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Ex and Int Org Assessments

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8 views75 pages

Ex and Int Org Assessments

Uploaded by

phirit6
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
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EXTERNAL ASSESSMENT

Presented by Alex Chanza, MIM April, 2021


Learning Outcomes

1. Describe how to conduct an external strategic-


management audit.
2. Discuss major external forces that affect organizations:
economic, social, cultural, demographic, environmental,
political, governmental, legal, technological, and
competitive.
3. Describe key sources of external information, including
the Internet.
4. Discuss important forecasting tools used in strategic
management.
5. Discuss the importance of monitoring external trends
and events.
3-2
Learning Outcomes(cont.)

6. Explain how to develop an EFE Matrix.


7. Explain how to develop a Competitive Profile
Matrix.
8. Discuss the importance of gathering
competitive intelligence.

3-3
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

3-4
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.

3-5
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

3-6
The Process of Performing an
External Audit
❖ First, gather competitive intelligence and
information about economic, social,
cultural, demographic, environmental,
political, governmental, legal, and
technological trends.

3-7
The Process of Performing an
External Audit
❖ Information should be assimilated and evaluated
❖ A final list of the most important key external
factors should be communicated
Key external factors should be:
1. important to achieving long-term and annual objectives
2. measurable
3. applicable to all competing firms, and
4. hierarchical in the sense that some will pertain to the
overall company and others will be more narrowly
focused on functional or divisional areas

3-8
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 achieving competitive
advantage.

3-9
The Industrial Organization
(I/O) View
❖ Firm performance
is based more on Economies of scale
industry properties Barriers to market entry

Product differentiation

The economy

Level of competitiveness

3-10
Key economic variables to be monitored

❖ Tax rates
❖ Un employment trends
❖ Consumption patterns
❖ Interest rates
❖ Inflation rates
❖ Income differences by region or consumer
groups
❖ Level of disposable income
❖ Income/export factors
3-11
Social, Cultural, Demographic, and
Natural Environmental Forces
❖ U.S. Facts
 Widening gap between rich and poor
 Aging population
 Less white
❖ Malawi Facts
 Widening gap between rich and poor
 Youthful population
 population > 17 million

3-12
Social, Cultural, Demographic, and
Natural Environmental Forces
❖ World Facts
 World population 7 billion
 World population = 8 billion by 2028
 World population = 9 billion by 2054

3-13
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.

3-14
Political, Government and legal variables

❖ Government regulations or deregulations


❖ Antitrust laws
❖ Local and national elections
❖ Import-export regulations
❖ Political conditions in foreign countries
❖ Location and severity of terrorist activities
❖ World oil, currency and labor markets
3-15
Technological Forces

The Internet has changed the very nature of


opportunities and threats by:
❖altering the life cycles of products,
❖increasing the speed of distribution,
❖creating new products and services,
❖erasing limitations of traditional geographic
markets

3-16
Technological Forces
❖ The Internet is
 altering economies of scale,
 changing entry barriers
 redefining the relationship between industries and
various suppliers, creditors, customers, and
competitors
❖ Chief Information Officers and Chief
Technology Officers working together to
ensure that information needed to formulate,
implement, and evaluate strategies is available
where and when it is needed
3-17
Technological Forces

Technological advancements can:


❖Create new markets,
❖Result in a proliferation of new and improved
products,
❖Change the relative competitive cost positions in
an industry,
❖Render existing products and services obsolete.

3-18
Competitive Forces

❖ An important part of an external audit is:


❖ Identifying rival firms and determining
their strengths, weaknesses, capabilities,
opportunities, threats, objectives, and
strategies

3-19
Competitive Forces
Characteristics of the most competitive
companies:
1.Market share matters
2.Understand and remember precisely what business
you are in whether it’s broke or not, fix it–make it better
3.Innovate or evaporate
4.Acquisition is essential to growth
5.People make a difference
6.There is no substitute for quality

3-20
Key Questions About Competitors

3-21
Competitive Intelligence
Programs
❖ 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

