December 8, 2021

EXTERNAL ENVIRONMENT
Session 3
Professor Hilda L. Teodoro
Ateneo Graduate School of Business
 THE STRATEGIC
MANAGEMENT PROCESS

Scan External Identify Strategic

Environment Factors
•Opportunities
•Threats
Implement Strategy
via Changes in:
Formulate
Evaluate Current •Leadership
Strategy
•Mission •Structure
Define new: •Corporate
•Goals •Human Resources
•Mission •Business
•Strategies •Information and
•Goals •Functional
control systems

Scan Internal Identify Strategic

Environment Factors
•Strengths
•Weaknesses

HILDA L. TEODORO ATENEO GRADUATE SCHOOL 2

OF BUSINESS
 SESSION 2: AGENDA

External Analysis
General Environment
Industry Analysis
Michael Porter Video on 5 Forces
Group Discussion: CPM, MVS, EFE

HILDA L. TEODORO ATENEO GRADUATE SCHOOL 3

OF BUSINESS
 THE EXTERNAL ASSESSMENT
Identification and evaluation of trends and
events beyond control of a single firm
Increased foreign competition
Populations shifts
Aging society
Information technology
Computer revolution
“…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.” FRED DAVID
HILDA L. TEODORO ATENEO GRADUATE SCHOOL 4
OF BUSINESS
 THEEXTERNAL
EXTERNAL ASSESSMENT
ASSESSMENT

1. Economic trends
2. Social, Cultural and Demographic trends
3. Technological developments
4. Legal, Political, and Government forces
5. Competitive forces
Development of Finite List:
Opportunities
Threats to be avoided
FRED DAVID
HILDA L. TEODORO ATENEO GRADUATE SCHOOL 5
OF BUSINESS
 ECONOMIC FORCES
Industry Shifts
Availability of Credit
Level of Disposable Income
Consumption patterns
Interest/inflation
Money market rates
Budget deficits
Gross domestic product trend
Unemployment trends
Worker productivity levels
Exchange rates
Stock Market trends
Foreign economic conditions
Import/export factors
HILDA L. TEODORO ATENEO GRADUATE SCHOOL
OF BUSINESS
Demand shifts for different
categories of products and
services
Income differences by
region/consumer groups
Price fluctuations
Export of labor and capital
Monetary policies
Fiscal policies
Tax rates
EEC policies
OPEC policies
Unemployment trends
Propensity of people to spend
FRED DAVID
6
 SOCIO-CULTURAL FORCES
Child bearing rates
Number of special interest
groups
Number of
marriages/divorces
Immigration/emigration rates
Life expectancy rates
Per capita income
Location of businesses
Attitudes and lifestyles
Traffic congestion
Buying habits
Ethical concerns
Savings/investing
HILDA L. TEODORO ATENEO GRADUATE SCHOOL
OF BUSINESS
Sex roles
Birth control
Level of education
Government regulation
Trust in government
Pollution control
Energy programs
Social programs
Number of churches
Population changes by
location and by age, sex, etc.
Number of high school and
college graduates
Waste management
FRED DAVID
7
 LEGAL/POLITICAL FORCES
Government
regulations/deregulations
Changes in tax laws
Special tariffs
Political action committees
Voter participation
Number and severity of
protest against government
Patents and changes
Environmental protection
laws
Level of defense spending
Antitrust legislation
Geopolitics
Import/export regulations
Fiscal & monetary policies
Lobbying activities
Size of gov’t budgets
World oil, currency, &
labor markets
Terrorism
Local and national
elections

FRED DAVID
HILDA L. TEODORO ATENEO GRADUATE SCHOOL 8
OF BUSINESS
 TECHNOLOGICAL FORCES
• A firm must be aware of technological changes that
might influence its industry
• TECHNOLOGICAL FORECASTING - key lies in
accurately predicting future technological capabilities
and their probable impacts
• Internet changes the nature of opportunities and threats
• Alters life cycle of products
• Increases speed of distribution
• Creates new products and services
• Eases limitations of geographic markets
• Alters economies of scale
• Changes entry barriers

PEARCE & ROBINSON

HILDA L. TEODORO ATENEO GRADUATE SCHOOL 9
OF BUSINESS
 COMPETITOR ANALYSIS
Purpose is to analyze each major competitor in
sufficient detail so as to be able to construct the
strategy the competitor is pursuing.
Not an easy task
Some are small and privately held
Others don’t have a clearly articulated
strategy – discern their implied strategy
Others say one thing and do something else.

