STRATEGIC MANAGEMENT

PRESENTED BY: MARY CHRIS J. DEL ROSARIO

THE EXTERNAL ASSESSMENT

OBJECTIVES

 Describe the nature and purpose of an external assessment in formulating strategies

 Identify and discuss 10 external forces that must be examined in formulating strategies
 Explain Porter’s Five Forces Model and its relevance in formulating strategies
 Describe key sources of information used for locating vital external information
 Discuss forecasting tools and techniques
 Explain how to develop and use an External Factor Evaluation (EFE) Matrix
 Explain how to develop and use a Competitive Profile Matrix (CPM)
EXTERNAL STRATEGIC MANAGEMENT AUDIT
 Also called environmental scanning or industry analysis
 External audit focuses on identifying and evaluating trends and events beyond the
control of a single firm
- Increased foreign competition
- Population shifts
- Aging society
- Taxing internet sales
 An external audit reveals key opportunities and threats confronting an organization
so managers can formulate strategies to take advantage of the opportunities and avoid
or reduce the impact of threats.
 THE PURPOSE AND NATURE OF AN EXTERNAL AUDIT

 Develop a finite list of opportunities that could benefit a firm as well as threats that
should be avoided
 The external audit is not aimed at developing an exhaustive list of every possible
factor that could influence the business rather it is aimed at identifying key
variables that offer actionable responses
 Firms should be able to respond to the factors by formulating strategies that take
advantage of external opportunities or that minimize the impact of potential threats
PERFORMING AN EXTERNAL AUDIT

 The process of performing an external audit must

involve as many managers and employees as possible
 Involvement in this process can lead to
understanding and commitment from organizational
members
 Individuals appreciate having the opportunity to
contribute ideas and gain a better understanding of
their firms industry competitors and markets
 PERFORMING AN EXTERNAL AUDIT

 Gather competitive intelligence and information about economic, cultural, demographic,

environmental, political, governmental, legal and technological trends
 Individuals can be asked to monitor various sources of information such as key magazines, trade journals
and newspapers and use online sources.
 These persons can submit periodic scanning reports to the person who coordinate the external audit
 This approach provides a continuous stream of timely strategic information and involves many individual
in the external audit process
 Suppliers, distributors, salespersons, customers, and competitors represent other sources of vital
information
 PERFORMING AN EXTERNAL AUDIT

 Evaluate information
 Series of meetings of managers is needed to collectively identify the most important
opportunities and threats facing the firm
 A prioritized list must be obtained by requesting all managers individually rank the factors
identified

‘Prioritization is absolutely essential in strategic planning because no organization can do everything that
would benefit the firm; tough choices among good choices have to be made.’
THE INDUSTRIAL ORGANIZATION (I/O) VIEW

The Industrial Organization (I/O) view of strategic planning

advocates that external (industry) factors are more important
than internal factors for gaining and sustaining competitive
advantage.
EXTERNAL FORCES THAT
AFFECT ORGANIZATIONS
 ECONOMIC FORCES
 Economic factors have a direct impact on the potential attractiveness of various strategies
 Key Economic Variables that often represent opportunities and threats for organizations:
Shift to a service economy in the USA  Income differences by region and consumer groups
Availability of credit  Price fluctuations
Level of disposable income  Foreign countries economic conditions
Propensity of people to spend  Monetary and fiscal policies
Interest rates  Stock market trends
Inflation rates  Tax rate variation by country and state
Gross domestic product trends  European Economic Community (EEC) policies
Consumption patterns  Organization of Petroleum Exporting Countries
Unemployment trends (OPEC) policies
Value of the dollar in world markets
Import/export factors
Demand shifts for different goods and services
 ECONOMIC FORCES
 In strategic planning and case analysis, relevant economic variables must be quantified and
actionable to be useful
Example: ‘value of the dollar’
 Dollar hit a 7 year high compared to yen, a 9 year high compared to euro, a 5 year high
compared to Australian dollar and an 11 year high to some other countries
 The high dollar makes it cheap for Americans to travel abroad but expensive for foreigners
to travel to the U.S., thus hurting the U.S. tourism business.
 Trends in the dollar’s value have significant and unequal effects on companies in different
industries and in different locations
 Generally, a strong or high dollar makes U.S. goods more expensive in overseas markets
 SOCIAL, CULTURAL, DEMOGRAPHIC
AND NATURAL ENVIRONMENTAL FORCES
 Changes impact strategic decisions on virtually all products, services, markets and customers
 Key Social, Cultural, Demographic, and Natural Environment Variables
 Population changes by race, age and geographic area  Attitudes toward retirement
 Regional changes in tastes and preferences  Energy conservation
 Number of marriages  Attitudes toward product quality
 Number of divorces  Attitudes toward customer service
 Number of births  Pollution control
 Number of deaths  Attitudes toward foreign peoples
 Immigration and emigration rates  Energy conservation
 Social security programs  Social programs
 Life expectancy rates  Number of churches
 Per capita income  Number of church members
 Social media pervasiveness  Social responsibility issues
 POLITICAL, GOVERNMENTAL, AND LEGAL FORCES
 Political issues and stances do matter for business and do impact strategic decisions,
especially in today’s world of instant tweeting and emailing
 Some Political, Governmental, and Legal Variables
 Environmental regulations  USA vs other country relationships
 Number of patents  Political conditions in foreign countries
 Changes in patent laws  Global price oil changes
 Equal employment laws  Local,state and federal laws
 Level of defense expenditures  Import-export regulations
 Unionization trends  Tariffs
 Antitrust legislation  Local, state and national elections
 TECHNOLOGICAL FORCES

