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Strategic Management
A companys macro-environment includes all relevant factors and influences outside its domain
Diagnosing a companys external situation involves assessing strategically important factors that have a
bearing on the decisions a companys makes about its
o Direction
o Objectives
o Strategy
o Business model
Requires that company managers scan the external environment to
o Identify potentially important external developments
o Assess their impact and influence
o Adapt a companys direction and strategy as needed
Environmental Scanning
General Environment/ Societal environment
1.
2.
3.
4.
Economic forces that regulate exchange of materials, money, energy, and information
Technological forces that generate problem solving
Political legal forces that allocate power and provide constraining and protecting laws and regulations
Socio-cultural forces that regulate the values, mores, and customs of society
Technological
Political-Legal
Total government
Antitrust regulations
spending for R&D
Environmental protection
Total industry spending
laws
for R&D
Tax laws
Focus of technological
Special incentives
efforts
Foreign trade regulations
Patent protection
Attitudes toward foreign
New products
companies
New developments in
Laws on hiring and
technology transfer from
promotion
lab to marketplace
Stability of government
Productivity
improvements through
automation
Important variables in International Societal Environment
Socio-cultural
Lifestyle changes
Career expectations
Consumer activism
Rate of family formation
Growth rate of population
Age distribution of
population
Regional shifts in
population
Life expectancies
Birth rates
Economic
Economic Development
Per capita income
GDP tends
Monetary and Fiscal
policies
Employment level
Currency convertibility
Nature of competition
Socio-cultural
Customs, norms, values
Language
Demographics
Life-styles
Religious beliefs
Attitude towards
foreigners
Literacy level
Human rights
Environmentalism
Technological
Regulation in technology
transfer
Energy availability
Natural resource
availability
Skill level of workforce
Patent-trademark
protection
Internet availability
Telecommunication
Infrastructure
Political-Legal
Form of government
Political ideology
Tax laws
Stability of government
Regulation of foreign
ownership
Trade regulations
Foreign policies
Terrorist activity
Legal system
Factors
HUF
Economies of scale
Capital required
Access to distribution
channels
Expected retaliation
Differentiation
Brand Loyalty
Experience Curve
Govt. Action
MUF
Neutral
MF
HF
Low
Low
Ample
Low
Low
Low
Insignificant
Low
comment
High
High
Restricted
High
High
High
Significant
high
HUF
MUF
Neutral
MF
Hi
Hi
Hi
Hi
HF
Comments
Low
Low
Low
Low
Competitive Rivalry
Factors
Composition of Competitors
Mkt. Growth rate
Scope of competition
Fixed storage Cost
Capacity Increase
Degree of differentiation
Strategic Stake
HUF
MUF
Neutral
MF
Equal Size
Slow
Global
High
Large
Commodity
High
HF
Comment
Unequal Size
High
Domestic
Low
Small
High
Low
Power of Supplier
Factors
No, of important Suppliers
Switching cost
Availability of substitutes
Threat of forward integration
Importance of Buyer industry
to suppliers
Importance of suppliers
product to the buyers business
HUF
Few
High
Difficult
High
Buys small
Proportion
High
Importance
MUF
MF
HF
Comment
Many
Low
Many
Low
Buys large
proportion
Low
Importance
Sellers that provide items to business have found it is in their mutual interest to collaborate closely on
matters such as:
- just in time inventories
- order processing
- electronic invoice payments
- data sharing
Dell has partnered with its largest PC customers to create an on line system for over 50,000 corporate
customers, providing their employees
- information on approved product configurations
- paperless purchase orders
- real time order tracking, invoicing, purchasing history and other efficiency tools
- loading a customers software at the factory
- installing asset tags so that customer setup time is minimal
- helping customers upgrade their PCs to next generation hardware and software
Power of Supplier
Factors
HUF
MUF
Few
High
Difficult
High
Buys small
Proportion
High
Importance
MF
HF
Comment
Many
Low
Many
Low
Buys large
proportion
Low
Importance
HUF
Threat of Obsolescence of
Industrys product
Aggressiveness of
substitute products in
promotion
Switching Cost
Perceived price/ value
MUF
MF
HF
Hi
Hi
Lo
w
Hi
Comment
Low
Low
High
Low
Unfavorable
Neutral
Favorable
Entry Barriers
Exit Barriers
Rivalry among existing firms
Power of buyers
Power of Suppliers
Threat of substitutes
Is the Collective Strength of the Five Competitive Forces Conducive to Good Profitability?
As a rule, stronger the collective impact of the five forces, the lower the combined profitability of
industry participants
Fierce to strong competitive pressures come from all five forces driving industry profitability to
unacceptably low levels
An industry can be competitively unattractive even when not all five forces are strong
Intense competitive pressure from just two or three forces may suffice to destroy the conditions for
good profitability and prompt some companies to exit the business
Global
Telecommunication
Insurance
Banking
Wrist watches
Electrical appliances
technology opens the way for higher manufacturing efficiency and lower production costs)
Manufacturing Ability to achieve scale economies and/or capture learning curve effects (important to
Related KSFs
achieving low production costs)
Quality control know-how (
important in those industries where customers insists on product reliability)
High utilization of fixed assets (important in capital intensive/ high fixed cost industries)
Access to attractive supplies of skilled labor
High labor productivity ( important for items with high labor content)
Low cost product design and engineering ( reduces manufacturing costs)
Ability to manufacture or assemble products that are customized to buyer specification
Distribution
A strong network of wholesale distributors/dealers
related KSFs
Strong direct sales capabilities via the internet and or having company owned retail outlets
Ability to secure favorable display space on retailer shelves
Marketing
Breadth of product line and product selection
Related KSFs
A well known and respected brand name
Courteous, personalized customer service
Customer guarantees and warranties
Clever advertising
HR
A talented workforce
Related KSFs
Distribution capabilities
Product innovation capabilities
Short delivery time capability
Supply chain management capabilities
Strong e-commerce capabilities
External Factor Analysis Summary( EFAS) / External Factor Evaluation Matrix ( EFE)
Column 1( External Factors) list 8-10 most important opportunities and threats facing the company
Column 2 ( Weights) assign a weight to each factor. The higher the weight the more important is this factor to
the current and future success of the company. All weights must sum to 1.0 regardless of the number of factors
Column 3 (Rating) ,assign a rating to each factor from 5.0 ( outstanding) to 1.0 (poor) based on managements
current response to a particular factor
Column 4 ( weighted score) Multiply the weight in column 2 for each factor in column 3 to obtain each factors
weighted score.
Column 5 ( comments), note why a particular factor was selected and how its weight and rating were estimated
Add the individual weighted score for all external factors in column 4 to determine the total weighted score for
that particular company. The weighted score of 3 = average, 4 = above average, less than 2.5 as below average