BCG
HILDA L. TEODORO ATENEO GRADUATE SCHOOL 10
OF BUSINESS
 COMPETITOR ANALYSIS INCLUDES

A knowledge of the competitors priorities,

objectives and goals
An understanding of their abilities and
problems
How important this specific business is when
compared with their other businesses.
What will they be doing in the future and how
it will be accomplished.

BCG
HILDA L. TEODORO ATENEO GRADUATE SCHOOL 11
OF BUSINESS
 COMPETITOR PROFILE:
Collection and evaluation of information on competitors is
essential for successful strategy formulation. FRED DAVID

Market share Raw material costs

Breadth of product line
Effectiveness of sales
distribution
Proprietary and key account
advantages
Price competitiveness
Advertising and promotion
effectiveness
Location and age of facility
Capacity and productivity
Experience
HILDA L. TEODORO ATENEO GRADUATE SCHOOL
OF BUSINESS
Financial position
Relative product quality
R&D advantages position
Caliber of personnel
General images
Customer profiles
Patents and copyrights
Union relations
Technological position
Community reputation
PEARCE & ROBINSON
12
 COMPETITIVE PROFILE MATRIX
Identifies a firm’s major competitors and their
strengths and weaknesses in relation to the firm’s
strategic position.
Include both internal and external issues
Identifies the Key Success Factors
Critical success factors are broader than EFE & IFE.
Critical success factors must apply to all competitors.
Numbers reveal the relative strength of firms, but their
implied precision is an illusion.

FRED DAVID

HILDA L. TEODORO ATENEO GRADUATE SCHOOL 13

OF BUSINESS
 COMPETITIVE PROFILE MATRIX
List (5-8) critical success factors identified.
Assign a weight to each factor. The sum of all weights
must equal 1.0.
Assign a 1-4 rating to each factor to indicate whether that
factor represents a
4 – major strength.
3 – minor strength.
2 – minor weakness.
1 – major weakness.
Multiply each factor by its rating to determine a weighted
score .
Sum the weighted scores to determine total score for the
organization.
FRED DAVID
HILDA L. TEODORO ATENEO GRADUATE SCHOOL 14
OF BUSINESS
 CPM - COMPETITIVE PROFILE MATRIX
 
SARAP CANNER ARIES
CRITICAL SUCCESS FACTORS
Weight Rating Score Rating Score Rating Score

1 Product quality and performance 0.40 4 1.60 2 0.80 3 1.20

2 Effective distribution 0.20 3 0.60 2 0.40 2 0.40

3 Market share 0.15 4 0.60 2 0.30 3 0.45

4 Brand management 0.10 3 0.30 2 0.20 2 0.20

5 Customer loyalty 0.15 3 0.45 2 0.30 2 0.30

       
Total 1.00 3.55 2.00 2.55

HILDA L. TEODORO ATENEO GRADUATE SCHOOL 15

OF BUSINESS
 PORTER’S 5 FORCES OF
COMPETITIVE ANALYSIS
The collective strength
of the 5 forces
THREAT OF NEW
ENTRANTS determines the
attractiveness of the
industry.

BARGAINING BARGAINING
POWER OF RIVALRY AMONG
POWER OF
BUYERS COMPETITORS
SUPPLIERS

The 5 forces determine

industry profitability
because they influence THREAT OF
the prices, costs, and SUBSTITUTE
required investment of PRODUCTS
firms in an industry. MICHAEL E. PORTER
HILDA L. TEODORO ATENEO GRADUATE SCHOOL 16
OF BUSINESS
 THREAT OF NEW ENTRANTS
BARRIERS TO ENTRY
Economies of scale
Brand Identity These
factors tend
Differentiation to raise
Capital requirements barriers to
market entry
Switching costs by new
entrants
Access to distribution
Absolute cost advantages
Government policy
Expected retaliation