3-22
Competitive Intelligence
Programs
Basic objectives of a CI program are:
1. Provide a general understanding of an industry and
its competitors
2. Identify areas in which competitors are vulnerable
and to assess the impact strategic actions would
have on competitors
3. Identify potential moves that a competitor might make
that would endanger a firm’s position in the market

3-23
Market Commonality and Resource Similarity

❖ Market ❖ Resource
commonality similarity
 the number and  the extent to which
significance of the type and amount
markets that a firm of a firm’s internal
competes in with resources are
rivals comparable to a
rival

3-24
The Five-Forces Model of
Competition

3-25
The Five-Forces Model of
Competition
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.

3-26
The Five-Forces Model

❖ Rivalry among competing firms


 Most powerful of the five forces
 Focus on competitive advantage of strategies
over other firms

3-27
Conditions causing high rivalry among
competing firms
❖ High number of competing firms
❖ Similar number of firms competing
❖ Similar capability of competing firms
❖ Falling demand for the industry products
❖ Falling products/service prices in the industry
❖ When consumers can switch brands easily
❖ When barriers to leaving the market are high
❖ Low entry barriers
❖ High excess capacity among rivals
❖ When the product is perishable
❖ When mergers are common in the industry

3-28
The Five-Forces Model

❖ Potential Entry of New Competitors


 Barriers to entry are important
 Quality, pricing, and marketing can overcome
barriers

3-29
Barriers to Entry

❖ 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

3-30
Barriers to Entry

❖ Government regulatory policies


❖ Tariffs
❖ Lack of access to raw materials
❖ Possession of patents
❖ Undesirable locations
❖ Counterattack by entrenched firms
❖ Potential saturation of the market

3-31
The Five-Forces Model

❖ Potential development of substitute


products
 Pressure increases when:
• Prices of substitutes decrease
• Consumers’ switching costs decrease

3-32
The Five-Forces Model

❖ Bargaining Power of Suppliers is


increased when there are:
 Large numbers of suppliers
 Few substitutes
 Costs of switching raw materials is high
❖ Backward integration is gaining control or
ownership of suppliers

3-33
The Five-Forces Model

❖ 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

3-34
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

3-35
Sources of External Information

❖ 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.

3-36
Making Assumptions

❖ Assumptions
 Best present 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.

3-37
Industry Analysis: The External
Factor Evaluation (EFE) Matrix
❖ Economic ❖ Political
❖ Social ❖ Governmental
❖ Cultural ❖ Technological
❖ Demographic ❖ Competitive
❖ Environmental ❖ Legal

3-38
EFE Matrix Steps

1. List key external factors


2. Weight from 0 to 1
3. Rate effectiveness of current strategies
4. Multiply weight * rating
5. Sum weighted scores

3-39
EFE Matrix for a Local Ten-
Theater Cinema Complex

3-40
Industry Analysis: Competitive
Profile Matrix (CPM)
❖ Identifies firm’s major competitors and
their strengths & weaknesses in relation
to a sample firm’s strategic positions
❖ Critical success factors include internal
and external issues

3-41
An Example Competitive
Profile Matrix

3-42
INTERNAL ASSESSMENT

Presented by Alex Chanza, MIM


Learning Outcomes

1. Describe how to perform an internal strategic-


management audit.
2. Discuss the Resource-Based View (RBV) in
strategic management.
3. Discuss key interrelationships among the functional
areas of business.
4. Identify the basic functions or activities that make
up management, marketing, finance/accounting
production/operations, research and development,
and management information systems.

4-44
Learning Outcomes (cont..)

5. Explain how to determine and prioritize a firm’s


internal strengths and weaknesses.
6. Explain the importance of financial ratio analysis.
7. Discuss the nature and role of management
information systems in strategic management.
8. Develop an Internal Factor Evaluation (IFE)
Matrix.
9. Explain cost/benefit analysis value chain
analysis, and benchmarking as strategic-
management tools.
4-45
Key Internal Forces

❖ Distinctive competencies
 A firm’s strengths that cannot be easily
matched or imitated by competitors
❖ Building competitive advantages involves
taking advantage of distinctive
competencies.

