WEEKS 3

The External Assessment

 Group Assignment
1. List out vision & mission
 Group Assignment (ie; Nestle)

1. Know the nature of business

2. Vision & mission of the business

3. Opportunities
Few weak and competitor in market (need
to identify who is the competitors)
Disposable income who? consumer
All about the company need to move into
internal
 Comprehensive Strategic Management Model
(External Assessment/Audit)

External
Audit

Long-Term Generate,
Objectives Implement Implement Measure &
Vision Evaluate,
Strategies: Strategies: Evaluate
& Select
Mgmt Issues Marketing, Performance
Mission Strategies
Fin/Acct,
R&D, CIS

Internal
Audit
External Assessment (cannot be control)

• The purpose external assessment is

to develop a finite list of
opportunities that could benefit a firm
and threats that should be avoided
• Finite mean it is aimed at identifying
key variables that offer actionable
responses
-something we can grab from outside
 Five Broad Category of External
Forces
1. Economic forces
• currency good if we export
• GDP good=products (how much Msia sell
all finished product)
• Demand from customer = economic is
good
 Five Broad Category of External
Forces
2. Social, culture, demographic and natural
environment forces
• look at gender, age, changing culture
 Five Broad Category of External
Forces
3. Political, government and legal forces
• Policies (ie: healthy food) legal forces
(smoking prohibited)
 Five Broad Category of External
Forces
4. Technology forces
• Using AI, current tech
5. Competitive forces
• Alert with changes
 Key External Forces & the Organization

Competitors
1. Economic Suppliers
forces
2. Social, culture, Distributors
demographic Creditors
An
and natural Customers
environment Organization’s
Employees Opportunities
forces
3. Political, Communities & Threats
government Managers
and legal Stockholders
forces Labor Unions
4. Technology
forces Special Interest Groups
5. Competitive Products
forces Services
The process of Performing
External Audit

Important to achieve Long-term

and annual objectives

Measurable
External
Factors Applicable to
competing firms

Hierarchical (in order)

The Industry Organization (I/O) View

 Advocate that external (industry) factors are more

important than internal factors in a firm achieving
competitive advantage
 Contend that external factors and the industry in
which a firm choose to compete has a stronger
influence on the firm’s performance than do the
internal functional
Build CA based on outside (must be diff from competitors)
Economic Forces – Key economic Variables
• Change to service economic
• Availability of credit
• Level of disposable income: money that we can spent
• Propensity of people spend
• Interest rate
• Inflation rate
• Money market rates
• Gross Domestic product trend
• Employment rate/trend
• Value of dollar in world markets
• Stock market trends (markets trends down, GDP down)
• Foreign countries economics condition
• Import/export factors
• Income differences by consumers

• Japan x bothered of currency coz most of the products being export

Economic Forces – Countries GDP 2010

The ten largest economies in the world in 2010, measured in nominal GDP
(millions of USD), according to the International Monetary Fund
Economic Forces – Inflation rate in Malaysia

Year Inflation rate (consumer prices) (%)

2000 2.8
2001 1.7
2002 1.5
2003 1.9
2004 1.1
2005 1.3
2006 3
2007 3.8
2008 2
2009 5.4
Social, Cultural, Demographic
& Environmental Forces

Have a major impact on all products,

services, markets and consumers
Shaping the way people live, work,
produce and consume
Social, Cultural, Demographic
& Environmental Forces

•Aging population - occurs when the median

age of a country or region rises

•Less Caucasian
•Widening gap between rich & poor
•no ethnic or racial majority
Key Social, Cultural, Demographic &
Environmental Variables

Childbearing rates (focus nursery coz trend only few kids)

Number of marriages & divorces

Lifestyle

Attitudes towards work/ saving/investing/business

Air pollution/ water pollution/ recycle. Waste management

Social, Cultural, Demographic &
Environmental Forces – example UK
population grows
Political, Government & Legal
Forces
• Government is the major regulators, deregulators,
employers, customers or organization
• Firm that depend heavily on government contract can be
the most important part of external audit
• Recent trend
– Government are taking control of more and more companies (in
the UK, 2009, government took 95% stake in the Royal Bank)
(US government taking over Fannie Mae and Freddie Mac)
– More companies accept government bail-out (BMB and MISC –
in Malaysia)
Political, Government & Legal Forces
– some key variables
 Government regulations or de-regulations
 Changes in Tax laws
 Special tariff
 Environment protection laws
 Legislation on equal employment
 Level of government subsidies
 Import-export regulation
 Government fiscal and monetary policy
 Political conditions in foreign countries
 Size of government budget
 Countries relationship
 Corruption index
Technology Forces
Internet has changed the nature of opportunities
by:
• altering cycles of products
• increase speed of distribution
• create new products and services
• erasing limitations of traditional geographic markets
• Altering economic scale (ie: mass production)
• Changing entry barriers
• Redefining the relationship between industries, supplies,
creditors, customers and competitors
Technology Forces
Technology advancement can effect:
• Product or services, markets, suppliers, competitors,
customers, manufacturing processes, marketing
practices and competitive position
• Create new markets, result in proliferation of new and
improve med product, change the relative competitive
cost position
• Create new competitive advantages that are more
powerful than existing advantages
Competitive Forces
Identifying Rival Firms
•Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies
Competitive Forces
7 Characteristics of most
Competitive U.S. Firms:

1. Market share matters

2. Understand what business you are in
3. Broke or not, fix it
4. Innovate or evaporate
Competitive Forces
7 Characteristics of most
Competitive U.S. Firms:

5. Acquisition is essential to growth

6. People make a difference
7. No substitute for quality
The Five-Forces Model of Competition
• Porter's five forces is a framework for the
industry analysis and business strategy
development formed by Michael E. Porter of
Harvard Business School in 1979.
• It draws upon Industrial Organization (IO)
economics to derive five forces that determine
the competitive intensity and therefore
attractiveness of a market.
• This concept involves a relationship between
competitors within an industry, potential
competitors, suppliers, buyers and alternative
solutions to the problem being addressed.
 The 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

The Five-Forces Model of Competition
• Reducing the Bargaining Power of Suppliers
Partnering, Supply chain management, supply chain training,
increase dependency, build knowledge of supplier costs and
methods, take over a supplier

• Reducing the Treat of New Entrants - Increase minimum efficient

scales of operations, create a marketing / brand image (loyalty as a
barrier), protection of intellectual property, alliances with linked
products / services, tie up with suppliers, tie up with distributors

• Reducing the Competitive Rivalry between Existing Players -

Avoid price competition, differentiate your product, buy out
competition, reduce industry over-capacity, focus on different
segments, communicate with competitors

• Reducing the Bargaining Power of Customers- partnering, supply

chain management, increase loyalty, increase incentives and value
added, move purchase decision away from price, cut put powerful
intermediaries (go directly to customer)

• Reducing the Threat of Substitutes- Legal actions, increase

switching costs, alliances, customer surveys to learn about their
preferences, enter substitute market and influence from within  
Source of External Information

• Published report/information
• Internet- websites (IMF, world Bank, EPU,
Central Bank, stock exchange, etc)
• Standard and Poor – industry surveys
http://sandp.ecnext.com/coms2/page_indu
stry
• Example: Apparel & Footwear
Industry Analysis: The External Factor
Evaluation (EFE) Matrix

Summarize & Evaluate

Economic Demographic Governmental

Social Environmental Technological

Cultural Political Competitive

Industry Analysis: The External Factor
Evaluation (EFE) Matrix
Steps:
1. List key external factors. List the opportunities and then
threat
2. Assign each factors a weight that ranges from 0.0 (not
important) to 1.0 (very important)
3. Assign rating between 1 to 4 (1=the response is poor,
2=the response is average, 3= the response is above
average, 4= the response is superior)
4. Multiple each factor’s weight by its rating to determine
weighted score
5. Sum the weighted score for each variable to determines
the total weighted score for the organization
4: need to react fast if not other will take it
1: depends on company to take action

0.03 – packaging tech: tak penting coz still kena buat chic
poultry
Industry Analysis EFE

Total weighted score of 4.0

• Organization response is outstanding to threats
and weaknesses

Total weighted score of 1.0

• Firm’s strategies not capitalizing on opportunities
or avoiding threats
Industry Analysis: Competitive Profile
Matrix (CPM)

• Identifies firm’s major competitors

and their strengths & weaknesses
in relation to a sample firm’s
strategic positions
• Include both internal and external
factors
Industry Analysis: Competitive Profile
Matrix (CPM)

The rating score:

4= major strength
3= minor strength
2=minor weakness
1=major weakness
 Gateway Apple Dell
CSF’s Wt Rating Wt’d Rating Wt’d Rating Wt’d
Score Score 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
 Gateway Apple Dell
Wt Rating Wt’d Rating Wt’d Rating Wt’d
CSF’s (cont’d) Score Score 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
competitive
Mgt. 0.01 2 0.02 4 0.04 2 0.02
experience

Total 1.00 2.83 2.47 3.49

Issues for Review or Discussion

• List 8 key external forces that affect Proton

• Using Porter’s model, explain
competitiveness for local fast food
restaurant (example: Marry Brown,
McDonald, Fried Chicken)