Evaluating a Company’s

External Environment
 Chapter Roadmap
• The Strategically Relevant Components of a Company’s External
Environment
• Thinking Strategically About a Company’s Industry and
Competitive Environment
– Question 1: What Are the Industry’s Dominant Economic Features?
– Question 2: How Strong Are Competitive Forces?
– Question 3: What Forces Are Driving Industry Change and What Impacts Will
They Have?
– Question 4: What Market Positions Do Rivals Occupy—Who Is Strongly
Positioned and Who Is Not?
– Question 5: What Strategic Moves Are Rivals Likely to Make Next?
– Question 6: What Are the Key Factors for Future Competitive Success?
– Question 7: Does the Outlook for the Industry Offer the Company a Good
Opportunity to Earn Attractive Profits
 A Comprehensive Strategic-Management
Model

Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 1 (February 1989): 91. See
also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, “Balance Scorecard of David’s
Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,” Journal of Mathematics
and Technology, no. 4 (October 2010): 20.
 Understanding the Factors that
Determine a Company’s Situation
• Diagnosing a company’s situation has two facets
– Assessing the company’s external or macro-environment
• Industry and competitive conditions
• Forces acting to reshape this environment
– Assessing the company’s internal or
micro-environment
• Market position and competitiveness
•Competencies, capabilities,
resource strengths and
weaknesses, and competitiveness
From Thinking Strategically About The Company’s Situation to Choosing a Strategy

3-5
 Thinking Strategically About a
Company’s Macro-environment
• A company’s macro-environment includes all relevant factors and
influences outside its boundaries
• Diagnosing a company’s external situation involves assessing
strategically important factors that have a bearing on the
decisions a company’s makes about its
– Direction
– Objectives
– Strategy
– Business model
• Requires that company managers scan
the external environment to
– Identify potentially important external developments
– Assess their impact and influence
– Adapt a company’s direction and strategy as needed
The Components of a Company’s Macro-environment

3-7
 External Audit
• External audit
• focuses on identifying and evaluating trends and events
beyond the control of a single firm
• reveals key opportunities and threats confronting an
organization so that managers can formulate strategies to
take advantage of the opportunities and avoid or reduce
the impact of threats
 The Purpose of an External Audit
• The external audit is aimed at identifying key variables that
offer actionable responses
• Firms should be able to respond either offensively or
defensively to the factors by formulating strategies that take
advantage of external opportunities or that minimize the
impact of potential threats.
 Environmental Scanning
• General Environment/ Societal environment
1. Economic forces that regulate exchange of
materials, money, energy, and information
2. Technological forces that generate problem
solving
3. Political –legal forces that allocate power and
provide constraining and protecting laws and
regulations
4. Socio-cultural forces that regulate the values,
mores, and customs of society
 Key External Forces
External forces can be divided into five broad categories:
1. economic forces
2. social, cultural, demographic, and environmental (SCDE)
forces
3. political, governmental, and legal forces
4. technological forces
5. competitive forces
Figure 3.2 Relationships Between Key
External Forces and an Organization

Copyright © 2020, 2017, 2015 Pearson Education, Inc. All Rights Reserved
 Economic Forces (1 of 2)
• Shift to service economy
• Availability of credit
• Level of disposable income
• Propensity of people to spend
• Interest rates
• Inflation rates
• GDP trends
• Consumption patterns
• Unemployment trends
• Value of the dollar
 Economic Forces (2 of 2)
• Import/Export factors
• Demand shifts for different goods and services
• Income differences by region and consumer group
• Price fluctuations
• Foreign countries’ economic conditions
• Monetary and Fiscal policy
• Stock market trends
• Tax rate variation by country and state
• European Economic Community (EEC) policies
• Organization of Petroleum Exporting Countries (OPEC) policies
 Social, Cultural, Demographic, and
Environmental (SCDE) Forces
• SCDE forces impact strategic decisions on virtually all
products, services, markets, and customers.
• These forces are shaping the way people live, work, produce,
and consume.
 Key SCDE Variables (1 of 3)

• Population changes by race, age, and geographic area

• Regional changes in tastes and preferences
• Number of marriages
• Number of divorces
• Number of births
• Number of deaths
• Immigration and emigration rates
• Social Security programs
 Key SCDE Variables (2 of 3)

• Life expectancy rates

• Per capita income
• Social media pervasiveness
• Attitudes toward retirement
• Energy conservation
• Attitudes toward product quality
• Attitudes toward customer service
• Pollution control
 Key SCDE Variables (3 of 3)
• Attitudes toward foreign peoples
• Energy conservation
• Social programs
• Number of churches
• Number of church members
• Social responsibility issues
 Political, Governmental, and Legal Forces

