Strategic Plan Formulation

The External Assessment

 Ch.
3-2
Chapter Outlines

 The Nature of an External Audit

 Economic Forces

 Social, Cultural, Demographic, and Environmental Forces

 Ch.
3-3
Chapter Outlines

 Political, Legal, and Governmental Forces

 Technological Forces

 Competitive Analysis- Porter’s Five-Forces Model

 Ch.
3-4
Chapter Outlines

 Sources of External Information

 Forecasting Tools and Techniques
 The Global Challenge
 Industry Analysis:
 The External Factor Evaluation Matrix
 The Competitive Profile Matrix
 Ch.
3-5

The External Strategic

Management Audit
 ALSO CALLED:
“Prediction is very difficult, especially about the  Environmental scanning
future”. Neils Bohr  Industry analysis
EXTERNAL ANALYSIS

 The Nature of an external audit is to develop a finite list of opportunities

and threats, Why?
 The Process of conducting external audit:
 Should include as many managers and employees as possible!
 Gathering competitive intelligence and Info about Economic, Social,
and Technological trends.
 Assimilate and evaluate these gathered Information
 External Factors

1) Economic
Availability of Level of disposable Interest rate Inflation rate
Credit income
Consumption Unemployment rate Worker GDP
patterns Productivity Level
Demand and Price fluctuations Monetary Policy Fiscal Policy
Supply
Tax rate Propensity of Foreign countries’ economic conditions
people to spend
 External Factors

2) Social, Cultural, Demographic, and Natural Environment

No of No of birth/death Immigration and Life expectancy rate

marriage/divorce emigration rate
Per capita income Attitudes towards Buying habits Locations of retailing,
business manufacturing, and
service businesses
Lifestyle Ethical concerns Attitudes towards Racial equality
saving
Average level of Pollution control Social responsibility Trust in Government
education “water, air, recycling”
External Factors

3) Political, Governmental, and Legal Forces

Government Change in tax laws Special tariffs Political action
regulations committees
Number of patents Changes in patent Voter participation Level of defense
laws rates expenditures
environmental
protection laws
Level of subsidies Antitrust Import-export Political
legislations regulations conditions in
foreign countries
Special, local, and Size of Labor laws ??
federal laws government
budget
External Factors

4) Technological
Software/Apps Internet Wireless Intranet
Extranet MIS Video Blogging
conferencing
Amazon E-Pay E-Banking
External Factors

4) Technological Forces can:-

 Create new Market
 Proliferation and improved products
 Change competitive cost positions in an industry
 Render existing products and service obsolete
 Shorter production runs
 Create shortage in technical skills – changing values and
expectations of employees, managers, and customers
External Factors

5) Competitive Forces
Collection and evaluation of information on
competitors is essential for successful strategy
formulation
 WHO ARE THEY?
THEIR MAJOR STRENGTH
THEIR MAJOR WEAKNESSES
THEIR OBJECTIVES AND STRATEGIES
THEIR RESPONSE TO EXTERNAL FACTORS
THEIR VULNERABILITY TO OUR ALTERNATIVE
Key Questions STRATEGIES?
OUR VULNERABILITY TOSUCCESSFUL
STRATEGIC COUNTERATTACK
SALES AND PROFIT RANKINGS OF
COMPETITORS OVER TIME
Competitive Intelligence (CI) Programs

 Systematic and ethical process for gathering and

analyzing information about the competition’s
‘activities and general business trends to further a
business’s own goal
Competitive Analysis: Porter’ 5-Forces
Model

Power of
Buyers

Threats of new Competitive Power of

entrants Rivalry Suppliers

Threats of
substitutes
External Factor Evaluation (EFE) Matrix

 Summarize and evaluate economic, social, cultural, demographic,

environmental, political, governmental, legal, technological, and competitive
information.
 External factor evaluation matrix is a strategic tool used for the external
evaluation of a firm. External factors consist of opportunities and threats which
needs to be identified and should be responded in order to utilize the available
opportunities and eliminate or reduce the impact of threats. The EFE matrix
template could be used to find out how a firm has been responding to the
external factors.
External Factor Evaluation (EFE) Matrix

 5-Step Process:
1. List key external factors (Opportunities & Threats).
 10 - 20
2. Assign weight to each (0 – 1.0)
 Sum of all weight = 1.0
3. Assign 1-4 rating to each factor
 Firm’s current strategies response to the factor
 External Factor Evaluation (EFE) Matrix

4. Multiply each factor’s weight by it rating

Produces a weights score
5. Sum weighted score for each
 determines the total weighted score for the organization

 Highest possible weighted score for the organization is 4.0; the lowest, 1.0.
Average = 2.5
 Understanding of the factors used in the EFE Matrix is more important than
the actual weights and ratings assigned.
EFE Matrix examples
EFE Matrix examples
 Competitive Profile Matrix (CPM)

 Identifies firm’s major competitors and their strengths & weaknesses in relation to
a sample firm’s strategic position
 Categorizes a firm’s main rivals and its particular strengths and weaknesses in
relation to a design firm’s strategic position.
 An organization assess itself as well its rivals by giving rating and weights to the
critical/key success factors. It then recognizes its strategic competitive place with
its major rivals.
 A firm which obtains superior weighted points would have the strong competitive
place than its rivals. The construction of competitive profile matrix for the Coca-
Coal company is given below:
Summary & Conclusion

External Analysis

Political Economical Social Technological Competitive

Factors Factors Factors Factors Factors
Feel Free to ask or give a comment, Please 