EFE,CPM

A COMPREHENSIVE STRATEGIC
MANAGEMENT MODEL
3.
Perform
external
Audit

2. Develop 6.Generate, 7.Implement 8.Implement

5. Establish 9.Measure and
vision & evaluate and strategies- strategies – F,
long term Acc, R&D,
evaluate
mission select management
objectives performance
Statements strategies issues MIS issues

4.
Perform
internal
Audit

Strategy Formulation Strategy Strategy

Evaluation
implementation 2
#3. THE EXTERNAL ASSESSMENT

Identify & Evaluate factors beyond the

control of a single firm

– Increased foreign competition

– Population shifts
– Information technology
 Key External Forces & the Organization

Competitors
Suppliers
Economic Forces
Distributors
Social, Cultural demographic and Creditors
environmental forces
Customers
Political, legal & governmental Employees Opportunities
forces Communities &
Threats
Technological forces Managers
Stockholders
Competitive forces
Labor Unions
Special Interest Groups
Products
Services
Performing External Audit

Long-term orientation
Long-term orientation

Measurable
External
Factors Applicable to
Applicable to
competing firms
competing firms

Hierarchical
Industrial Organisation I/O Perspective

Industry Properties

Economies of Scale

Barriers to market entry

Product differentiation

Level of competitiveness
KEY ECONOMIC FACTORS

• Stock market trends

• Interest rates
• Tax rates
• Price fluctuations
• Prosperity of the people to spend
Key Social, Cultural, Demographic &
Environmental Variables

Childbearing rates

Number of special interest groups

Number of marriages & divorces

Number of births & deaths

Immigration & emigration rates

Demographic

Age group Percentage(2001) Percentage(2011)

All Ages 100.0 100.0
<6 15.9 9.7
7-14 19.2 19.8
15-59 56.9 56.9
>60 7.5 8.0
Not mentioned 0.3
Source : Census of India 2001, 2011.
Political, Government & Legal Forces

Globalization of Industry

• Worldwide trend toward similar

consumption patterns
• Global buyers and sellers
• Technology for instant currency transfers
• Laws – Local, state, national
• Size of government budget
TECHNOLOGY FORCE

• Internet
• E-commerce
Competitive Forces

Identifying Rival Firms

•Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies
Competitive Forces

7 Characteristics of most Competitive U.S. Firms:

▪ Market share matters

▪ Understand what business you are in
▪ Broke or not, fix it
▪ Innovate or evaporate
▪ Acquisition is essential to grow
▪ People make a difference
▪ No substitute for quality
 PORTER’S FIVE-FORCES MODEL OF COMPETITION

Potential development
of substitute products

Bargaining power Rivalry among Bargaining power

of suppliers competing firms of consumers

Potential entry of new

competitors
PORTER’S FIVE-FORCES MODEL OF COMPETITION

•Economies of scale
•Brand loyalty
•Government Regulation
•Customer Switching Costs
•Absolute Cost Advantage
•Ease in distribution
•Strong Capital base
Potential entry of new
competitors
PORTER’S FIVE-FORCES MODEL OF COMPETITION

Rivalry among
competing firms
Extent of exit barriers
Amount of fixed cost
Competitive structure of industry
Presence of global customers
Absence of switching costs
Growth Rate of industry
Demand conditions
 PORTER’S FIVE-FORCES MODEL OF COMPETITION

Potential development
of substitute products

Bargaining power Bargaining power

of suppliers of consumers
EXAMPLES…
Internet’s impact of the competitive forces :

• Encouragement to new entrants

– Ex. : Blockbuster, Amazon

• Increase in the ‘Bargaining Power of Buyers’

– Ex. : Amazon, eBay

• Increase in the ‘Bargaining Power of Suppliers’

– Ex. : e-Markets

• Decrease in the ‘Bargaining Power of other suppliers’

– Ex. : financial services, travel agents

• Substitute products or services

– Ex. : downloadable music reduces the sale of CD’
Industry Analysis:
External Factor Evaluation (EFE) Matrix

Summarize & Evaluate

Economic Demographic Governmental

Social Environmental Technological

Cultural Political Competitive

Industry Analysis: EFE example
Industry Analysis EFE

Total weighted score of 4.0

▪ Organization response is outstanding to threats and weaknesses

Rating between 1 and 4

▪ To indicate how effectively the firm’s current strategies
respond to the factor
Weighted score of 1.0
▪ The relative importance of that factor to being
successful in the industry
Industry Analysis: Competitive Profile
Matrix (CPM)

Identifies firm’s major competitors and their

strengths & weaknesses w.r.t. a sample
firm’s strategic position
 Industry Analysis: Competitive Profile
Matrix (CPM) sample

Gateway Apple Dell

Wt’d Wt’d Wt’d
CSF’s Wt Rating
Score
Ratin
g Score
Rating
Score

Market share 0.15 3 0.45 2 0.30 4 0.60

Inventory sys 0.08 2 0.16 2 0.16 4 0.32
Fin. position 0.10 2 0.20 3 0.30 3 0.30
Prod. Quality 0.08 3 0.24 4 0.32 3 0.24
Cons. Loyalty 0.02 3 0.06 3 0.06 4 0.08
Sales & Distr. 0.10 3 0.30 2 0.20 3 0.30
Global Exp. 0.15 3 0.45 2 0.30 4 0.60
Org. Structure 0.05 3 0.15 3 0.15 3 0.15
 Industry Analysis: Competitive Profile
Matrix (CPM) sample

Gateway Apple Dell

Wt’d Wt’d Wt’d
CSF’s (cont’d) Wt Rating
Score
Ratin
g Score
Rating
Score

Prod. Capacity 0.04 3 0.12 3 0.12 3 0.12

E-commerce 0.10 3 0.30 3 0.30 3 0.30
Customer Serv 0.10 3 0.30 2 0.20 4 0.40
Price
0.02 4 0.08 1 0.02 3 0.06
competitively
Mgt. 0.01 2 0.02 4 0.04 2 0.02
experience

Total 1.00 2.83 2.47 3.49