4-46
The Process of Performing an
Internal Audit
❖ The internal audit
 Requires gathering and assimilating
information about the firm’s management,
marketing, finance/accounting,
production/operations, research and
development (R&D), and management
information systems operations
 Provides more opportunity for participants to
understand how their jobs, departments, and
divisions fit into the whole organization
4-47
The Resource-Based View (RBV)
❖ The Resource-Based View (RBV)
approach
 contends that internal resources are more
important for a firm than external factors in
achieving and sustaining competitive advantage
❖ Proponents of the RBV contend that
organizational performance will primarily be
determined by internal resources that can be
grouped into three all-encompassing
categories: physical resources, human
resources, and organizational resources

4-48
The Resource-Based View (RBV)

❖ For a resource to be valuable, it must be


either (1) rare, (2) hard to imitate, or (3)
not easily substitutable
❖ These three characteristics of resources
enable a firm to implement strategies that
improve its efficiency and effectiveness
and lead to a sustainable competitive
advantage

4-49
Integrating Strategy and Culture

❖ Organizational culture significantly affects


business decisions and thus must be
evaluated during an internal strategic-
management audit.
❖ If strategies can capitalize on cultural
strengths, such as a strong work ethic or
highly ethical beliefs, then management
often can swiftly and easily implement
changes.
4-50
Management

❖ The functions of management consist of


five basic activities: planning, organizing,
motivating, staffing, and controlling.
❖ These activities are important to assess in
strategic planning because an organization
should continually capitalize on its
management strengths and improve on its
management weaknesses.

4-51
Management Audit Checklist
of Questions
1. Does the firm use strategic-management
concepts?
2. Are company objectives and goals
measurable and well communicated?
3. Do managers at all hierarchical levels plan
effectively?
4. Do managers delegate authority well?
5. Is the organization’s structure appropriate?

4-52
Management Audit Checklist
of Questions (cont.)
6. Are job descriptions and job
specifications clear?
7. Is employee morale high?
8. Are employee turnover and absenteeism
low?
9. Are organizational reward and control
mechanisms effective?

4-53
Marketing
❖ Marketing
 the process of defining, anticipating, creating, and
fulfilling customers’ needs and wants for products
and services
 Customer analysis
 the examination and evaluation of consumer needs,
desires, and wants
 involves administering customer surveys, analyzing
consumer information, evaluating market positioning
strategies, developing customer profiles, and
determining optimal market segmentation strategies
 essential in developing an effective mission statement

4-54
Product and Service Planning

❖ Product and service planning


 includes activities such as test marketing;
product and brand positioning; devising
warranties; packaging; determining product
options, features, style, and quality; deleting
old products; and providing for customer
service
 important when a company is pursuing
product development or diversification

4-55
Pricing

❖ Five major stakeholders affect pricing


decisions: consumers, governments,
suppliers, distributors, and competitors
❖ Sometimes an organization will pursue a
forward integration strategy primarily to
gain better control over prices charged to
consumers

4-56
Distribution

❖ Distribution
 includes warehousing, distribution channels,
distribution coverage, retail site locations,
sales territories, inventory levels and
location, transportation carriers, wholesaling,
and retailing
 especially important when a firm is striving to
implement a market development or forward
integration strategy

4-57
Marketing Research

❖ Marketing research
 the systematic gathering, recording, and
analyzing of data about problems relating to
the marketing of goods and services
 can uncover critical strengths and
weaknesses

4-58
Cost/Benefit Analysis

Three steps are required to perform a


cost/benefit analysis:
1. compute the total costs associated with a
decision,
2. estimate the total benefits from the
decision,
3. compare the total costs with the total
benefits.
4-59
Marketing Audit Checklist
of Questions
1. Are markets segmented effectively?
2. Is the organization positioned well among
competitors?
3. Has the firm’s market share been increasing?
4. Are present channels of distribution reliable and
cost effective?
5. Does the firm have an effective sales
organization?
6. Does the firm conduct market research?
4-60
Finance/Accounting Functions

