ateneo efe

April 10, 2023

EXTERNAL ENVIRONMENT Session 3

Professor Hilda L. TeodoroAteneo Graduate School of Business

2 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

Scan InternalEnvironment

Identify StrategicFactors•Strengths•Weaknesses

Identify StrategicFactors•Opportunities•Threats

Define new:•Mission•Goals

Formulate Strategy•Corporate•Business•Functional

Implement Strategyvia Changes in:•Leadership•Structure•Human Resources•Information and control systems

THE STRATEGIC MANAGEMENT PROCESS

Evaluate Current•Mission•Goals

•Strategies

Scan ExternalEnvironment


HILDA L. TEODORO

SESSION 2: AGENDA

External Analysis

General Environment

Industry Analysis

Michael Porter Video on 5 Forces

Group Discussion: CPM, MVS, EFE


HILDA L. TEODORO

THE EXTERNAL ASSESSMENT

Identification and evaluation of trends and events beyond control of a single firm

Increased foreign competitionPopulations shiftsAging societyInformation technologyComputer revolution

“…External audit is not aimed at developing an exhaustive list of every possible factor that could influence the business; rather it is aimed at identifying key variables that offer actionable responses.” FRED DAVID


HILDA L. TEODORO

EXTERNAL ASSESSMENT

1. Economic trends

2. Social, Cultural and Demographic trends

3. Technological developments

4. Legal, Political, and Government forces

5. Competitive forces

Development of Finite List: Opportunities

Threats to be avoided

THE EXTERNAL ASSESSMENT

FRED DAVID


HILDA L. TEODORO

ECONOMIC FORCES

Industry ShiftsAvailability of CreditLevel of Disposable IncomeConsumption patternsInterest/inflationMoney market ratesBudget deficitsGross domestic product trendUnemployment trendsWorker productivity levelsExchange ratesStock Market trendsForeign economic conditionsImport/export factors

Demand shifts for different categories of products and servicesIncome differences by region/consumer groupsPrice fluctuationsExport of labor and capitalMonetary policiesFiscal policiesTax ratesEEC policiesOPEC policiesUnemployment trendsPropensity of people to spend

FRED DAVID


HILDA L. TEODORO

SOCIO-CULTURAL FORCES

Child bearing ratesNumber of special interest groupsNumber of marriages/divorcesImmigration/emigration ratesLife expectancy ratesPer capita incomeLocation of businessesAttitudes and lifestylesTraffic congestionBuying habitsEthical concernsSavings/investing

Sex rolesBirth controlLevel of educationGovernment regulationTrust in governmentPollution controlEnergy programsSocial programsNumber of churchesPopulation changes by location and by age, sex, etc.Number of high school and college graduatesWaste management

FRED DAVID


HILDA L. TEODORO

LEGAL/POLITICAL FORCES

Government regulations/deregulationsChanges in tax laws Special tariffsPolitical action committeesVoter participationNumber and severity of protest against governmentPatents and changesEnvironmental protection lawsLevel of defense spending

Antitrust legislationGeopoliticsImport/export regulationsFiscal & monetary policiesLobbying activitiesSize of gov’t budgetsWorld oil, currency, & labor marketsTerrorismLocal and national elections

FRED DAVID


HILDA L. TEODORO

TECHNOLOGICAL FORCES

• A firm must be aware of technological changes that might influence its industry

• TECHNOLOGICAL FORECASTING - key lies in accurately predicting future technological capabilities and their probable impacts

• Internet changes the nature of opportunities and threats • Alters life cycle of products• Increases speed of distribution• Creates new products and services• Eases limitations of geographic markets• Alters economies of scale• Changes entry barriers

PEARCE & ROBINSON


HILDA L. TEODORO

COMPETITOR ANALYSIS

Purpose is to analyze each major competitor in sufficient detail so as to be able to construct the strategy the competitor is pursuing.

Not an easy task

Some are small and privately held

Others don’t have a clearly articulated strategy – discern their implied strategy

Others say one thing and do something else.

BCG


HILDA L. TEODORO

COMPETITOR ANALYSIS INCLUDES

A knowledge of the competitors priorities, objectives and goals

An understanding of their abilities and problems

How important this specific business is when compared with their other businesses.

What will they be doing in the future and how it will be accomplished.

BCG


HILDA L. TEODORO

COMPETITOR PROFILE:

Market shareBreadth of product lineEffectiveness of sales distributionProprietary and key account advantagesPrice competitivenessAdvertising and promotion effectivenessLocation and age of facilityCapacity and productivityExperience

PEARCE & ROBINSON

Raw material costsFinancial positionRelative product qualityR&D advantages positionCaliber of personnelGeneral imagesCustomer profilesPatents and copyrightsUnion relationsTechnological positionCommunity reputation

Collection and evaluation of information on competitors is essential for successful strategy formulation. FRED DAVID


HILDA L. TEODORO

COMPETITIVE PROFILE MATRIX

Identifies a firm’s major competitors and their strengths and weaknesses in relation to the firm’s strategic position.Include both internal and external issuesIdentifies the Key Success FactorsCritical success factors are broader than EFE & IFE.Critical success factors must apply to all competitors.Numbers reveal the relative strength of firms, but their implied precision is an illusion.

FRED DAVID


HILDA L. TEODORO

COMPETITIVE PROFILE MATRIX

List (5-8) critical success factors identified.Assign a weight to each factor. The sum of all weights must equal 1.0.Assign a 1-4 rating to each factor to indicate whether that factor represents a

4 – major strength.3 – minor strength.2 – minor weakness.1 – major weakness.

