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.
|
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 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.
- 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.
