Saturday 28 September 2013

Short Notes C3

Chapter 3 -External Assessment
  • Objectives-
 Objectives – Specific results that an organization seeks to achieve in pursuing its basic mission.

Long term = more than 1 yr. typically at least 5 yrs- Future oriented
Objectives – essential for organizational success coz:-

  • State direction
  • Aid in evaluation
  • Create synergy
  • Reveal priorities
  • Focus coordination

Provide a basis for effective planning, organizing, motivating and controlling activities.
Objectives -should be challenging, measurable, consistence, reasonable and clear.

Objectives -Should be established for the overall company and for each division.


        Strategies – mean to achieve LTO
 
 




Annual Objectives – Short term miles stone to achieve LTO
AO- ( Guidelines, rules, procedures)
Like LTO , AO should be measureable , quantitative, challenging, realistic, consistence and prioritize.

Should be established at corporate, divisional and functional level
AO should be stated in term of Mgmt, mktg, Fin/ accounting, production / operation , R& D, MIS.

AO important in SI
LTO important SF

AO represent resource for allocation
 Policies – mean to achieve AO
 
 





·         Policies include guidelines, rules, and procedures established to support efforts to achieve stated objectives.

Policies are most often stated in terms of management, marketing, finance/accounting, production/operations, research and development, and computer information systems activities.

  
Process

An effective approach for conducting an external strategic-management audit consists of four basic steps:
(1) select key variables,
(2) select key sources of information,
(3) use forecasting tools and techniques, and
(4) construct an EFE Matrix.

The process of performing an external audit must involve as many managers and employees as possible. As emphasized in earlier chapters, involvement in the strategic-management process can lead to understanding and commitment from organizational members.

To perform an external audit, a company first must gather competitive intelligence and information about social, cultural, demographic, environmental, economic, political, legal, governmental, and technological trends. 

During the process of developing Vision & Mission statements some organization use:
1.    Discussion group of managers to develop and modify existing statements.
2.    Use outside consultant / facilitator to manage the process and help to draft the language.

Outside person – are unbiased

Decision on how best to disseminate (to Employees, Managers and external constituencies) V+ M after the final document is form.

According to Campbell and Yuen (1991) Process of developing mission should create emotional bond and sense of mission between organizational and its employee.

Key external factors

·         Key External Forces (5)
1.       External forces can be divided into five broad categories:
(1) economic forces;
(2) social, cultural, demographic, and environmental forces;
(3) political, governmental, and legal forces;
(4) technological forces;
(5) competitive forces. 

2.       Relations among these forces and an organization are depicted in Figure 3-2. External trends and events significantly affect all products, services, markets, and organizations in the world.

3.       Changes in external forces translate into changes in consumer demand for both industrial and consumer products and services

Sources of external information
Individuals can be asked to monitor various sources of information such as key magazines, trade journals, and newspapers.

The Internet is another source for gathering strategic information, as are corporate, university, and public libraries.

Suppliers, distributors, salespersons, customers, and competitors represent other sources of vital information.

Once information is gathered, it should be assimilated, evaluated, and prioritized.

Key external factors should be important to achieving long term and annual objectives, measurable, applicable to all competing firms, and hierarchical in the sense that some will pertain to the overall company while others will be more narrowly focused.


Forecasting tools and techniques

A.  Forecasts

1.  Forecasts are educated assumptions about future trends and events. 

2.  Forecasting is a complex activity due to factors such as technological innovation, cultural changes, new products, improved services, stronger competitors, shifts in government priorities, changing social values, unstable economic conditions, and unforeseen events.

  1. Forecasting tools can be broadly categorized into two groups:

1.    Quantitative techniques
2.    Qualitative techniques.

a.  Quantitative forecasts are most appropriate when historic data are available and when the relationships among key variables are expected to remain the same in the future. The (3) three basic types of quantitative forecasting techniques are econometric models, regression, and trend extrapolation.

b.  Qualitative forecasts. The six basic qualitative approaches to forecasting are:
 (1) sales force estimates,
(2) juries of executive opinions,
(3) anticipatory surveys or market research,
(4) scenario forecasts,
(5) Delphi forecasts, and
(6) brainstorming.

B.  Making Assumptions

1.  By identifying future occurrences that could have a major effect on the firm and making reasonable assumptions about those factors, strategists can carry the strategic-management process forward.



Porter’s 5 Forces Model of Competition

COMPETITIVE ANALYSIS: PORTER’S FIVE-FORCES MODEL

Porter’s Five-Forces Model. The intensity of competition among firms varies widely from industry to industry. 

According to Porter, the nature of competitiveness in a given industry can be viewed as a composite of five forces.

a.  Rivalry among competitive firms.
b.  Potential entry of new competitors.
c.  Potential development of substitute products.
d.  Bargaining power of suppliers.
e.  Bargaining power of consumers.