MICHAEL E. PORTER
HILDA L. TEODORO ATENEO GRADUATE SCHOOL 17
OF BUSINESS
 BARGAINING POWER OF
BUYERS
Buyer volume
These
Big ticket items factors tend
Low switching costs to increase
customer
Standardized or bargaining
undifferentiated products power
Purchase is not very
important to buyer
Buyerscan
Buyers canreduce
reduce
Buyer has all the relevant industryprofitability
profitabilityby
by
industry
information forcingdown
forcing down prices,
prices,
demanding more
demanding moreservice,
service,
playingone
playing onecompetitor
competitor
againstanother
against another
MICHAEL E. PORTER

HILDA L. TEODORO ATENEO GRADUATE SCHOOL 18

OF BUSINESS
 THREAT OF SUBSTITUTE
PRODUCTS
Low switching costs
Whether buyers view the Substitute:
substitutes as being look different
but can
satisfactory in terms of perform the
quality, performance, and same
other relevant attributes function as
your product
Whether attractively
priced substitutes are
available

TV Antenna vs Cable

MICHAEL E. PORTER
HILDA L. TEODORO ATENEO GRADUATE SCHOOL 19
OF BUSINESS
 BARGAINING POWER
OF SUPPLIERS
Dominated by a few
suppliers Tend to
Suppliers are more increase
supplier
concentrated than buyers bargaining
No substitutes power
Supplier has more
important customers
Differentiated product Suppliers can raise
High switching costs prices, or reduce quality
Squeeze profitability

MICHAEL E. PORTER
HILDA L. TEODORO ATENEO GRADUATE SCHOOL 20
OF BUSINESS
 RIVALRY AMONG
COMPETITORS
Numerous rivals
Slow growth Tend to
increase
High fixed costs rivalry
among
Low differentiation existing
competitors
Low switching costs
Large capacity
increments
High exit barriers

MICHAEL E. PORTER
HILDA L. TEODORO ATENEO GRADUATE SCHOOL 21
OF BUSINESS
 Assign a weight Assign a 1–4 rating
EFE to each factor effectiveness of co. strategies

Rat WTD
KEY EXTERNAL FACTORS WT ing Score
Rating Rationale

EXTERNAL OPPORTUNITIES

Hasn’t really taken advantage of the

1-E Increased GDP level 0.02 2 0.04 growth in GDP
Has not really taken full advantage of
2-E Increased level of health expenditures 0.08 2 0.16 this increase

Focused on the older population

3-S Rapid growth of the older population 0.05 4 0.20 coming out with medicines that address
their medical problems very effectively.

Rated as the most effective coxib in the

4-S Big unsatisfied acute pain market 0.20 3 0.60 market

5-S Increase in number of HMOs 0.05 2 0.10 Slow penetration of the HMO market

EXTERNAL THREAT

Increasing cost of sales due to fluctuation in Cost of goods driven by mother co as

1-E 0.05 2 0.10
peso. supplier.

Cost containment pressures from the

2-P 0.05 1 0.05 Lack of response to this threat
government
3-P Unpredictable, unstable political situation 0.10 1 0.10 Lack of response to this threat

Still rated as the most effective coxib in

4-C Introduction of newer coxibs 0.20 3 0.60 the market

Greater promotional resources of Started to increase its own promotional

5-C 0.20 3 0.60 materials
competitors

HILDA Total
L. TEODORO
EFE Score ATENEO GRADUATE
1.00 SCHOOL
2.55 22
OF BUSINESS
 The External Factor Evaluation
Matrix (EFE)
1. List critical success factors identified.
2. Assign a weight to each factor. The sum of all
weights must equal 1.0.
3. Assign a 1-4 rating to each critical factor to indicate
how effectively the firm’s currents strategies respond
to the factor.
4 – superior 3 - above average
2 – average 1 - poor
4. Multiply each factor by its rating to determine a
weighted score .
5. Sum the weighted scores for each variable to
determine total score for the organization.
FRED DAVID

HILDA L. TEODORO ATENEO GRADUATE SCHOOL 23

OF BUSINESS