The document summarizes key concepts from Chapter 3 of a strategic management textbook. It outlines the external assessment process, including analyzing industrial organization forces, social/demographic trends, economic/political factors, technological changes, and competitive forces using models like Porter's Five Forces. Key steps are identifying opportunities/threats, performing an external audit using various sources, and creating matrices like the EFE and CPM to evaluate external factors and competitors.

2. Chapter Outline The Nature of the External Audit The Industrial Organization (I/O) View Social, Cultural, Demographic & Environmental Forces

3. Chapter Outline ( cont’d ) Political, Governmental, and Legal Forces Technological Forces Competitive Forces

4. Chapter Outline ( cont’d ) Porter’s Five-Forces Model Sources of External Information Forecasting Tools & Techniques

5. Chapter Outline ( cont’d ) Global Challenge The External Factor Evaluation (EFE) Matrix Competitive Profile Matrix (CPM)

11. Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products Services Key External Forces Opportunities & Threats Key External Forces & the Organization

17. Performing External Audit External Factors Measurable Long-term orientation Applicable to competing firms Hierarchical

19. Economies of Scale Industry Properties Barriers to market entry Product differentiation Level of competitiveness I/O Perspective Firm Performance

22. Key Economic Variables Value of the dollar in world markets Worker productivity levels Stock market trends Foreign economic conditions Unemployment trends

23. Key Economic Variables Income differences by region/customer Demand shifts for goods/services Price fluctuations Exportation of labor and capital Import/Export factors

24. Key Economic Variables Tax rates Fiscal policies OPEC policies ECC policies Monetary policies

28. Social, Cultural, Demographic & Environmental Forces Population characteristics require global strategies

35. Key Social, Cultural, Demographic & Environmental Variables Number of marriages & divorces Number of special interest groups Number of births & deaths Immigration & emigration rates Childbearing rates

36. Actuarial rates Monitor Key Variables Per capita income Attitudes toward business Avg. disposable income Social, Cultural, Demographic & Environmental Forces

37. Consumer behavior Monitor Key Variables Ethical concerns Attitudes toward saving Racial equality Social, Cultural, Demographic & Environmental Forces

38. Avg. educational level Monitor Key Variables Governmental regulation Attitudes toward customer service Attitudes toward quality Social, Cultural, Demographic & Environmental Forces

39. Energy conservation Monitor Key Variables Social responsibility Leisure time values Recycling Social, Cultural, Demographic & Environmental Forces

40. Waste management Monitor Key Variables Air & water pollution Ozone depletion Endangered species Social, Cultural, Demographic & Environmental Forces

45. Key Political, Governmental, & Legal Variables Special tariffs Tax law changes PAC’s Voter participation rates Regulation/deregulation

46. Key Political, Governmental, & Legal Variables (cont’d) Environmental protection laws Changes in patent laws Equal employment legislation Government subsidies Number of patents

47. Key Political, Governmental, & Legal Variables (cont’d) Import/export regulations Global relationships Political conditions Location and severity of terrorist activity Anti-trust enforcement

50. Technological Forces Essential for nearly every strategic decision Technology-based issues

51. Competitive Forces Collection & evaluation of data on competitors is essential for successful strategy formulation

52. Competitive Forces Competition on virtually all industries can be described as intense.

54. Key Questions Concerning Competitors Their objectives and strategies Their weaknesses Their responses to external variables Their vulnerability to our alternative strategies Their strengths

55. Key Questions Concerning Competitors (cont’d) Entry and exit of firms in the industry Our product/service positioning Key factors for our current position in industry Sales/profit rankings of competitors over time Our vulnerability to strategic counterattack

56. Key Questions Concerning Competitors (cont’d) The threat of substitute products/services Nature of supplier & distributor relationships Should we keep our strategies secret from employees and stakeholders?

60. The Five-Forces Model of Competition Potential development of substitute products Rivalry among competing firms Bargaining power of suppliers Potential entry of new competitors Bargaining power of consumers

67. The Global Challenge Simultaneously globally competitive & nationally responsive Multinational Corporations (MNC’s)

70. Industry Analysis: The External Factor Evaluation (EFE) Matrix Summarize & Evaluate Competitive Political Cultural Technological Environmental Social Governmental Demographic Economic

71. 0.15 3 0.05 5. The average income for PC worker has declined from $40K/yr to $30k/yr 0.10 1 0.10 4. China entered WTO; lowered taxes for importing PC’s 0.10 2 0.05 3. Internet use growing rapidly 0.30 3 0.10 2. Cost of PC component parts expected to decrease 10% - 2004 0.30 3 0.10 1. Global PC market expected to grow 20% in 2004 Opportunities Wtd Score Rating Weight Key External Factors EFE – Gateway Computers (2003)

72. 0.05 1 0.10 1. Intense rivalry in industry 0.10 1 0.10 Threats 0.05 1 0.05 8. 30% of Chinese population can afford a PC; only 10% of homes have a PC 0.15 3 0.05 7. U.S. (& world) economies recovering 0.10 2 0.05 6. Modernization of business firms and government agencies Opportunities (cont’d) Wtd Score Rating Weight Key External Factors EFE – Gateway Computers (2003) (cont’d)

73. 0.15 3 0.05 6. Birth rate in U.S. declining annually 0.20 4 0.05 5. Demand exceeds supply of experienced PC workers 0.15 3 0.05 4. Palm & PDA becoming substitutes 0.05 1 0.05 3. Different countries have different reg’s and infrastructure for PC’s 0.20 2 0.10 2. Severe price cutting in PC industry Threats (cont’d) Wtd Score Rating Weight Key External Factors EFE – Gateway Computers (2003) (cont’d)

74. 2.40 1.00 Total 0.15 3 0.05 8. PC firms diversifying into consumer electronics 0.10 2 0.05 7. U.s. consumers and businesses delaying purchase of PC’s Threats (cont’d) Wtd Score Rating Weight Key External Factors EFE – Gateway Computers (2003) (cont’d)

76. Industry Analysis EFE Understanding the factors used in the EFE Matrix is more important than the actual weights and ratings assigned. Important --

77. Industry Analysis: Competitive Profile Matrix (CPM) Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions

78. 0.15 3 0.15 3 0.15 3 0.05 Org. Structure 0.60 4 0.30 2 0.45 3 0.15 Global Exp. 0.30 3 0.20 2 0.30 3 0.10 Sales Distr 0.08 4 0.06 3 0.06 3 0.02 Cons. Loyalty 0.24 3 0.32 4 0.24 3 0.08 Prod. Quality 0.30 3 0.30 3 0.20 2 0.10 Fin position 0.32 4 0.16 2 0.16 2 0.08 Inventory sys 0.60 4 0.30 2 0.45 3 0.15 Market share Wt’d Score Rating Wt’d Score Rating Wt’d Score Rating Wt CSF’s Dell Apple Gateway

79. 3.49 2.47 2.83 1.00 Total 0.02 2 0.04 4 0.02 2 0.01 Mgt. experience 0.06 3 0.02 1 0.08 4 0.02 Price competitive 0.40 4 0.20 2 0.30 3 0.10 Customer Serv 0.30 3 0.30 3 0.30 3 0.10 E-commerce 0.12 3 0.12 3 0.12 3 0.04 Prod. Capacity Wt’d Score Rating Wt’d Score Rating Wt’d Score Rating Wt CSF’s (cont’d) Dell Apple Gateway

80. Industry Analysis CPM Just because one firm receives a 3.2 rating and another receives a 2.8 rating, it does not follow that the first firm is 20 percent better than the second. Important --