 A variety of new technologies such as the Internet of Things, 3D printing, the cloud, mobile devices,
biotech, analytics, autotech, robotics and artificial intelligence are fueling innovation in many industries
and impacting strategic planning decisions
 Businesses are using mobile technologies and applications to better determine customer trends and
employing advanced analytics data to make enhanced strategy decisions
 Organizations are establishing two positions in their firms reflecting the growing importance of IT in
strategic management: Chief Information Officer (CIO) and Chief Technology Officer (CTO)
 CIO and CTO work together to ensure that information needed to formulate, implement and evaluate
strategies is available where and when it is needed
 They are responsible for developing, maintaining and updating a company’s information datable
 The CIO is more a manager, managing the firm’s relationship with stakeholders while the CTO is more a
technician focusing on technical issues such as data acquisition, data processing, decision support
systems, and software and hardware acquisition
 COMPETITIVE FORCES

 An important part of an external audit is identifying rival firms and determining their
strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies.
 Collecting and evaluating information on competitors is essential for successful strategy
formulation.
 Identifying major competitors is not always easy because many firms have divisions that
compete in different industries

“If you’re not faster than your competitor, you’re in a tenuous position, and if you’re
only half as fast, you’re terminal” – George Stalk
 COMPETITIVE FORCES
 Key Questions About Competitors
 What are the strengths of our major competitors?
 What are the weaknesses of our major competitors?
 What are the objectives and strategies of our major competitors?
 How will our major competitors most likely respond to current economic, social, cultural, demographic,
environmental, political, governmental, legal, technological and competitive trends affecting our industry?
 How vulnerable are the major competitors to our alternative company strategies?
 How vulnerable are our alternative strategies to successful counterattack by our major competitors?
 How are our products or services positioned relative to major competitors?
 To what extent are new firms entering and old firms leaving this industry?
 What key factors have resulted in our present competitive position in this industry?
 How have the sales and profit rankings of our major competitors in the industry changed over recent years?
Why have these rankings changed that way?
 What is the nature of supplier and distributor relationships in this industry?
 To what extent could substitute products or services be a threat to our competitors?
 COMPETITIVE FORCES

 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’s own goals
 The more information and knowledge a firm can obtain about its competitors weaknesses can represent
external opportunities, major competitors strengths may represent key threats
 Various legal and ethical ways to obtain competitive intelligence include the following:

 Hire top executives from rival firms

 Reverse engineer rival firm’s products
 Use surveys and interviews of customers, suppliers and distributors
 Conduct drive by on site visits to rival firm operations
 Search online databases
 Contact government agencies for public information about rival firms
 Systematically monitor relevant trade publications, magazines and newspapers
 COMPETITIVE FORCES

 Competitive Intelligence is not the following:

 Is not spying
 Is not a crystal ball
 Is not a simple Google search
 Is not one size fits all
 Is not useful if no one is listening
 Is not a job for one, smart person
 Is not a fad
 Is not driven by software or technology
 Is not based on internal assumptions about the market
 Is not a spreadsheet
 COMPETITIVE FORCES
 The three basic objectives of a Competitive Intelligence:
 Provide a general understanding of an industry and its competitors
 Identify areas in which competitors are vulnerable and to assess the impact strategic
actions would have on competitors
 Identify potential moves that a competitor might make that would have endanger a firm’s
position in the market
 Competitive Intelligence is not a corporate espionage, 95% of the information a company needs to make
strategic decisions is accessible to the public
 Sources of competitive information include trade journals, want ads, newspaper articles, and government filings
as well as customers, suppliers, distributors, competitors themselves and the internet
 Unethical tactics such as bribery, wiretapping and computer hacking should never be used to obtain
information
 All the information a company needs can be collected without resorting to unethical tactics
PORTER’S FIVE FORCES MODEL
 SOURCES OF EXTERNAL INFORMATION

 A wealth of strategic information is available to organizations from both published and

unpublished sources
 Unpublished sources include customer surveys, market research, speeches at
professional and shareholders’ meetings, television programs, interviews, and
conversations with stakeholders
 Published sources of strategic information include periodicals, journals, reports,
government documents, abstracts, books, directories, newspapers and manuals
 A company website is usually an excellent place to start to find information about a firm,
particularly on the investor relations web pages
 FORECASTING TOOLS AND TECHNIQUES

 Forecasts are educated assumptions about future trends and events

 Forecasting is a complex activity because of 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
 Managers must rely on published forecasts to effectively identify key external opportunities
and threats
THE EXTERNAL FACTORS EVALUATION MATRIX

 Allows strategists to summarize and evaluate economic, social,

cultural, demographic, environmental, political, governmental, legal,
technological and competitive information
 THE EXTERNAL FACTORS EVALUATION MATRIX
EFE – Local 10 Theater Cinema Complex
Wtd  List external factors including both opportunities
Key External Factors Weight Rating
Score and threats that affect the firm and its industry
 Assign Weight that ranges from 0.0 (not
Opportunities
important) to 1.0 (very important).
1. Two neighborhoods developing within 3 miles 0.09 1 0.09  Assign Rating between 1 and 4 to each key
external factor to indicate how effectively the
2.TBD University is expanding 6% annually 0.08 4 0.32 firm’s current strategies respond to the factor,
where:
3. Major competitor across town recently closed 0.08 3 0.24  4 = the response is superior
 3 = the response is above average
4. Demand for going to cinemas growing 10% 0.07 2 0.14  2 = the response is average
 1 = the response is poor
5. Disposable income among citizens up to 5% in
0.06 3 0.18  Multiply each factor’s weight by its rating to
prior year
determine a weighted score
6. Rowan Country is growing 8% annually in  Sum the weighted scored for each variable to
0.05 3 0.15
population determine the total weighted score for the
organization
7. Unemployment rate in country declined to 3.1% 0.03 2 0.06
 THE EXTERNAL FACTORS EVALUATION MATRIX
EFE – Local 10 Theater Cinema Complex
Wtd
Key External Factors Weight Rating
Score
 The total wtd score of 2.58 is
Threats above average (midpoint) of
8. Trend toward healthy eating eroding concession sales 0.12 4 0.48 2.5 so this cinema business is
doing pretty well taking
9. Demand for online movies and DVDs growing 10% 0.06 2 0.12
advantage of the external
10. Commercial property adjacent to cinemas for sale 0.06 3 0.18 opportunities and avoiding the
threats facing the firm
11. TBD University installing an on-campus movie theater 0.04 3 0.12

