September 9, 2022

Governments sometimes use protectionism? to cope with economic problems, imposing tariffs and subsidies on foreign goods and restrictions/incentives on their own firms to keep jobs at home.

Reflection and Discussion Week 4

Reflection and Discussion Week 4Assigned Readings:Chapter 3. The External AssessmentChapter 4. The Internal AssessmentInitial Postings: Read and reflect on the assigned readings for the week. Then post what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding in each assigned textbook chapter.Your initial post should be based upon the assigned reading for the week, so the textbook should be a source listed in your reference section and cited within the body of the text. Other sources are not required but feel free to use them if they aid in your discussion.Also, provide a graduate-level response to each of the following questions:

Governments sometimes use “protectionism” to cope with economic problems, imposing tariffs and subsidies on foreign goods and restrictions/incentives on their own firms to keep jobs at home. What are the strategic implications of this trend for international commerce?
Do you agree or disagree with the resource-based view theorists that internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage? Explain your and their position.

[Your post must be substantive and demonstrate insight gained from the course material. Postings must be in the student's own words – do not provide quotes!] [Your initial post should be at least 450+ words and in APA format (including Times New Roman with font size 12 and double spaced). Post the actual body of your paper in the discussion thread then attach a Word version of the paper for APA review]

Strategic Management Concepts: A Competitive Advantage Approach

Sixteenth Edition

Chapter 3

The External Assessment

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Learning Objectives (1 of 2)

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

3.2 Identify and discuss 10 external forces that must be examined in formulating strategies: economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive.

3.3 Explain Porter’s Five Forces Model and its relevance in formulating strategies.

After studying this chapter, you should be able to do the following:

3-1. Describe the nature and purpose of an external assessment in formulating strategies.

3-2. Identify and discuss 10 external forces that must be examined in formulating strategies:

economic, social, cultural, demographic, environmental, political, governmental,

legal, technological, and competitive.

3-3. Explain Porter’s Five Forces Model and its relevance in formulating strategies.

3-4. Describe key sources of information used for locating vital external information.

3-5. Discuss forecasting tools and techniques.

3-6. Explain how to develop and use an External Factor Evaluation (EFE) Matrix.

3-7. Explain how to develop and use a Competitive Profile Matrix.

Learning Objectives (2 of 2)

3.4 Describe key sources of information used for locating vital external information.

3.5 Discuss forecasting tools and techniques.

3.6 Explain how to develop and use an External Factor Evaluation (E F E) Matrix.

3.7 Explain how to develop and use a Competitive Profile Matrix.

External Audit

External audit

focuses on identifying and evaluating trends and events beyond the control of a single firm

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

This chapter examines the tools and concepts needed to conduct an external strategic management audit (sometimes called environmental scanning or industry analysis).

The Nature of an External Audit

The external audit is aimed at identifying key variables that offer actionable responses

Firms should be able to respond either offensively or defensively to the factors by formulating strategies that take advantage of external opportunities or that minimize the impact of potential threats.

The purpose of an external audit is to develop a finite list of opportunities that could benefit a firm as well as threats that should be avoided. As the term finite suggests, 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.

Figure 3-1 A Comprehensive Strategic-Management Model

Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40. See also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, “Balance Scorecard of David’s Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,” Journal of Mathematics and Technology, no. 4 (October 2010): 20.

This figure illustrates with white shading how the external audit fits into the strategic-management process.

Key External Forces

External forces can be divided into five broad categories:

economic forces

social, cultural, demographic, and natural environment forces

political, governmental, and legal forces

technological forces

competitive forces

Important Note: When identifying and prioritizing key external factors in strategic planning, make sure the factors selected are (1) specific (i.e., quantified to the extent possible); (2) actionable (i.e., meaningful in terms of having strategic implications); and (3) stated as external trends, events, or facts rather than as strategies the firm could pursue.

Figure 3-2 Relationships Between Key External Forces and an Organization

Identifying and evaluating external opportunities and threats enables organizations to develop a clear mission, to design strategies to achieve long-term objectives, and to develop policies to achieve annual objectives.

The Process of Performing an External Audit (1 of 2)

First, gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends.

The process of performing an external audit must involve as many managers and employees as possible in order to lead to understanding and commitment from organizational members.

Individuals can be asked to monitor various sources of information, such as key magazines, trade journals, and newspapers—and use online sources.

