THE EXTERNAL ASSESSMENT
NATURAL ENVIRONMENT FORCES
EXTERNAL AUDIT
- is to develop a finite list of opportunities that
could benefit a firm and threats that should be
avoided.
- an external audit 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.
EXTERNAL FORCES ARE DIVIDED INTO FIVE
CATEGORIES
 economic forces
 social, cultural, demographic and
natural environment forces
 political, governmental and legal forces
 technological forces
 competitive forces
INDUSTRIAL ORGANIZATION (I/O)
- approach to competitive advantage advocates
that external (industry) factors are more
important than internal factor in a firm
achieving competitive advantage.
ECONOMIC FACTORS
- have a direct impact on the potential
attractiveness of various strategies.
KEY ECONOMIC VARIABLES
 Availability of credit
 Level of disposable income
 Propensity of people to spend
 Interest rates
 Money market rates
 Gross domestic products
 Unemployment trends
 Import/export
 Tax rates
SOCIAL, CULTURAL, DEMOGRAPHIC AND
- have a major impact on virtually all products,
services, markets and customers. new trends
are creating a different type of consumer and
consequently, a need for different products,
different services, and different strategies.
KEY SOCIAL, CULTURAL, DEMOGRAPHIC AND
NATURAL ENVIRONMENT VARIABLES.
 Childbearing rates
 Number of marriages
 Number of divorces
 Number of births
 Number of deaths
 Social security program
 Attitude toward business
 Lifestyles
 Traffic congestion
 Trust in the government
 Attitudes toward government
 Attitudes toward work
 Buying habits
 Attitudes toward savings
 Sex roles
 Attitudes toward leisure time
 Attitudes toward product quality
POLITICAL, GOVERNMENTAL AND LEGAL
FORCES
- represent key opportunities or threats for
both small and large organization.
SOME POLITICAL, GOVERNMENTAL AND LEGAL
VARIABLES
 Changes in tax laws
 Voter participation rates.
 Number, severity, and location of
government protest.
 Legislation on equal employment.
 Import-export regulations.
 Size of government budgets.
TECHNOLOICAL FORCES
- the internet has changed the very nature of
opportunities and threats by altering the life
cycles of products, increasing the speed of
distribution, creating new products and
services, erasing limitations of traditional
geographic markets, and changing the historical
trade-off between production standardization
and flexibility.
- technological advancement can dramatically
affect organizations products, services, markets,
suppliers, distributors, competitors, customers,
manufacturing processes, marketing practices,
and competitive position.
EXAMPLES OF THE IMPACT OF WIRELESS
TECHNOLOGY
 Airlines - many airlines now offer
wireless technology in flight
 Banking – sends text messages alerts
after unusual transactions
 Education - many students use smart
phones for research
 Health care – patients use mobile
devices to monitor their own health,
such as calories consumed.
 Publishing – eBooks are increasingly
available
COMPETITIVE INTELLIGENCE (CI)
- is a systematic and ethical process for
gathering and analyzing information about the
competition’s activities and general business
trends to further a business’ own goals.
- sometimes referred to as corporate
intelligence, refers to the ability to gather,
analyze, and use information collected on
competitors, customers, and other market
factors that contribute to a business’
competitive advantage.
THREE BASIC OBJECTIVES OF CI PROGRAM:
 To provide a general understanding of
an industry and its competitors.
 To identify areas in which competitors
are vulnerable and to assess the impact
strategic actions would have on
competitors.
 To identify potential moves that a
competitor might make that would
endanger a firm’s positions in the
market.
MARKET COMMONALITY
- can be defined as the member 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
rival.
- refers to situation in which firm resources
(tangible and intangible are compared to
counter part’s resources in terms of type and
quantity and amount). If they have similar
resources then their strategy will be same at
point of time.
MICHAEL PORTER’S FIVE FORCES OF
COMPETITIVE ANALYSIS
1. COMPETITIVE RIVALRY
o This looks at the number and strength
of your competitors. How many rivals
do you have? Who are they, and how
does the quality of their products and
services compare with yours?
o Where rivalry is intense, companies can
attract customers with aggressive price
cuts and high-impact marketing
campaigns. Also, in markets with lots of
rivals, your suppliers and buyers can go
elsewhere if they feel that they're not
getting a good deal from you.
 o On the other hand, where competitive
rivalry is minimal, and no one else is
doing what you do, then you'll likely
have tremendous strength and healthy
5. THREATS OF NEW ENTRY
profits.
2. SUPPLIER POWER
o This is determined by how easy it is for
your suppliers to increase their prices.
How many potential suppliers do you
have? How unique is the product or
service that they provide, and how
expensive would it be to switch from
one supplier to another?
o The more you have to choose from, the
easier it will be to switch to a cheaper
alternative. But the fewer suppliers
there are, and the more you need their
help, the stronger their position and
their ability to charge you more. That
can impact your profit.
3. BUYER POWER
CONDITIONS THAT CAUSE HIGH RIVALRY
o Here, you ask yourself how easy it is for
AMONG COMPETING FIRMS
buyers to drive your prices down. How
many buyers are there, and how big are
their orders? How much would it cost
them to switch from your products and
services to those of a rival? Are your
buyers strong enough to dictate terms
to you?
o When you deal with only a few savvy
customers, they have more power, but
your power increases if you have many
customers.
4. THREAT OF SUBSTITUTION
o This refers to the likelihood of your
customers finding a different way of
doing what you do. For example, if you
supply a unique software product that
automates an important process,
people may substitute it by doing the
process manually or by outsourcing it. A
substitution that is easy and cheap to
make can weaken your position and
threaten your profitability.
o Your position can be affected by
people's ability to enter your market.
So, think about how easily this could be
done. How easy is it to get a foothold in
your industry or market? How much
would it cost, and how tightly is your
sector regulated?
o If it takes little money and effort to
enter your market and compete
effectively, or if you have little
protection for your key technologies,
then rivals can quickly enter your
market and weaken your position. If
you have strong and durable barriers to
entry, then you can preserve a
favorable position and take fair
advantage of it.
 High number of competing firms.
 Similar size of firms competing.
 Similar capability of firms competing.
 Falling demand for the industry’s
products.
 Falling product/service prices in the
industry.
 When consumers can switch brands
easily.
 When barriers to leaving the market is
high.
 When barriers to entering the market is
low.
 When fixed costs are high among firms
competing.
 When the product is perishable.
 When rivals have excess capacity.
 When consumer demand is falling.
 When rivals have excess inventory.
  When rivals sell similar
products/services.
 When mergers are common in the
industry.

CONSUMERS GAIN INCREASING BARGAINING

POWER UNDER THE FOLLOWING
CISCUMSTANCES:

 If they inexpensively switch to

competing brands or substitutes.
 If they are particularly important to the
seller.
 If sellers are struggling in the face of
falling consumer demand.
 If they are informed about seller’s
products, prices, and costs.
 If they have discretion in whether and
when they purchase the product.