12. County and city property taxes increasing 25% 0.08 2 0.16

13. Local religious groups object to T-rated movies 0.04 3 0.12

14. Movies rented at local Red Box’s up 12% 0.08 2 0.16

15. Movies rented last quarter from Time Warner up to 15% 0.06 1 0.06

TOTAL 1.00 2.58

THE COMPETITIVE PROFILE MATRIX

 Identifies a firm’s major competitors and its particular

strengths and weaknesses in relation to a sample firm’s
strategic position
 EXAMPLE OF COMPETITIVE PROFILE MATRIX
Company 1 Company 2 Company 3  List critical success factors
Critical Success
Weight  Assign Weight that ranges from 0.0
Factors Rating Score Rating Score Rating Score (not important) to 1.0 (very
Advertising 0.20 1 0.20 4 0.80 3 0.60 important).
 Assign Rating between 1 and 4 to each
Product Quality 0.10 4 0.40 3 0.30 2 0.20 key external factor to indicate how
effectively the firm’s current strategies
Price Competitiveness 0.10 3 0.30 2 0.20 1 0.10 respond to the factor, where:
Management 0.10 4 0.40 3 0.20 1 0.10  4 = major strengths
 3 = minor strengths
Financial Position 0.15 4 0.60 2 0.30 3 0.45  2 = minor weakness
Customer Loyalty 0.10 4 0.40 3 0.30 2 0.20  1 = major weakness
 Multiply each factor’s weight by its
Global Expansion 0.20 4 0.80 1 0.20 2 0.40 rating to determine a weighted score
 Sum the weighted scored for each
Market Share 0.05 1 0.05 4 0.20 3 0.15 variable to determine the total weighted
Total 1.00 3.15 2.50 2.20 score for the organization
EXAMPLE OF COMPETITIVE PROFILE MATRIX

Critical Success Company 1 Company 2 Company 3

Weight Analysis:
Factors Rating Score Rating Score Rating Score The 2 most important factors to
being successful in the industry is
Advertising 0.20 1 0.20 4 0.80 3 0.60
‘advertising’ and ‘global expansion’
Product Quality 0.10 4 0.40 3 0.30 2 0.20 as indicated by weights of 0.20
Price Competitiveness 0.10 3 0.30 2 0.20 1 0.10 Company 1 is strongest on
Management 0.10 4 0.40 3 0.20 1 0.10 ‘product quality’ as indicated by
rating of 4
Financial Position 0.15 4 0.60 2 0.30 3 0.45 Company 2 is strongest on
Customer Loyalty 0.10 4 0.40 3 0.30 2 0.20 ‘advertising’

Global Expansion 0.20 4 0.80 1 0.20 2 0.40 Overall, Company 1 is strongest as

Market Share 0.05 1 0.05 4 0.20 3 0.15 indicated by the total weighted
score of 3.15 and Company 3 is
Total 1.00 3.15 2.50 2.20 weakest
THANK YOU 
STRATEGIC MANAGEMENT
PRESENTED BY: MARY CHRIS J. DEL ROSARIO

Marriott International, Inc., 2015

HISTORY

 Marriott traces its roots to an A&W root beer stand founded by Willard
Marriott and his wife Alice in 1927 in Washington, DC
 Marriotts added hot food items to their menu and the new business
name became Hot Shoppes
 By 1957, the business had grown large enough to become a public
offering selling out of stock within 2 hours at the opening price of $10.25
per share
HISTORY

 Marriott opened its first hotel in Arlington Virginia with 325

rooms. The firm experienced growth in the domestic market and
international market over the next two decades even opening an
additional fast food restaurant and forming a partnership with Sun
Line cruise ships
HISTORY

 In 1983, Marriott introduced its Courtyard

properties designed for business travelers
 In 1987, Marriot introduced Fairfield Inn and
acquired Residence Inn and Renaissance Hotel
properties
 Marriott is noted for including copies of Book of
Mormon in addition to the Holy Bible in its rooms
 U.S. Republican Presidential candidate Mitt Romney,
a Mormon, reported $260,390 in director’s fees
from Mariott
 In 2013, Marriott International introduced Vacations
by Marriott, the company’s official travel deal
website
HISTORY

 In 2014, Marriott began a new initiative titled “The

Envelope Please” whereby its hotels leave an
envelope in every room for customers to tip the
housekeeper who cleans their room
MISSION, VISION, VALUES

“Take care of associates and they will take care of the customers”
Marriott’s values:
1. We put people first
2. We pursue excellence
3. We embrace change
4. We act with integrity
5. We serve our world
TIME CONTEXT

 November 2014, Starwood Hotels and Resorts became the first hotel to let
guests unlock doors with their phones.
VIEWPOINT

 Top Managers and Employees of Marriott International Inc.