The Process of Performing an External Audit (2 of 2)

Information should be assimilated and evaluated

A final list of the most important key external factors should be communicated

After information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm. A prioritized list of these factors must be obtained by requesting that all managers individually rank the factors identified, from 1 (for the most important opportunity/threat) to 20 (for the least important opportunity/threat).

The Industrial Organization (I/O) View

The Industrial Organization (I/O) approach to competitive advantage advocates that external (industry) factors are more important than internal factors in a firm for gaining and sustaining competitive advantage.

Proponents of the I/O view, such as Michael Porter, contend that organizational performance will be primarily determined by industry forces, such as falling gas prices that no single firm can control.

Economic Forces (1 of 2)

Shift to service economy

Availability of credit

Level of disposable income

Propensity of people to spend

Interest rates

Inflation rates

G D P trends

Consumption patterns

Unemployment trends

Value of the dollar

Be mindful that in strategic planning and case analysis, relevant economic variables such as those listed must be quantified and actionable to be useful.

Economic Forces (2 of 2)

Import/Export factors

Demand shifts for different goods and services

Income differences by region and consumer group

Price fluctuations

Foreign countries’ economic conditions

Monetary and Fiscal policy

Stock market trends

Tax rate variation by country and state

European Economic Community (E E C) policies

Organization of Petroleum Exporting Countries (O P E C) policies

Be mindful that in strategic planning and case analysis, relevant economic variables such as those listed must be quantified and actionable to be useful.

Advantages of a Strong Dollar (1 of 2)

Leads to lower exports

Leads to higher imports

Makes U.S. goods expensive for foreign consumers

Helps keep inflation low

Allows U.S. firms to purchase raw materials cheaply from other countries

Allows U.S. to service its debt better

Spurs foreign investment

Encourages Americans to travel abroad

Trends in the dollar’s value have significant and unequal effects on companies in different industries and in different locations. Agricultural and petroleum industries are hurt by the dollar’s rise against the currencies of Mexico, Brazil, Venezuela, and Australia. Generally, a strong or high dollar makes U.S. goods more expensive in overseas markets. This worsens the U.S. trade deficit.

Advantages of a Strong Dollar (2 of 2)

Leads to lower oil prices because oil globally is priced in U.S. dollars

Encourages Americans to spend money because they can buy more for their money

Social, Cultural, Demographic, and Natural Environmental Forces

U.S. Facts

Aging population

Less white

2050 = 20% population > 65 years

2075 = no ethnic or racial majority

Social, cultural, demographic, and environmental trends are shaping the way Americans live, work, produce, and consume. New trends are creating a different type of consumer and, consequently, a need for different products, new services, and updated strategies.

Key Social, Cultural, Demographic, and Natural Environmental Variables (1 of 3)

Population changes by race, age, and geographic area

Regional changes in tastes and preferences

Number of marriages

Number of divorces

Number of births

Number of deaths

Immigration and emigration rates

Social Security programs

Be mindful that in strategic planning and case analysis, relevant social, cultural, demographic, and natural environment factors for a particular business must be quantified and actionable to be useful.

Key Social, Cultural, Demographic, and Natural Environmental Variables (2 of 3)

Life expectancy rates

Per capita income

Social media pervasiveness

Attitudes toward retirement

Energy conservation

Attitudes toward product quality

Attitudes toward customer service

Pollution control

Key Social, Cultural, Demographic, and Natural Environmental Variables (3 of 3)

Attitudes toward foreign peoples

Energy conservation

Social programs

Number of churches

Number of church members

Social responsibility issues

Political, Governmental, and Legal Forces

The increasing global interdependence among economies, markets, governments, and organizations makes it imperative that firms consider the possible impact of political variables on the formulation and implementation of competitive strategies.

Federal, state, local, and foreign governments are major regulators, deregulators, subsidizers, employers, and customers of organizations. Political, governmental, and legal factors, therefore, can represent major opportunities or threats for both small and large organizations.

Political, Government, and Legal Variables (1 of 2)

Environmental regulations

Number of patents

Changes in patent laws

Equal employment laws

Level of defense expenditures

Unionization trends

Antitrust legislation

Some political, governmental, and legal variables that can represent key opportunities or threats to organizations are provided on this slide, but in stating these for a particular company, the factors should be both quantitative and actionable.