• Local, state, and federal laws, as well as regulatory agencies

and special-interest groups, can have a major impact on the
strategies of small, large, for-profit, and nonprofit
organizations.
Political, Government, and Legal Variables
(1 of 2)

• Natural environmental regulations

• Protectionist actions by countries
• Changes in patent laws
• Equal employment opportunity laws
• Level of defense expenditures
• Unionization trends
• Antitrust legislation
Political, Government, and Legal Variables
(2 of 2)

• Political conditions in countries

• Global price of oil changes
• Local, state, and federal laws
• Import-export regulations
• Tariffs, particularly on steel and aluminum
• Local, state, and national elections
 Technological Forces (1 of 3)
New technologies such as:
• the Internet of Things
• 3D printing
• the cloud
• mobile devices
• biotech
• analytics
• autotech
 Technological Forces (2 of 3)
• robotics and
• artificial intelligence
are fueling innovation in many industries and impacting
strategic-planning decisions.
 Technological Forces (3 of 3)

• Many firms now have a Chief Information Officer (CIO) and a

Chief Technology Officer (CTO) who work together to ensure
that information needed to formulate, implement, and
evaluate strategies is available where and when it is needed
 Competitive Forces
• An important part of an external audit is identifying rival
firms and determining their strengths, weaknesses,
capabilities, opportunities, threats, objectives, and
strategies
Obtaining Competitive Intelligence (1 of 2)

Legal and ethical ways to obtain competitive intelligence:

1. Reverse-engineer rival firms’ products.
2. Use surveys and interviews of customers, suppliers, and
distributors of rival firms.
3. Analyze rival firm’s Form 10-K.
4. Conduct fly-over and drive-by visits to rival firm operations.
5. Search online databases.
6. Contact government agencies for public information about
rival firms.
Obtaining Competitive Intelligence (2 of 2)

7. Monitor relevant trade publications, magazines, and

newspapers.
8.Purchase social-media data about customers of all firms in
the industry.
9.Hire top executives from rival firms.
 Key Questions About Competitors (1 of 3)

1. What are the strengths and weaknesses of our major

competitors?
2. What products and services do we offer that are unique in
the industry?
3. What are the objectives and strategies of our major
competitors?
4. How will our major competitors most likely respond to
current economic, SCDE, political, governmental, legal,
technological, and competitive trends affecting our
industry?
Key Questions About Competitors (2 of 3)

5. How vulnerable are the major competitors to our new

strategies, products, and services?
6. How vulnerable is our firm to successful counterattack by
our major competitors?
7. How does our firm compare to rivals in mastering the social-
media conversation in this industry?
8. To what extent are new firms entering and old firms leaving
this industry?
9. What key factors have resulted in our present competitive
position in this industry?
 Key Questions About Competitors (3 of 3)

10.How are supplier and distributor relationships changing in

this industry?
 Competitive Intelligence Programs
Competitive intelligence (CI)
• a systematic and ethical process for gathering and analyzing
information about the competition's activities and general
business trends to further a business's own goals
 Some Important Variables in the Societal
Environment
Economic Technological Political-Legal Sociocultural

Total government Antitrust Lifestyle changes

GDP trends spending for R&D regulations
Career expectations
Interest rates Total industry Environmental
Consumer activism
Money supply spending for R&D protection laws
Rate of family
Inflation rates Focus of Tax laws
formation
technological
Unemployment Special incentives
efforts Growth rate of
levels Foreign trade population
Patent protection
Wage/price controls regulations
Age distribution of
New products
Devaluation/revalu Attitudes toward population
ation New developments foreign companies
Regional shifts in
in technology
Laws on hiring and population
Energy availability transfer from lab to promotion
and cost marketplace Life expectancies
Stability of
Disposable and Productivity Birth rates
improvements
government
discretionary income
through automation

Prentice Hall, 2000 Chapter 3 32

Key Questions Regarding the
Industry and Competitive Environment

What are the

industry’s
dominant traits?

How strong are What forces are

competitive driving change in
forces? the industry?