 CENTRAL PROBLEM

 Despite the success of Marriott International, the company will face different
challenges in the near future. What would Marriott International do to maintain
its continued growth and profitability in the world market?
 OBJECTIVES

 Continuously develop services with new or different characteristics that offer

new or additional benefits to the customers
- Innovation in existing services/offers
- Continuous dialogue with the target market
- Market Intelligence (Research, Insights, Forecasts)
AREAS OF CONSIDERATION

STRENGTHS
 Marriott International has presence in countries around the world
 Marriott focus on innovation and most of its systems try to integrate
commitment and innovation to ensure total value for money
 One of the most competitive brands in the business and continuously reinvent
itself to combat competition
 Continue to maintain a positive outlook
AREAS OF CONSIDERATION

WEAKNESSES
 Focus on the luxury products but a large population cannot afford the luxuries
 Does not have a low cost lifestyle brand product portfolio
 Excessive focus on expansion
 Overemphasis on service standardization
 Need more investment on new technologies to integrate processes given the
scale of expansion and different geographies the company is planning to expand
AREAS OF CONSIDERATION

OPPORTUNITIES
 Environmentally and family orientation
 Decrease of cost of real estate in US
 Trend of eco tourism
 Emerging Asian travel and tourism markets
 Improving hospitality market in US
 Rising income
 Economic growth
 Population growth
 Increase its franchises in the different countries
 Emerging markets
AREAS OF CONSIDERATION
THREATS
 Vulnerability to terrorists attacks
 Timeshare business vulnerable in a dismal capital and credit market
 Fragmented and intensely competitive lodging
 Labor issues
 Rising interest rates
 High labor cost in America
 Economic recession
 Political instability
 Increase of real state in Asia
 Economy brand development
THE EXTERNAL FACTORS EVALUATION MATRIX
EFE – Marriott International
Key External Factors Weight Rating Wtd Score
Opportunities
1. Environmentally and family orientation 0.03 3 0.09
2. Decrease cost of real estate in US 0.05 4 0.20
3. Trend of eco tourism 0.02 3 0.06
4. Emerging Asian travel and tourism markets 0.06 4 0.24
5. Improving hospitality market in US 0.04 3 0.12
6. Rising income wherein people have more spare money to spend 0.05 3 0.15
7. Economic growth 0.07 3 0.21
8. Population growth 0.045 3 0.135
9. Increase its franchises in the different countries 0.035 4 0.14
10. Emerging markets 0.05 3 0.15
EXTERNAL FACTORS EVALUATION MATRIX
Wtd
Key External Factors Weight Rating
Score
Threats
1 Vulnerability to terrorists attacks raise security Analysis:
0.05 3 0.15
and safety concerns
 The total weighted score for Marriott
2. Timeshare business vulnerable in a dismal International is 3.155 which is above the
0.05 2 0.10
capital and credit market average which shows that Marriott is
3. Fragmented and intensely competitive lodging 0.09 4 0.36 doing well by taking advantage of external
opportunities and avoiding threats.
4. Labor issues 0.05 3 0.15
 The most important factor to being
5. Rising interest rates 0.04 4 0.16 successful in this business is “Population
growth” as indicated by 0.045 weight.
6. High labor cost in America 0.07 3 0.21
 There has been growing and is expected
7. Economic recession 0.08 3 0.24
to grow at a positive rate for the
8. Political instability 0.04 2 0.08 upcoming yrs which will be beneficial for
Marriott as there will be an increase in
9. Increase of real state in Asia 0.05 3 0.15 the number of potential customers that it
10. Economy brand development 0.03 2 0.06 can target

TOTAL 1.00 3.155

 COMPETITIVE PROFILE MATRIX
Marriott Wyndham Analysis:
Critical Success Hilton Hotels
Weight International Destination
Factors The two most important factors of being
Rating Score Rating Score Rating Score
successful in the industry are ‘financial
Advertising 0.09 1 0.09 1 0.09 1 0.09 position’ and ‘market share’ as indicated by
the weight of 0.17.
Product Quality 0.13 4 0.52 4 0.52 2 0.52
Price Competitiveness 0.09 1 0.09 2 0.09 3 0.09 There is a room for improvement in
advertising, management and price
Management 0.13 2 0.52 4 0.52 4 0.26 competitive as they are not fully utilized
compared to the competitors
Financial Position 0.17 4 0.68 4 0.68 3 0.51
Customer Loyalty 0.09 4 0.36 4 0.36 4 0.36 Marriott International is doing well than its
competitors
Global Expansion 0.13 4 0.52 4 0.52 2 0.26
Market Share 0.17 4 0.68 3 0.51 3 0.68
Total 1.00 3.46 3.29 2.77
 RECOMMENDATION

 Introduce a low cost brand to cater the low and middle level income population
 Tighten the security of the hotels to provide safe environment to customers
 Focus on eco tourism and apply eco friendly efforts
 Invest on new technologies to integrate processes given the scale of expansion
and different geographies the company is planning to expand