Multiply each factor by its rating to determine a weighted score .Sum the weighted scores to determine total score for the organization.

FRED DAVID


HILDA L. TEODORO

CPM - COMPETITIVE PROFILE MATRIX

SARAP CANNER ARIESCRITICAL SUCCESS

FACTORS Weight

Rating ScoreRatin

gScore

Rating

Score

1Product quality and performance

0.40 4 1.60 2 0.80 3 1.20

2 Effective distribution 0.20 3 0.60 2 0.40 2 0.40

3 Market share 0.15 4 0.60 2 0.30 3 0.45

4 Brand management 0.10 3 0.30 2 0.20 2 0.20

5 Customer loyalty 0.15 3 0.45 2 0.30 2 0.30

Total 1.00 3.55 2.00 2.55


HILDA L. TEODORO

PORTER’S 5 FORCES OF COMPETITIVE ANALYSIS

THREAT OF NEW ENTRANTS

BARGAINING POWER OF

BUYERS

RIVALRY AMONG COMPETITORS

BARGAINING POWER OF SUPPLIERS

THREAT OF SUBSTITUTE PRODUCTS

MICHAEL E. PORTER

The collective strength of the 5 forces determines the attractiveness of the industry.

The 5 forces determine industry profitability because they influence the prices, costs, and required investment of firms in an industry.


HILDA L. TEODORO

THREAT OF NEW ENTRANTS BARRIERS TO ENTRY

Economies of scale

Brand Identity

Differentiation

Capital requirements

Switching costs

Access to distribution

Absolute cost advantages

Government policy

Expected retaliation

These factors tend

to raise barriers to

market entry by new

entrants

MICHAEL E. PORTER


HILDA L. TEODORO

BARGAINING POWER OF BUYERS

Buyer volume

Big ticket items

Low switching costs

Standardized or undifferentiated products

Purchase is not very important to buyer

Buyer has all the relevant information

These factors tend to increase customer

bargaining power

Buyers can reduce industry profitability by

forcing down prices, demanding more service, playing one competitor

against another

Buyers can reduce industry profitability by

forcing down prices, demanding more service, playing one competitor

against anotherMICHAEL E. PORTER


HILDA L. TEODORO

THREAT OF SUBSTITUTE PRODUCTS

Low switching costs Whether buyers view the substitutes as being satisfactory in terms of quality, performance, and other relevant attributesWhether attractively priced substitutes are available

Substitute: look different

but can perform the

same function as

your product

MICHAEL E. PORTER

TV Antenna vs Cable


HILDA L. TEODORO

BARGAINING POWER OF SUPPLIERS

Dominated by a few suppliers

Suppliers are more concentrated than buyers

No substitutes

Supplier has more important customers

Differentiated product

High switching costs

Tend to increase supplier

bargaining power

Suppliers can raise prices, or reduce quality

Squeeze profitability

MICHAEL E. PORTER


HILDA L. TEODORO

RIVALRY AMONG COMPETITORS

Numerous rivals

Slow growth

High fixed costs

Low differentiation

Low switching costs

Large capacity increments

High exit barriers

Tend to increase rivalry among existing

competitors

MICHAEL E. PORTER


HILDA L. TEODORO

EFEAssign a weight to each factor

KEY EXTERNAL FACTORS WT Rating

WTD Score

Rating Rationale

EXTERNAL OPPORTUNITIES

1-E Increased GDP level 0.02 2 0.04 Hasn’t really taken advantage of the growth in GDP

2-E Increased level of health expenditures 0.08 2 0.16 Has not really taken full advantage of this increase

3-S Rapid growth of the older population 0.05 4 0.20

Focused on the older population coming out with medicines that address their medical problems very effectively.

4-S Big unsatisfied acute pain market 0.20 3 0.60 Rated as the most effective coxib in the market

5-S Increase in number of HMOs 0.05 2 0.10 Slow penetration of the HMO market

EXTERNAL THREAT

1-EIncreasing cost of sales due to fluctuation in peso.

0.05 2 0.10 Cost of goods driven by mother co as supplier.

2-PCost containment pressures from the government

0.05 1 0.05 Lack of response to this threat

3-P Unpredictable, unstable political situation 0.10 1 0.10 Lack of response to this threat

4-C Introduction of newer coxibs 0.20 3 0.60 Still rated as the most effective coxib in the market

5-CGreater promotional resources of competitors

0.20 3 0.60 Started to increase its own promotional materials

Total EFE Score 1.00 2.55

E=Economic, S=Socio-cultural, P=Political, T=Technological, C=Competitive

Assign a 1–4 rating effectiveness of co. strategies


HILDA L. TEODORO

The External Factor Evaluation Matrix (EFE)

1. List critical success factors identified.2. Assign a weight to each factor. The sum of all weights must equal 1.0. 3. Assign a 1-4 rating to each critical factor to indicate how effectively the firm’s currents strategies respond to the factor.

4 – superior 3 - above average2 – average 1 - poor

4. Multiply each factor by its rating to determine a weighted score .5. Sum the weighted scores for each variable to determine total score for the organization.

FRED DAVID

ateneo efe

Documents

technological forces

aware of technological

external issues

external environmentsession

evaluation of trends

economic trends social

firms strategic position

implied strategy