Work part 2 EFAS

Objective: Develop an External Factors Analysis Summary (EFAS)

What are external factors?

External factors are those the firm has NO control over. I will be doing reality checks when reading your work, asking, “Does the firm control this activity or not?” For instance, a firm has control over the price it chooses to charge, but they don’t have control over whether or not that price is acceptable to the ultimate consumer.

What do you have to do?

Fill in the table in TemplateSA-EXH 1-EFAS.docx available in this location and Course Resources. The table has five columns: External Factors, Weight, Rating, Weighted Score, and Comments.

Use short names for the factors, but flesh them out in the comments so they make sense when you approach them later on.

The textbook is clear enough to work on all columns but the Comments. Your comments make all the difference in the quality of the EFAS.

Use the template for Exhibit 1 – EFAS

Use the Template EFAS as the template for your work. Ensure that your format displays correctly and is readable.  Do NOT copy from the text or from the Template EFAS text!  Use your own critical analysis and critical thinking.  The template is provided to assist you with the layout–i.e., make it easy for you to construct the chart.  The template also gives you a good idea of the appropriate explanations required in the Comments blocks about the why an SF, potential quantified impact, how weighted, and how rated.

Comments Column

Comments are expected to be 4-5 sentences in length and depth and offer a clear explanation of the strategic factor (SF) in 4 aspects:

Why it is a strategic factor (SF); (1-2 sentences only)

A quantified estimate of the potential impact (QPI) of the SF; (1 sentence only)

How you assign the weight; (1 sentence only) and

How you assign the rating. (1 sentence only)

Keep the 4-5 sentences of your Comments in order for clarity and ease of understanding.  The recommended order is:  Why SF comments; QPI comments; Weight comments; and finally Rating comments.

How to write the Why SF and QPI comments: For the Why SF, explain WHY you selected this SF, WHY it is important to your firm, and WHAT is the potential impact on the firm in the future.

For the QPI comments, estimate the potential impact on the firm in the future in a quantitative manner using some metric:  sales, revenues, costs, market share, profits, logistics pipeline, CSI, etc.  Express the quantitative potential impact (QPI) in Dollars $$.  If you express the potential impact in $$, that makes each strategic factor comparable against the other strategic factors. And expressing the impact in sales makes them even more easily comparable.   Make sure you are making significant estimates based on the size of your company based on annual revenue values in your 5-Y financials. You develop this estimate.

The monetary value of the QPI is useful to compare the strategic factors and rank them in relevance.  Ranking them will help you to assign the Weights (2nd column in the table) to each strategic factor. Use a positive analysis (quantitative) rather than a normative analysis (feelings, desires).  Focus on what is the potential gain for your SF opportunities or the potential loss from an SF threat in the future.  History lessons are not needed nor applicable.  You should estimate and predict the impact in the future. Be creative. 

Don’t develop future actions or alternatives here in the EFAS about how a firm may, or should take action on a particular SF.  The brainstorming development of those alternative actions comes with the TOWS Analysis that we will start presenting in Module 4.

• HINT:  To focus your thinking on addressing “why” you selected each SF and “why it is important,” start your “why select/important” sentence with words like this:  “I selected this SF because…..” or “This SF is important because…”  By using this lead-in phrase you should be able to concisely state why that particular SF is important.
• HINT:  To focus your thinking on addressing the quantitative potential impact (QPI) in the future of each SF, be sure your QPI sentence contains words like this:  “potential impact of $____” or “potential increases to ____ are $____ per year” or “reduction in sales by $____ per year.”  Be sure to state the potential impact in dollars so you can compare the potential impacts of your various SF.
• How to write the Weight and Rank comments: To assign weights, explain the importance of the SF to the firm’s future survival.  Is the SF of vital importance or low importance on a scale of 1 to 0?  What is the impact of the SF on the future survival of the firm?  What SF has the biggest impact?  Which one(s) are the Big Dogs?  Make a logical explanation of why the weight you have assigned is what it is.  Comparison and ranking between SF is a useful technique to assign the weight.  See your potential $$$ impacts from your “Why” analysis above. The bigger the $$$ impact is, the bigger the weight should be.  Remember the weight column adds to 1.0.
• HINT:  To focus your thinking on addressing the importance of the SF to the firm’s future survival, be sure to include the keyword “survival” in your weight sentence.

To assign ratings, provide an explanation of how well, or how badly, the firm is handling each specific external SF RIGHT NOW – not in the future or not in the distant past – but right now. Use the scale of 1 – 5, poor to outstanding; comparing the firm’s performance against the industry standard rating of 3.  Give a logical explanation of why the rating you have assigned is what it is.  Do they handle it well or are they lost?  Are they performing in average way as other competitors are? Remember the industry average performance is rated at 3.

HINT:  To focus your thinking on addressing how well your firm is handling each SF, understand what the 1-5 scale means and then use your rating number from the rating column with matching words (low, average, above average, high, etc) in your rating sentence.

Example of a good comments block:

SF – International Growth Opportunities in SE Asia, Japan, and Korea

This SF was selected because of its very significant potential impact on profit growth.  Successful expansion into overseas markets could potentially result in doubling the size of OPC to a firm with $800M in sales per year and an increase in profits from $50M to $100M per year.  This SF is weighted highest at .25 since expanding internationally is vital to the future survival of OPC in light of worldwide competitors and markets.  I rated this low at 2.5 since OPC does not have any international experience or markets at this time.

Point of View

Remember to keep your decision-making at the strategic level –the Big Picture level. You are acting at the CEO/SVP level. But you are also acting at the lower levels to brainstorm, generate alternatives, perform critical analysis, and make recommendations to the CEO/SVP levels. The decision-maker CEO/SVP decides on the most important strategic factors.

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