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ENVIRONMENT
ANALYSIS
Presented By:
CATHERINE T. SANTOS
Business Policy & Strategic Managemen
29 October 2005
Objectives
Learn how to conduct an external strategic-
management audit.
To discuss the ten major external forces that affect
organizations: economic, social, cultural,
demographic, environmental, political,
governmental, legal, technological, and
competitive.
To be able to conduct competitive analysis using
Porter’s Five-Forces Model.
Explain how to develop EFE Matrix and
Competitive Profile Matrix.
Introduction
Many situational considerations enter into
crafting strategy. These factors & its
influence on the strategy-making process
differ for each situation.
Societal,
Political,
Competitive Company
Regulatory,
And Conditions and Opportunities
Community Over-All Industry And
Attractiveness
Citizenship Threats
Considerations
The External Assessment
The Nature of an External Audit
Economic Forces
Social, Cultural, Demographic, and Environmental
Forces
Political, Governmental, and Legal Forces
Technological Forces
Competitive Forces
Competitive Analysis: Porter’s Five Forces Model
Industry Analysis: The External Factor Evaluation
(EFE) Matrix
Competitive Profile Matrix
The Nature of An External Audit
External audit is sometimes called environmental scanning
or industry analysis.
FOCUS: identify & evaluate trends and events beyond the
control of an organization.
PURPOSE: develop a list of key variables that could
benefit the firm; and threats that should be avoided.
KEY EXTERNAL FORCES INCLUDE:
1. Economic Forces
2. Social, Cultural, Demographic, and Environmental
Forces
3. Political, Governmental, and Legal Forces
4. Technological Forces
5. Competitive Forces
The Process of Performing an
External Audit
1. Gather competitive intelligence & information
on economic, social, cultural, demographic,
environmental, political, governmental, legal,
and technological trends.
2. Assimilate & evaluate the information gathered
by having a list of the opportunities & threats.
Rank it with 1 as the most important.
3. A final list of the most important key external
factors should be communicated & distributed
within the firm.
The Economic Forces
Key Economic Variables to be Monitored:
Availability of Credit
Level of disposable income
Propensity of people to spend
Interest rates & inflation rates
Money market rates
Consumption patterns
Unemployment trends
Value of Dollar in the world market
Stock market trends
Foreign countries’ economic condition
Price Fluctuations
The Social, Cultural, Demographic, and
Environmental Forces
Society shapes one’s beliefs, values, and norms.
It defines:
1. Views of Themselves
2. Views of Others
3. Views of Organizations – refers to their
attitude toward corporations, government
agencies, trade unions, and other organizations.
4. Views of Society
5. Views of Nature
6. Views of the Universe
DEMOGRAPHIC ENVIRONMENT INCLUDE:
Age
Family Size – number of persons in the family
Family Life Cycle – Young, single; young married
Gender
Income
Occupation
Education
Religion
Race
Generation
Nationality
Social Class – lower, middle, upper
The Political, Governmental and
Legal Forces
This environment is composed of laws, government agencies,
and pressure groups that influence & limit various organizations
& individuals.
Key Variables:
1. Government regulations or deregulations
2. Changes in tax laws ; special tariffs
3. Political action committees
4. Number, severity, and location of government protests
5. Number of patents; changes in patent laws
6. Environmental protection laws
7. Size of government budgets
8. Political conditions of foreign countries.
Technological Forces
In this environment, we should monitor the
following:
1. Accelerating Pace of Change – new ideas and
their successful implementation.
2. Opportunities for Innovation – revolutionizing
products and services.
3. Varying Research & Development Budgets –
researches toward breakthroughs.
4. Increased Regulation of Technological
Change – public needs assurance of their safety
as products become complex.
COMPETITIVE FORCES
Collection and evaluation of information on
competitors is essential for a successful business
strategy formulation.
Major information about competitors include
their:
1. Strengths & weaknesses
2. Objectives & strategies
3. Response to current key factors
4. Vulnerability to alternative company strategy
5. Product Positioning.
COMPETITIVE ANALYSIS
PORTER’S FIVE-FORCES
MODEL
PORTER’S FIVE-FORCES MODEL OF COMPETITION
FIRMS IN OTHER
INDUSTRIES
OFFERING
SUBSTITUTE
PRODUCTS
FIVE STEPS:
1. List key external factors as identified in the
external-audit process.
Strategic Management Concepts & Cases 9th Edition Fred R. David page
The COMPETITIVE PROFILE MATRIX
(CPM)
Itidentifies a firm’s major competitors and its
particular strengths & weaknesses in relation to a
sample firm’s strategic position.
Critical success factors in a CPM include both
internal & external issues. Rating:
4 = major strength
3 = minor strength
2 = minor weakness
1 = major weakness
AN EXAMPLE OF COMPETITIVE PROFILE
MATRIX
AVON L’OREAL PROCTER
&
GAMBLE
CRITICAL WEIGH RATING SCORE RATING SCORE RATING SCORE
SUCCESS T
FACTORS
Strategic Management Concepts & Cases 9th Edition Fred R. David page
References:
Marketing Management
11th Edition
By Philip Kotler
www.quickmba.com