What market What are the key How attractive is

positions do rivals factors for the industry
occupy? What competitive from a profit
moves will they
success? perspective?
make next?
 Question 1: What are the Industry’s
Dominant Economic Traits?
• Analyzing a company’s industry and
competitive environment begins with
identifying an industry’s dominant economic
features and forming a picture of what the
industry landscape is like
• It not only sets the stage for the analysis to
come but also promotes understanding of the
kind of strategic moves that industry members
are likely to employ
 Question 1: What are the Industry’s
Dominant Economic Traits?
• Market size and growth rate
• Number of rivals
• Scope of competitive rivalry
• Buyer needs and requirements
• Degree of product differentiation
• Product innovation
• Supply/demand conditions
• Pace of technological change
• Vertical integration
• Economies of scale
• Learning and experience curve effects
What to Consider in Identifying an Industry’s Dominant Features

Features Questions to answer

Market size and How big is the industry and how fast it is growing?
growth rate What does the industry’s position in the business
life cycle (early development, rapid growth, early
maturity, maturity, stagnation, decline) reveal about
the industry’s growth position?
Scope of Is the geographic area over which the most
competitive companies compete local, regional, national,
rivalry multinational, or global?
Is having a presence in foreign markets becoming
more important to a company’s long-term
competitive success?
Number of Rivals Is the industry fragmented into many small
companies or dominated by a few large firms?
Is the industry going through a period of
consolidation to a smaller number of competitors?

Buyer needs and What are the final buyers( as well middlemen)
requirements looking for – what attributes prompt to choose one
brand over another?
Are buyers needs or requirements changing? If so
what is driving such changes?
Production Is a surplus capacity pushing prices and profits
Capacity down?
Is the industry overcrowded with to many
competitors?
 Production Is a surplus capacity pushing the prices and profit
Capacity margins down?
Is the industry over crowded with too many
competitors?

Pace of What role does the advancing technology play in this

Technological industry?
Change Are ongoing upgrades of facilities/ equipment
essential because of rapidly advancing production
process technologies?
Do most industry members have a need or need
strong technological capabilities? Why?
Degree of Are the products of rivals becoming differentiated or
Product less differentiated?
Differentiation Are increasing look alike products of rivals causing
heightened price competition?
 Product Is the industry characterized by rapid product innovation and
short product life cycle? How important is R&D and product
Innovation innovation? Are there opportunities to overtake key rivals by
being first-to-market with next generation products?

Are some competitors in the industry partially or or fully

Vertical integrated? Are there any important cost differences among fully
Integration versus partially versus non integrated firms? Is there any
competitive advantages or disadvantages associated with being
fully or partially integrated firms?

Economies of Is industry characterized by economies of scale in purchasing,

Scale manufacturing, and other activities? Do companies with high
scale operations have an important cost advantage over small
scale firm
Learning and
experience Do any companies have significant cost advantage
curve effects because of their experience in performing particular
activities?
 Learning/Experience Effects
• Learning/experience effects exist when a
company’s unit costs decline as its cumulative
production volume increases because of
– Accumulating production know-how

– Growing mastery of the technology

• The bigger the learning or experience curve

effect, the bigger the cost advantage of the firm
with the largest cumulative production volume
 Question 2: What Kinds of Competitive
Forces Are Industry Members Facing?
• Objectives are to identify

– Main sources of competitive forces

– Strength of these forces

• Key analytical tool

– Five Forces Model

of Competition
The Five Forces Model of Competition

3-43
 Analyzing the Five Competitive
Forces: How to Do It
Step 1: Identify the specific competitive
pressures associated with each of
the five forces

Step 2: Evaluate the strength of each

competitive force -- fierce, strong,
moderate to normal, or weak?

Step 3: Determine whether the collective

strength of the five competitive forces
is conducive to earning attractive profits
 Competitive Pressures
Associated With Potential Entry
• Seriousness of threat depends on
– Size of pool of entry candidates
and available resources
– Barriers to entry
– Reaction of existing firms

• Evaluating threat of entry involves assessing

– How formidable entry barriers are for each type of
potential entrant and
– Attractiveness of growth and profit prospects
Factors Affecting Threat of Entry
 Barriers and profitability

low Low, stable Low, risky

returns returns

Entry Barriers

High, stable High, risky

high returns returns

low high
Exit Barriers
 Competitive Pressures
Among Rival Sellers
• Usually the strongest of the five forces
• Key factor in determining strength of rivalry
– How aggressively are rivals using various weapons of
competition to improve their market positions and
performance?
• Competitive rivalry is a combative
contest involving
– Offensive actions
– Defensive countermoves
Weapons for Competing and Factors
Affecting Strength of Rivalry
Competitive Pressures from
Substitute Products
Concept
Substitutes matter when customers
are attracted to the products of
firms in other industries