The functions of finance/accounting


comprise three decisions:
1. the investment decision
2. the financing decision
3. the dividend decision

4-61
Finance/Accounting Functions

❖ Investment decision
 the allocation and reallocation of capital and
resources to projects, products, assets, and
divisions of an organization
❖ Financing decision
 determines the best capital structure for the
firm and includes examining various methods
by which the firm can raise capital

4-62
Finance/Accounting Functions

❖ Dividend decisions
 concern issues such as the percentage of
earnings paid to stockholders, the stability of
dividends paid over time, and the repurchase
or issuance of stock
 determine the amount of funds that are
retained in a firm compared to the amount
paid out to stockholders

4-63
A Summary of Key
Financial Ratios

4-64
Finance/Accounting Functions

1. How has each ratio changed over time?


2. How does each ratio compare to industry
norms?
3. How does each ratio compare with key
competitors?

4-65
Production/Operations

❖ Production/operations function
 consists of all those activities that transforms
inputs into goods and services
❖ Production/operations management deals
with inputs, transformations, and outputs
that vary across industries and markets.

4-66
Production/Operations
Audit Checklist
1. Are supplies of raw materials, parts, and
subassemblies reliable and reasonable?
2. Are facilities, equipment, machinery, and offices in
good condition?
3. Are inventory-control policies and procedures
effective?
4. Are quality-control policies and procedures effective?
5. Are facilities, resources, and markets strategically
located?
6. Does the firm have technological competencies?

4-67
Research and Development Audit
1. Does the firm have R&D facilities? Are they adequate?
2. If outside R&D firms are used, are they cost-effective?
3. Are the organization’s R&D personnel well qualified?
4. Are R&D resources allocated effectively?
5. Are management information and computer systems
adequate?
6. Is communication between R&D and other
organizational units effective?
7. Are present products technologically competitive?

4-68
Management Information
Systems
❖ A management information system’s purpose is
to improve the performance of an enterprise by
improving the quality of managerial decisions
❖ An effective information system thus collects,
codes, stores, synthesizes, and presents
information in such a manner that it answers
important operating and strategic questions

4-69
Management Information
Systems Audit
1. Do all managers in the firm use the information
system to make decisions?
2. Is there a chief information officer or director of
information systems position in the firm?
3. Are data in the information system updated
regularly?
4. Do managers from all functional areas of the
firm contribute input to the information system?
5. Are there effective passwords for entry into the
firm’s information system?
4-70
Management Information
Systems Audit
6. Are strategists of the firm familiar with the
information systems of rival firms?
7. Is the information system user-friendly?
8. Do all users of the information system understand
the competitive advantages that information can
provide firms?
9. Are computer training workshops provided for
users of the information system?
10.Is the firm’s information system continually being
improved in content- and user-friendliness?

4-71
Value Chain Analysis (VCA)

❖ Value chain analysis (VCA)


 refers to the process whereby a firm
determines the costs associated with
organizational activities from purchasing raw
materials to manufacturing product(s) to
marketing those products
 aims to identify where low-cost advantages or
disadvantages exist anywhere along the value
chain from raw material to customer service
activities
4-72
Benchmarking

❖ Benchmarking
 an analytical tool used to determine whether
a firm’s value chain activities are competitive
compared to rivals and thus conducive to
winning in the marketplace
 entails measuring costs of value chain
activities across an industry to determine
“best practices”

4-73
The Internal Factor Evaluation
(IFE) Matrix
1. List key internal factors as identified in the internal-audit
process
2. Assign a weight that ranges from 0.0 (not important) to
1.0 (all-important) to each factor
3. Assign a 1-to-4 rating to each factor to indicate whether
that factor represents a strength or weakness
4. Multiply each factor’s weight by its rating to determine a
weighted score for each variable
5. Sum the weighted scores for each variable to
determine the total weighted score for the organization

4-74
A Sample Internal Factor Evaluation
Matrix for a Retail Computer Store

4-75

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