Strategic Management Concepts & Cases

9th edition

Fred R. David

Chapter 3: The External Assessment

indrianawati

Comprehensive Strategic Management Model

Perform External Audit

Chapter 3

Vision & Mission Statements

Establis Long-Term Objectives

Generate, Evaluate, Select Strategies

Implement Strategies: Mgmt Issues

Implement Strategies: Marketing, Fin/Acct, R&D, CIS

Measure & Evaluate Performance

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 2
Perform Internal Audit

Chapter 4

Outline
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. External Strategic Management Audit Key External Forces Economic Forces Social, Cultural, Demographic & Environmental Forces Political, Govt., Legal Forces Technological Forces Competitive Forces Competitive analysis Industry Analysis (EFE) Industry Analysis (CPM)

External Strategic Management Audit

also called: Environmental scanning Industry Analysis

External Strategic Management Audit

Identification and evaluation of trends and events beyond control of single firm
Increased foreign competition Population shift Aging society Information technology Computer revolution

Nature of External audit

Purpose: Development of Finite list: Opportunities Threats to be avoided

Key External Forces

1. Economic forces 2. Social, cultural, demographic, & environmental forces 3. Political, governmental, and legal forces 4. Technological factors 5. Competitive forces

FIVE BROAD CATEGORIES

Relationship between Key external Forces and an organization

Competitive
Supplier
Key external Forces

Distributors Cre

Opportunity Analysis
Opportunity analysis involves assessing the costs, benefit and risks associated with marketing decisions. Three steps are required to perform a cost/benefit analysis:
1. 2. 3. Compute the total costs associated with decision, Estimate the total benefits from the decision Compare the total costs with the total benefits.

Finance/Accounting
Financial condition is often considered the single best measure of a firms competitive position and overall attractiveness to investors. Determining an organizations financial strengths and weaknesses is essential to formulating strategies effectively.

Financial/Accounting Function
James van Horne: The function of finance/accounting comprise three decision: the investment decision, the financing decision, and the dividend decision. Financial ratio analysis is the most widely used method for determining an organizations strengths and weaknesses in the investment, financing, and dividend areas.

Production/Operation
The production/Operation function of a business consists of all those activities that transform input into goods and services. Roger schroeder suggested that production/operation management comprices five functions or decision areas: Process; capacity; inventory; workforce and quality

Research and Development

Research and development Audit checklist of Question:
1. 2. 3. 4. 5. 6. 7. Does the firm have R&D facilities? Are they adequate? If outside R&D firm are used, are they cost-effective? Are the organizations personnel well qualified? Are R&D resources allocated effectively? Are management information and computer system adequate? Is communication between R&D and other organizational unit effective? Are present product technologically competitive?

Management information systems

A management information systems purpose is to improve the performance of enterprise by improving the quality of managerial decisions. The effective information system thus collects, codes, stores, synthesizes, and presents information in such a manner that it answers important operating and strategic questions.

Management information system audit Checklist of Questions

1. 2.
3. 4.

5. 6. 7. 8.
9. 10.

Do all manager in the firm use the information system to made decisions? Is there a chief information officer of director of information system position in the firm? Are data in the information system updated regularly? Do managers from all functional area of the firm contribute input to the information system? Are there effective passwords for entry into the firms information system? Are strategists of the firm familiar with the information system of rival firms? Is the information system user-friendly? Do all users of the information system understand the competitive advantages that information can provide firms? Are computer training workshops provided for users of the information system? Is the firms information system continually being improved in content and user friendliness?

The Internal Factor Evaluation (IFE) Matrix

Internal Factor Evaluation matrix is a strategy formulation tool summarizes and evaluate the major strengths and weaknesses in the functional area of a business, and it also provides a basis for identifying and evaluating relationships among those areas.

Five steps in developing IFE matrix

1. 2. 3. List the key internal factors as identified in the internal audit process Assign a weight that range from 0.0 (not important) to 1.0 (all important) to each factor Assign a 1 to 4 to each factor to indicate whether that factor represents a major weaknesses (rating=1), a minor weaknesses (rating=2), a minor strength (rating=3), a major strength (rating=4). Note that strength must receive a 4 or 3 and weaknesses must receive a 1 or 2 rating Multiply each factors weight by its rating to determine a weighted score for each variable. Sum the weighted scores for each variable to determine the total weighted score for the organization

4.
5.