2.  Rivalry among competing firms. Is usually the most powerful of the five competitive forces. The strategies pursued by one firm can be successful only to the extent that they provide competitive advantage over the strategies pursued by rival firms.

3.  Potential entry of new competitors. Whenever new firms can easily enter a particular industry, the intensity of competitiveness among firms increases.

4.  Potential development of substitute products. In many industries, firms are in close competition with producers of substitute products in other industries.

5.  Bargaining power of suppliers. The bargaining power of suppliers affects the intensity of competition in an industry, especially when there are a large number of suppliers, when there are only a few good substitute raw materials, or when the cost of switching raw materials is especially costly.

6.  Bargaining power of consumers. When customers are concentrated, large, or buy in volume, their bargaining power represents a major force affecting intensity of competition in an industry.

EFE Matrix -INDUSTRY ANALYSIS: THE EXTERNAL FACTOR EVALUATION
1.    An EFE Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information.

2.    There are five steps in developing an EFE Matrix 
a.    List key external factors as identified in the external-audit process. Include a total of 10-20 factors from both the opportunities and threats.
b.    Assign to each factor a weight from .0 (not important) to 1.0 (very important). These weights show the relative importance. The total of all the weights should equal 1.0.
c.    Assign a 1-4 rating to each factor to indicate how effectively the firm’s current response strategy is: 1 = the response is poor, 2 = the response is average, 3 = the response is above average, and 4 = the response is superior.
d.    Multiply each factor’s weight by its rating to get a weighted score.
e.    Sum the weighted scores for each variable to determine the total weighted score for the organization.

THE COMPETITIVE PROFILE MATRIX (CPM)
The CPM,  identifies a firm’s major competitors and their particular strengths and weaknesses in relation to a sample firm’s strategic position. 


There are some important differences between the EFE and CPM.
First, the critical success factors in a CPM are broader.
These factors are also not grouped into opportunities and threats as in the EFE.
In a CPM, the ratings and weighted scores can be compared to rival firms.




CPM - University -an example



University 1:


University 2:

Critical Success Factors
Weight
Rating
Score
Rating
Score
Tuition costs





Quality of faculty





Academic reputation





Average class size





Campus landscaping





Athletic programs





Quality of students





Graduate programs





Location of campus





Campus culture





Totals
1.0




5 steps-EFE Matrix

An EFE Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information.

There are five steps in developing an EFE Matrix as illustrated in Table 3-12.
*        List key external factors as identified in the external-audit process. Include a total of 10-20 factors from both the opportunities and threats.
*        Assign to each factor a weight from .0 (not important) to 1.0 (very important). These weights show the relative importance. The total of all the weights should equal 1.0.
*        Assign a 1-4 rating to each factor to indicate how effectively the firm’s current response strategy: 1= the response is poor, 2 = the response is average, 3 = the response is above average, and 4 = the response is superior.
*        Multiply each factor’s weight by its rating to get a weighted score.

*        Sum the weighted scores for each variable to determine the total weighted score for the organization.

Porter identifies five competitive forces

Porter identifies five competitive forces that determine the intensity of competition in an industry and the total value of profits created in a particular industry. 
The five forces are 

1) new entrants, 
2) substitute products or services, 
3) bargaining power of suppliers,
4) bargaining power of buyers, and 
) rivalry among existing firms. 

A key to selecting appropriate generic strategies is to analyze these competitive forces in terms of trends, opportunities, 
and threats facing the firm. 

market commonality and resource similarity

The terms “market commonality” and “resource similarity” to study rivalry among competitors. 

Market commonality can be defined as the number and significance of markets that a firm competes in with rivals.  

Resource similarity is the extent to which the type and amount of a firm’s internal resources are comparable to a rival.  

Responses for applying these concepts to two rival firms will vary based on the firms selected.  

We should investigate market commonality and resource similarity issues while looking for areas of potential competitive advantage along each firm’s value chain. 

3 basic objectives of a competitive intelligence (CI) program

The three basic objectives of a competitive intelligence (CI) program are: 

1) To provide a general understanding of an industry and its competitors; 

2) To identify areas in which competitors are vulnerable and to assess the impact strategic actions would have on competitors, and 

3) To identify potential moves that a competitor might make that would endanger a firm’s position in the market.  

Compare and contrast the duties and responsibilities of a CIO with a CTO in a large firm.

A number of organizations are establishing two new positions in their firms. 
A Chief Information Officer (CIO) manages the firm’s relationship with stakeholders.  
The Chief Technology Officer (CTO) is more a technician, focusing on technical issues such as data acquisition, data processing, decision-support systems, and software and hardware acquisition.  
The CIO and CTO work together to ensure that information needed to formulate, implement, and evaluate strategies is available when it is needed.