Ex and Int Org Assessments
Ex and Int Org Assessments
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
3-5
Key External 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
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
3-18
Competitive Forces
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
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
3-29
Barriers to Entry
3-30
Barriers to Entry
3-31
The Five-Forces Model
3-32
The Five-Forces Model
3-33
The Five-Forces Model
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
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
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
4-44
Learning Outcomes (cont..)
❖ 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)
4-49
Integrating Strategy and Culture
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
4-55
Pricing
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
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
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)
❖ 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