• Threats
Performing External Audit – factors
•Related to long term and annual,
objectives
•Measurable; e.g. Market share; Price
competitiveness
•Applicable to competitors
•Pertain to the overall organisation (wide
scope) and to narrow areas or functions
within the company.
Key External Forces associated with the
external: audit
1. Economic forces
2. Social, cultural, demographic &
environmental forces
3. Political, governmental & legal forces
4. Technological forces
5. Competitive forces
Economic Forces
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•
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Trends in the dollar’s value
European Union
Layoffs
Economic standard of living
Ch 3 -8
Copyright © 2009 Pearson
Education, Inc.
Economic Forces
Social, Cultural, Demographic
& Environmental Forces
Major Impact –
•Products
•Services
•Markets
•Customers
Social, Cultural, Demographic &
Environmental Forces
Some Facts
•Aging population
•Widening gap between rich & poor
•2025 = 18.5% population >65 years
•World population approaching 7 billion
•World population = 8 billion by 2028
•Decimation and degradation of the natural
environment
•More educated consumers
Social, Cultural, Demographic
& Environmental Forces
Global trends
•China largest exporter to U.S.
•China and Asia provide cheaper labor
and utilities than Mexico
Social, Cultural, Demographic &
Environmental Forces
• Sample of variables that should be monitored :
–
–
–
–
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Number of nativity and mortality rates,
immigration and emigration rates
Average disposable income
Average educational level
Government regulation; e.g. mortgage to salary
Air and Water pollution
Competitive Forces
7 Characteristics of most Competitive
Firms:
1. Market share matters
2. Understand what business you are in
3. Innovate or evaporate
4. Acquisition is essential to growth
5. People make a difference
6. No substitute for quality
Political, Government & Legal
Forces
Government Regulation
Key opportunities & threats
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Antitrust legislation
Tax rates
Lobbying efforts
Patent laws
Technological Forces
Leads to Globalization of Industry
• Worldwide trend toward similar
consumption patterns
• Global buyers and sellers
• E-commerce
• Technology for instant currency transfers
The External factor evaluation

Understanding the factors used in the EFE Matrix is
more important than the actual weights and ratings
assigned.

Constructing an external evaluation (factor) matrix:
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Assign a weight to each factor (opportunity/threat) increase in
relation to importance.
Assign a rating to each factor: 1 (little response); 2 response
below average; 3 response above average; 4 very good
response.
Multiply the weight by the rating and add all the weighed scores
Note the different rating procedure between the internal
and external factor matrices.
Ryanair external opportunities
1.
2.
3.
4.
5.
6.
7.
8.
Weight Rating Weighted Score
Opportunities
Local competitors’ going bankrupt allows Ryanair to capture
0.08
3
0.24
their customers and possibly buy equipment they are forced to
sell.
Lower interest rate on borrowing money.
0.05
3
0.15
Down cycle of economy has increased potential profit because
0.06
3
0.18
people are most cost sensitive.
Potential increase in investors due to high dividend payout 0.05
3
0.15
$500 million dividend.
The economy is recovering.
0.05
3
0.15
Cheaper vacation prices are being offered by resorts.
0.05
3
0.15
European countries lowering or doing away with tourist taxes
0.07
3
0.21
will attract more vacationers.
Passengers expected to grow to 73.5 million by the beginning of
0.09
4
0.36
2012.
Ryanair external threats
1.
Threats
Regulatory rules in Europe can change that would restrain the
way Ryanair does business.
Increase in competitor customer service could attract customers
to their airlines.
Cost increase at Dublin airport will lower passenger traffic
through Dublin airport.
Weather threats operating in Europe during winter.
Weight Rating Weighted Score
0.08
2
0.16
0.05
3
0.15
0.03
2
0.06
0.04
2
0.08
5. Fluctuations of foreign currency and longevity of the Euro.
6. Heavily unionized labor force.
0.06
2
0.12
0.07
2
0.14
7. Risk of oil rising back over $100 a barrel.
8. Weaking of the global economy.
9. Internet has led to more competitive pricing and more price
sensitivity to industry.
