Chapter 3

The External Assessment

Strategic
Management:
Concepts & Cases
11th Edition
Fred David

Copyright 2007 Prentice Hall

Ch 3 -1

Key External Forces & the Organization

Beyond control of organization!

Key
External
Forces

Competitors
Suppliers
Distributors
Creditors
Customers
Employees
Communities
Managers
Stockholders
Labor Unions
Special Interest Groups
Products
Services

Copyright 2007 Prentice Hall

Opportunities
&
Threats

Ch 3 -3

Performing External Audit

Long-term orientation

External
Factors

Measurable
Applicable to
competing firms
Hierarchical

Copyright 2007 Prentice Hall

Ch 3 -4

Porters Five Forces

Potential development
of substitute products

Bargaining power
of suppliers

Rivalry among
competing firms

Bargaining power
of consumers

Potential entry of new

competitors
Copyright 2007 Prentice Hall

Ch
Ch 63 -6

The Five-Forces Model of Competition (Porter)

Potential development
of substitute products

Bargaining power
of suppliers

Rivalry among
competing firms

Bargaining power
of consumers

Potential entry of new

competitors
Copyright 2007 Prentice Hall

Ch 3 -13

Industry Analysis: The External Factor

Evaluation (EFE) Matrix
Summarize & Evaluate
Economic
Social

Government
Demographic
al
Technologica
Environmental
l

Cultural
Copyright 2007 Prentice Hall

Political

Competitive

Ch 3 -15

Copyright 2007 Prentice Hall

Ch 3 -16

External Factors
Its hard to write them!
Weekend Exercise for Intuit

Copyright 2007 Prentice Hall

Ch 3 -17

Industry Analysis EFE

Total weighted score of 4.0
Organization response is outstanding to threats
and weaknesses

Total weighted score of 1.0

Firms strategies not capitalizing on opportunities
or avoiding threats
Copyright 2007 Prentice Hall

Ch 3 -19

Industry Analysis: Competitive Profile

Matrix (CPM)

Identifies firms major competitors

and their strengths & weaknesses
in relation to a sample firms
strategic positions

Copyright 2007 Prentice Hall

Ch 3 -20

Gateway

CSFs

Apple

Dell

Wt

Rating

Wtd
Score

Ratin
g

Wtd
Score

Rating

Wtd
Score

Market share

0.15

0.45

0.30

0.60

Inventory sys

0.08

0.16

0.16

0.32

Fin. position

0.10

0.20

0.30

0.30

Prod. Quality

0.08

0.24

0.32

0.24

Cons. Loyalty

0.02

0.06

0.06

0.08

Sales Distr

0.10

0.30

0.20

0.30

Global Exp.

0.15

0.45

0.30

0.60

Org. Structure

0.05

0.15

0.15

0.15

Copyright 2007 Prentice Hall

Ch 3 -21

Gateway

Apple

Dell

CSFs (contd)

Wt

Rating

Wtd
Score

Ratin
g

Wtd
Score

Rating

Wtd
Score

Prod. Capacity

0.04

0.12

0.12

0.12

E-commerce

0.10

0.30

0.30

0.30

Customer Serv 0.10

0.30

0.20

0.40

Price
competitive

0.02

0.08

0.02

0.06

Mgt.
experience

0.01

0.02

0.04

0.02

Total

1.00

Copyright 2007 Prentice Hall

2.83

2.47

3.49
Ch 3 -22

USTKey External Factors

Weight

Rating

Weighte
d
score

Global markets untapped

.15

.15

Increased demand

.05

.15

Astronomical Internet growth

.05

.05

Pinkerton leader in discount market

.15

.60

More social pressure to quit

smoking

.10

.30

Legislation against the tobacco

industry
Production limits on tobacco

.10

.20

.05

.15

Smokeless market SE region U.S.

.05

.10

Bad media exposure from FDA

.10

.20

Clinton Administration

.20

.20

Opportunities

Threats

TOTAL
Copyright 2007 Prentice Hall

1.00

2.10
Ch
Ch 63 -23
-23

(CPM)
Avon
Critical Success
Factor

Weigh Ratin
t
g

Advertising

0.20

Product Quality

0.10

Price Competition

0.10

Management

0.10

Financial Position

0.15

Customer Loyalty

0.10

Global Expansion

0.20

Market Share

0.05

Total

1.00

Copyright 2007 Prentice Hall

1
4
3
4
4
4
4
1

LOreal

Procter
& Gamble

Scor
e

Ratin
g

Scor
e

Ratin
g

Score

0.2
0
0.4

4
4
3
3
3
4
2
4

0.8
0
0.4

0.60

0.30

0
0.3
0
0.3

0.40

0.30

0
0.4
5
0.4

0.45

0.20

0
0.4
0
0.2

0.40

0.15

0
0.3
0
0.4
0
0.6
0
0.4
0
0.8
0
0.0
5
3.1
5

0
3.2
5

2.80
Ch
Ch 63 -24
-24

Mission Statement (proposed)

Our mission is to provide cruise and travel services (2) to travelers
worldwide (1, 3), to develop household name brand awareness, to
respect and protect the earth and seas on which we sail (6), to serve the
communities in which our consumers and employees reside (8,9), and
to stay an innovator by bringing cutting edge technology and research
for our consumers benefit (4). We recognize that we must stay
financially solvent and must make those decisions that will capitalize on
opportunities for growth and longevity (5). We believe we must exceed
every consumers expectations, supplying lasting memories, and
enticing repeat business all at a fair value. We recruit, compensate and
retain the best staff and ship employees in the business (7, 9).

Copyright 2007 Prentice Hall

Ch 3 -25

Competitive Profile Matrix Royal Caribbean

Copyright 2007 Prentice Hall

Ch 3 -26

EFE Matrix
Key External Factors
Opportunities
Nearly 88% of North Americans have never been on
a cruise.
Cruise vacations are seen as a choice of older
travelers; leaving minorities and young adult markets
virtually untapped

Weight

Rating

Weighted Score

0.15

0.60

0.08

0.24

Distribution networks at home and abroad may be an

untapped source for generating increased business
Internet use is increasing; commonly the tool used to
secure reservations for many travelers
Several markets overseas, such as, France, Italy, have
a market of would be cruisers
Threats
Increase in regulation by US regarding
environmental issues and economic downturns
Alaskan legislators are considering a $50 tax per
cruise ship passenger
Location and severity of terrorist attacks; namely
September 11th events
War and political uprisings
Drastic changes in the world oil market and currency
exchange
Existing and potential litigation
Increased capacity of competitors and pricing wars
Transfer of information through collective bargaining
agreements
Competitors: Carnival and P & O
Total

0.07

0.21

0.08

0.24

0.10

0.20

0.08

0.16

0.05

0.10

0.10

0.30

0.10
0.02

3
1

0.30
0.02

0.02
0.05
0.03

1
2
1

0.02
0.10
0.03

0.07
1.00

0.14
2.56

Copyright 2007 Prentice Hall

Ch 3 -27