Political, Government, and Legal Variables (2 of 2)

U S A versuss. other country relationships

Political conditions in foreign countries

Global price of oil changes

Local, state, and federal laws

Import-export regulations

Tariffs

Local, state, and national elections

Technological Forces (1 of 3)

New technologies such as:

the Internet of Things

3D printing

the cloud

mobile devices

biotech

analytics

autotech

No company or industry today is insulated against emerging technological developments. In high-tech industries, identification and evaluation of key technological opportunities and threats can be the most important part of the external strategic-management audit.

Technological Forces (2 of 3)

robotics and

artificial intelligence

are fueling innovation in many industries, and impacting strategic-planning decisions.

Technological Forces (3 of 3)

Many firms now have a Chief Information Officer (C I O) and a Chief Technology Officer (C T O) who work together to ensure that information needed to formulate, implement, and evaluate strategies is available where and when it is needed

These individuals are responsible for developing, maintaining, and updating a company’s information database. The CIO is more a manager, managing the firm’s relationship with stakeholders; the CTO is more a technician, focusing on technical issues such as data acquisition, data processing, decision-support systems, and software and hardware acquisition.

Results of Technological Advances (1 of 2)

Major opportunities and threats that must be considered in formulating strategies.

Can affect organizations’ products, services, markets, suppliers, distributors, competitors, customers, manufacturing processes, marketing practices, and competitive position.

Can create new markets, result in new and improved products, change the relative competitive cost positions, and render existing products and services obsolete.

Results of technological advancements are varied, as shown on this slide.

Results of Technological Advances (2 of 2)

Can reduce or eliminate cost barriers between businesses, create shorter production runs, create shortages in technical skills, and result in changing values and expectations of employees, managers, and customers.

Can create new competitive advantages that are more powerful than existing advantages.

Results of technological advancements are varied, as shown on this slide.

Competitive Forces (1 of 2)

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.

Competitive Forces (2 of 2)

Characteristics of the most competitive companies:

Strive to continually increase market share

Use the vision/mission as a guide for all decisions

Whether it's broke or not, fix it-make it better

Continually adapt, innovate, improve

Acquisition is essential to growth

Hire and retain the best employees and managers possible

Strive to stay cost-competitive on a global basis

The seven characteristics on this slide describe the most competitive companies.

Key Questions About Competitors (1 of 3)

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?

Addressing questions about competitors, such as those presented on this slide, is important in performing an external audit.

Key Questions About Competitors (2 of 3)

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?

Addressing questions about competitors, such as those presented on this slide, is important in performing an external audit.

Key Questions About Competitors (3 of 3)

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?

Addressing questions about competitors, such as those presented on this slide, is important in performing an external audit.

Competitive Intelligence Programs (1 of 2)

Competitive intelligence (C I)

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

Competitive intelligence (CI) is formally defined by the Society of Competitive Intelligence Professionals (SCIP). Competitive intelligence is not corporate espionage; after all, 95 percent of the information a company needs to make strategic decisions is available and accessible to the public.

Competitive Intelligence Programs (2 of 2)

The three basic objectives of a C I program are:

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 position in the market

Competitive information is equally applicable for strategy formulation, implementation, and evaluation decisions. An effective CI program allows all areas of a firm to access consistent and verifiable information in making decisions.

Figure 3-3 The Five-Forces Model of Competition (1 of 2)

Porter’s Five-Forces Model of competitive analysis is a widely used approach for developing strategies in many industries.

The Five-Forces Model of Competition (2 of 2)

Identify key aspects or elements of each competitive force that impact the firm.

Evaluate how strong and important each element is for the firm.

Decide whether the collective strength of the elements is worth the firm entering or staying in the industry.

The intensity of competition among firms varies widely across industries.

The Five-Forces Model (1 of 6)

Rivalry among competing firms

Most powerful of the five forces

Focus on competitive advantage of strategies over other firms

The intensity of rivalry among competing firms tends to increase as the number of competitors increases, as competitors become more equal in size and capability, as demand for the industry’s products declines, and as price cutting becomes common.

Table 3-7 The Five-Forces Model (2 of 6)

When the number of competing firms is high

When competing firms are of similar size

When competing firms have similar capabilities

When the demand for an industry’s products is falling

When the product or service prices in the industry are falling

When consumers can switch brands easily

When barriers to leaving the market are high

When barriers to entering the market are low

When fixed costs are high among competing firms

When the product is perishable

When rivals have excess capacity

When consumer de

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Governments sometimes use protectionism? to cope with economic problems, imposing tariffs and subsidies on foreign goods and restrictions/incentives on their own firms to keep jobs at home.

Reflection and Discussion Week 4

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