Examples
❖ Sugar vs. artificial sweeteners
❖ Eyeglasses and contact lens vs.
laser surgery
❖ Newspapers vs. TV vs. Internet
 How to Tell Whether Substitute
Products Are a Strong Force
• Whether substitutes are readily
available and attractively priced

• Whether buyers view substitutes

as being comparable or better

• How much it costs end users

to switch to substitutes
Factors Affecting Competition From Substitute Products

3-52
 Competitive Pressures From Suppliers
and Supplier-Seller Collaboration
• Whether supplier-seller relationships represent a
weak or strong competitive force depends on

– Whether suppliers can exercise

sufficient bargaining leverage to
influence terms of supply in their favor

– Nature and extent of supplier-seller

collaboration in the industry
Factors Affecting Bargaining Power of Suppliers
Competitive Pressures: Collaboration
Between Sellers and Suppliers
• Industry members often forge strategic partnerships with
select suppliers
to
– Reduce inventory and logistics costs
– Speed availability of
next-generation components
– Enhance quality of parts being supplied
– Squeeze out cost savings for both parties
• Competitive advantage potential may accrue to those
industry members (sellers) doing the best job of managing
supply-chain relationships
 Competitive Pressures From Buyers
and Seller-Buyer Collaboration
• Whether the relationships between industry
members and buyers represent a weak or strong
competitive force depends on

– Whether buyers have sufficient

bargaining leverage to influence
terms of sale in their favor

– Extent and competitive importance of

strategic partnerships between certain industry
members and the buyers
Factors Affecting Bargaining Power of Buyers
Competitive Pressures: Collaboration
Between Sellers and Buyers
• Partnerships between industry members and
some/many of their customers can impact competitive
pressures
• Collaboration may result in mutual benefits regarding
– Just-in-time deliveries
– Order processing
– Electronic invoice payments
– Data sharing
• Competitive advantage may accrue to those industry
members doing the best job of partnering with their
customers
 Strategic Implications of
the Five Competitive Forces
• Competitive environment is ideal from
a profit-making standpoint when

– Rivalry is moderate

– Entry barriers are high

and no firm is likely to enter

– Good substitutes
do not exist

– Suppliers and customers are

in a weak bargaining position
 Coping With the
Five Competitive Forces
• Objective is to craft a strategy to

– Insulate firm from

competitive pressures

– Initiate actions to produce

sustainable competitive advantage

– Allow firm to be the industry’s “mover and shaker” with

the “most powerful” strategy that defines the business
model for the industry
 Is the Collective Strength of the Five
Competitive Forces Conducive to Good
Profitability
• As a rule, the stronger collective impact of the five forces, the
lower the combined profitability of industry participants
• Fierce to strong competitive pressures come from all five
forces driving industry profitability to unacceptably low levels
• An industry can be competitively unattractive even when not
all five forces are strong
• Intense competitive pressure from just two or three forces
may suffice to destroy the conditions for good profitability
and prompt some companies to exit the business
 Matching Company Strategy to
Competitive conditions
• Effectively matching a company’s strategy to
prevailing competitive conditions have two aspects
1. Pursing avenues that shield the firm from as many
of the different competitive pressures
2. Initiating actions calculated to produce sustainable
competitive advantage, thereby shifting
competition in the company’s favor, putting added
competitive pressure on rivals, and perhaps even
defining a business model for the industry
Question 3: What Forces Are Driving Industry
Change and What Impacts Will They Have?
• Industries change because forces
are driving industry participants
to alter their actions
• Driving forces are the
major underlying causes
of changing industry and
competitive conditions
• Where do driving forces originate?
– Outer ring of macroenvironment (general environment)
– Inner ring of macroenvironment ( specific environment)
 Analyzing Driving Forces:
Three Key Steps
STEP 1: Identify forces likely to exert greatest influence over next 1 - 3
years
– Usually no more than 3 - 4 factors
qualify as real drivers of change
STEP 2: Assess impact
– Are driving forces acting to cause market demand for
product to increase or decrease?
– Are driving forces acting to make competition more or less
intense?
– Will driving forces lead to higher or lower industry
profitability?
STEP 3: Determine what strategy changes are needed to prepare for
impacts of driving forces
The Most Common Driving Forces

3-65
 Question 4: What Market
Positions Do Rivals Occupy?
• One technique to reveal different competitive
positions of industry rivals is
strategic group mapping