10. Continued threat to industry’s human relations concerning
displeasure over carbon dioxide emissions.
TOTALS
0.07
0.04
3
3
0.21
0.12
0.04
2
0.08
0.02
2
0.04
2.
3.
4.
1.00
2.75
Industry Analysis EFE
Total weighted score of 4.0
• Organization response is outstanding to threats
and taking advantage of opportunities
Total weighted score of 1.0
• Firm’s strategies not capitalizing on opportunities
or avoiding threats
A value of 2.65 or is an indicator that a firm
response is acceptable
The Five-Forces Model of Competition
Potential development
of substitute products
Bargaining power
of suppliers
Rivalry among
competing firms
Potential entry of new
competitors
Bargaining power
of consumers
Essentials of Management Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems
Using Information Systems to Achieve Competitive Advantage
Porter’s Competitive Forces Model
In Porter’s
competitive forces
model, the strategic
position of the firm
and its strategies
are determined not
only by competition
with its traditional
direct competitors
but also by four
forces in the
industry’s
environment: new
market entrants,
substitute products,
customers, and
suppliers.
Figure 3-1
Steps to Determine if an Acceptable
Profit Can be Earned
Purpose of the model: They look at the competitive
situation in their industry, and then consider ways of coping
and succeeding in that environment.
1. Identify key aspects or elements of each competitive
force
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
The Five-Forces Model
Rivalry Among Competing Firms
• Most powerful of the five forces
• Focus on competitive advantage of
strategies of rivals:
• Competitors in market space
continuously devise new products,
new efficiencies…
The Five-Forces Model
New market entrants
• Barriers to entry are important;
• High barrier
• planes required to enter airline industry
• All major air routes are serviced.
•
• However, Quality, pricing, and marketing can
overcome barriers; e.g. Ryanair’s entry into to
European consumer flight’s industry: via pricing
• Some industries have low barriers to entry:
• E.g., consider retail food industry versus
microchip industry
The Five-Forces Model
Substitute Products: potential
development
• Pressures increase when consumer’s
switching costs decrease; customers can
purchase substitutes if your prices too high
• E.g., Internet music service versus CDs.
• Firm’s plan for increased capacity & market
penetration (refer to next lecture)
The Five-Forces Model
Bargaining Power of Suppliers
• Large number of suppliers & few
substitutes affects intensity of
competition
• Applying Backward integration (refer to
next lecture) can gain control or
ownership of suppliers:
• The more suppliers a firm has, the
greater control it can exercise over
suppliers.
The Five-Forces Model
Consumers bargining power
• Examples:
– If they (consumer) can inexpensively [easily] switch
– If they are particularly important
– If sellers are struggling in the face of falling consumer
demand
– If Can customers force firm and competitors to compete on
price alone
• A firm could apply a forward integration (refer to next
lecture) strategy on order to have greater control over
this power than its competitors
The Internet’s Impact on Competitive
Advantage (porter’s model)
• Lowers barrier to entry (internet music)
• Transforms some industries;
• retail industry: Tesco. Amazon; collection of
market data: Google, facebook.
• But not all industries are affected (too much):
coke v pepsi
• Creates new opportunities for creating new
markets, increasing customer bases….
Align IT with business objectives
• 75 percent of businesses fail to align their IT with
their business objectives, leading to lower
profitability
• The first step in using information systems to serve your
firm is to make sure the IS objectives are lined up with
the business objectives.
 To align IT:
• Identify business goals and strategies
• Break strategic goals into concrete activities
and processes
• Identify metrics for measuring progress
• Determine how IT can help achieve business
goals
Sample Exam Question
• Describe, using suitable examples, how to apply
the external factor evaluation matrix to analyse a
firms external environment. (12 marks)
• Describe, using suitable examples, how to use
porter’s five force model to analyse a firms
external environment. (12 marks)
• Compare and contrast both models. (6 marks)