• A strategic group is a cluster of firms in an

industry with similar competitive
approaches and market positions
 Strategic Group Mapping
• Firms in same strategic group
have two or more competitive characteristics in common
– Have comparable product line breadth
– Sell in same price/quality range
– Emphasize same distribution channels
– Use same product attributes to appeal
to similar types of buyers
– Use identical technological approaches
– Offer buyers similar services
– Cover same geographic areas
 Procedure for Constructing
a Strategic Group Map
STEP 1: Identify competitive characteristics that
differentiate firms in an industry from one
another
STEP 2: Plot firms on a two-variable map using pairs of
these differentiating characteristics
STEP 3: Assign firms that fall in about the same strategy
space to same strategic group
STEP 4: Draw circles around each group, making circles
proportional to size of group’s respective share
of total industry sales
Example: Strategic Group Map of Selected Automobile Manufacturers

3-69
 Mapping Strategic Groups in the U.S. Restaurant
Chain Industry
High
Red Lobster
Olive Garden
ChiChi's

Perkins
International House
of Pancakes

Ponderosa
Price

Bonanza Shoney's
Denny's
Country Kitchen

Kentucky Fried Chicken

Pizza Hut
Long John Silver's

Arby's Wendy's
Domino's Dairy Queen
Hardee's Taco Bell
Burger King McDonald's

Low
Limited Menu Full Menu

Product-Line Breadth
Prentice Hall, 2000 Chapter 3 70
Guidelines: Strategic Group Maps
• Variables selected as axes should not be highly
correlated
• Variables chosen as axes should expose big differences
in how rivals compete
• Variables do not have to be either quantitative or
continuous
• Drawing sizes of circles proportional to combined sales
of firms in each strategic group allows map to reflect
relative sizes of each strategic group
• If more than two good competitive variables can be
used, several maps can be drawn
 Interpreting Strategic Group Maps
• The closer strategic groups are
on the map, the stronger the cross-group
competitive rivalry tends to be
• Not all positions on the map
are equally attractive
– Driving forces and competitive pressures often
favor some strategic groups and hurt others
– Profit potential of different strategic
groups varies due to strengths and
weaknesses in each group’s market
position
 Implications of Strategic groups
• The strategic group a firm should consider entering
• The type and level of entry barriers the firm will face
• The number and type of entry barriers the firm will
face
• The strategic dimensions that will make the firm
similar to its strategic group members and different
from members of different strategic groups
• The relative effect of five forces of competition on its
relative profitability
 Question 5: What Strategic Moves
Are Rivals Likely to Make Next
• A firm’s best strategic moves
are affected by
– Current strategies of competitors
– Future actions of competitors
• Profiling key rivals involves gathering
competitive intelligence about
– Current strategies
– Most recent actions and public announcements
– Resource strengths and weaknesses
– Efforts being made to improve their situation
– Thinking and leadership styles of top executives
 Competitor Analysis
• Sizing up strategies and competitive strengths
and weaknesses of rivals involves assessing
– Which rival has the best strategy? Which
rivals appear to have weak strategies?
– Which firms are poised to gain
market share, and which ones
seen destined to lose ground?
– Which rivals are likely to rank among the industry
leaders five years from now? Do any up-and-coming
rivals have strategies and the resources to overtake
the current industry leader?
 Question 6: What Are the Key
Factors for Competitive Success?
• Key Success Factors (KSFs) are competitive factors and attributes
that affect every industry member’s ability to be competitively and
financially successful
• KSFs are those particular attributes that are so important that they
spell the difference between
– Profit and loss
– Competitive success or failure
• KSFs can relate to
– Specific strategy elements
– Product attributes
– Resources
– Competencies
– Competitive capabilities
– Market achievements
 Identifying Industry Key Success
Factors
• The answers to 3 questions often help pinpoint an industry’s
KSFs
– On what basis do customers choose
between competing brands of sellers?
– What resources and competitive capabilities does a company need to
have to be competitively successful?
– What shortcomings are likely to place a company at a significant
competitive disadvantage?

• Rarely are there more than 5 - 6

factors that are truly key to the future financial and
competitive success of industry members
 Common Types of Industry Key Success Factors (KSF)
Expertise in particular technology or in scientific research ( important in
Technology pharmaceuticals, internet applications, mobile communications, and
Related many high tech. industry
Proven ability to improve production processes ( important in industries
where advancing technology opens the way for higher manufacturing
efficiency and lower production costs)

Manufacturing Ability to achieve scale economies and/or capture learning curve

effects (important to achieving low production costs)
Related KSF Quality control know-how ( important in those industries where
customers insists on product reliability)
High utilization of fixed assets (important in capital intensive/
high fixed cost industries)
Access to attractive supplies of skilled labor
High labor productivity ( important for items with high labor
content)
Low cost product design and engineering ( reduces
manufacturing costs)
Ability to manufacture or assemble products that are customized
to buyer specification
Distribution A strong network of wholesale distributors/dealers
Strong direct sales capabilities via the internet and or having
related KSF company owned retail outlets
Ability to secure favorable display space on retailer shelves

Marketing Breadth of product line and product selection

Related KSF A well known and respected brand name
Courteous, personalized customer service
Customer guarantees and warranties
Clever advertising
A talented workforce
Distribution capabilities
Product innovation capabilities
Short delivery time capability
Supply chain management capabilities
Strong e-commerce capabilities
 Industry Analysis: The External Factor
Evaluation (EFE) Matrix
Summarize and evaluate these factors:

• Social • Political
• Cultural • Governmental
• Demographic • Legal
• Economic • Technological
• Environmental • Competitive
 EFE Matrix Steps
1. List 20 key external factors
2. Weight from 0.0 to 1.0
3. Rate the effectiveness of current strategies from 1-4
4. Multiply weight * rating
5. Sum weighted scores
 Table 3.8 EFE Matrix for a Local 10-
Theater Cinema Complex (1 of 2)
Key External Factors Weight Rating Weighted Score
Opportunities
1. Two new neighborhoods
0.09 1 0.09
developing within 3 miles
2. TDB University is expanding 6%
0.08 4 0.32
annually
3. Major competitor across town
0.08 3 0.24
recently closed
4. Demand for going to cinemas
0.07 2 0.14
growing 10%
5. Disposable income among
0.06 3 0.15
citizens up 5% in prior year
6. Rowan County is growing 8%
0.05 3 0.15
annually in population
7. Unemployment rate in county
0.03 2 0.06
declined to 3.1%
 Table 3.8 EFE Matrix for a Local 10-
Theater Cinema Complex (2 of 2)
Key External Factors Weight Rating Weighted Score
Threats
8. Trend toward healthy eating
0.12 4 0.48
eroding concession sales
9. Demand for online movies and
0.06 2 0.12
DVDs growing 10%
10. Commercial property adjacent to
0.06 3 0.18
cinemas for sale
11. TDB University installing an on-
0.04 3 0.12
campus movie theater
12. County and city property taxes
0.08 2 0.6
increasing 25%
13. Local religious groups object to R-
0.04 3 0.12
rated movies
14. Movies rented at local Red Box’s
0.08 2 0.16
up 12%
15. Movies rented last quarter from
0.06 1 0.06
Time Warner up 15%
Total 1.00 2.58
 Industry Analysis: Competitive Profile
Matrix (CPM)

• Identifies firm's major competitors and their strengths &

weaknesses in relation to a sample firm's strategic positions
• Critical success factors include internal and external issues
 Table 3.10 An Example Competitive
Profile Matrix

• Note: The ratings values are as follows: 1 = response is poor, 2 = response is average, 3 =
response is above average, 4 = response is superior. As indicated by the total weighted score of
2.20, Company 3 is performing worst. Only 8 critical success factors are included for simplicity;
in actuality, however, this is too few. The template asks that 12 factors be included and to tailor
factors to a given industry.
Figure 3.4 How to Gain and Sustain
Competitive Advantages
 External Factor Analysis (EFAS)

External Weighted
Strategic Factors Weight Rating Score Comments
1 2 3 4 5
Opportunities

Threats

Total Weighted Score 1.00

Notes: 1. List opportunities and threats (5–10 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2
based on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding)
to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s
weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted
score for the company in Column 4. This tells how well the company is responding to the strategic factors in its external environment.
Source: T. L. Wheelen and J. D. Hunger, “External Strategic Factors Analysis Summary (EFAS).” Copyright © 1991 by Wheelen and Hunger Associates.
Reprinted by permission.
Prentice Hall, 2000 Chapter 3 87
 Industry Matrix/ Competitive Profile Matrix (CPM)

Company A Company A Company B Company B

Strategic Factors Weight Rating Weighted Score Rating Weighted Score

1 2 3 4 5 6

Total 1.00

Source: T. L. Wheelen and J. D. Hunger, “Industry Matrix.” Copyright © 1997 by Wheelen and Hunger Associates. Reprinted by
permission.
Prentice Hall, 2000 Chapter 3 88