chapter 4 Environmental Analysis and Appraisal.ppt
- 1. ENVIRONMENTAL ANALYSIS AND APPRAISAL EXTERNAL ENVIRONMENT CHAPTER THREE
- 2. Purpose of External Analysis To understand the external environment as it affects the enterprise 3 levels of analysis: General changes in business(Macro) environment Changes within the industry Activities of competitors and other specifics
- 3. Purpose of External Analysis… • To identify opportunities and threats of env’t • Opportunity − A condition in the general environment that helps a company achieve strategic competitiveness • Threat − A condition in the general environment that may hinder a company’s efforts to achieve strategic competitiveness
- 4. Analysis of the External Environments • General environment − Focused on the future • Industry environment − Focused on factors and conditions influencing a firm’s profitability within an industry • Competitor environment − Focused on predicting the dynamics of competitors’ actions, responses and intentions
- 5. External Environmental Analysis… Strategic Intent Strategic Mission Analysis of general environment Analysis of industry environment Analysis of competitor environment The External Environment
- 6. External Environmental Analysis… A continuous process which includes Scanning: Identifying early signals of environmental changes and trends Monitoring: Detecting meaning through ongoing observations of environmental changes and trends Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends Assessing: Determining the timing and importance of environmental changes and trends for firms’ strategies and their management
- 7. General Environment The Economic Segment Inflation rates Interest rates Trade deficits or surpluses Budget deficits or surpluses Personal savings rate Business savings rates Gross domestic product
- 8. General Environment (cont’d) The Sociocultural Segment Women in the workplace Workforce diversity Attitudes about quality of worklife Concerns about environment Shifts in work and career preferences Shifts in product and service preferences
- 9. General Environment (cont’d) The Global Segment New global markets Changing existing markets Important international events Critical cultural and institutional characteristics of global markets
- 10. General Environment (cont’d) The Technological Segment Product innovations Applications of knowledge Focus of private and government-supported R&D expenditures New communication technologies
- 11. General Environment (cont’d) The Political/Legal Segment Antitrust laws Called competition law :ensuring that fair competition exists in an open-market economy Taxation laws Deregulation philosophies Labor training laws Educational philosophies and policies
- 12. General Environment The Demographic Segment Population size Age structure Geographic distribution Ethnic mix Income distribution
- 13. Industry Environment Set of factors directly influencing a firm and its competitive actions and competitive responses Threat of new entrants Power of suppliers Power of buyers Threat of product substitutes Intensity of rivalry among competitors
- 14. Threat of Substitute Products Threat of New Entrants Threat of New Entrants Rivalry Among Competing Firms in Industry Bargaining Power of Buyers Bargaining Power of Suppliers Porter’s Five Forces Model of Competition
- 15. Threat of New Entrants If barriers of industry is low. it is threat for the present firm Barriers to entry Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages independent of scale Government policy Expected retaliation
- 16. Bargaining Power of Suppliers A supplier group is powerful when: it is dominated by a few large companies satisfactory substitute products are not available to industry firms industry firms are not a significant customer for the supplier group suppliers’ goods are critical to buyers’ marketplace success effectiveness of suppliers’ products has created high switching costs suppliers are a credible threat to integrate forward into the buyers’ industry
- 17. Bargaining Power of Buyers Buyers (customers) are powerful when: they purchase a large portion of an industry’s total output the sales of the product being purchased account for a significant portion of the seller’s annual revenues they could easily switch to another product the industry’s products are undifferentiated or standardized, and buyers pose a credible threat if they were to integrate backward into the seller’s industry
- 18. Threat of Substitute Products Product substitutes are strong threat when: customers face few switching costs substitute product’s price is lower substitute product’s quality and performance capabilities are equal to or greater than those of the competing product
- 19. Intensity of Rivalry Intensity of rivalry is stronger when competitors: are numerous or equally balanced experience slow industry growth have high fixed costs or high storage costs lack differentiation or low switching costs experience high strategic stakes have high exit barriers
- 20. Competitor Environment All of the companies that the firm competes against.
- 21. Competitor Environment Competitor intelligence is the ethical gathering of needed information and data about competitors’ objectives, strategies, assumptions, and capabilities What drives the competitor as shown by its future objectives What the competitor is doing and can do as revealed by its current strategy What the competitor believes about itself and the industry, as shown by its assumptions What the competitor may be able to do, as shown by its capabilities
- 22. Case analysis (Hill 74 )pharmaceutical industry
- 23. The Internal Assessment . Class activity Write down your expectation of what you are going to learn! What manager internally assess ? Use your experience and explain to class
- 24. Nature of an Internal Audit -- Strengths -- Weaknesses Focus on functional Areas of Business
- 25. Key Internal Forces Functional Business Areas: Vary by organization Divisions have differing strengths & weaknesses
- 26. Key Internal Forces… Distinctive Competencies : Firm’s strengths that cannot be easily matched or imitated by competitors Core competences or distinctive capabilities are combinations of resources and capabilities which are unique to a specific organization and which are responsible for generating its competitive advantage Competences and capabilities will often be internally generated, but may be obtained by collaboration with other organizations.
- 27. Key Internal Forces… Distinctive Competencies: Strategies designed to improve on a firm’s weaknesses and turn to strengths A unique firm-specific strength that enables a company to better differentiate its products and/or achieve substantially lower costs than its rivals and thus gain a competitive advantage. Capabilities: company’s skills at coordinating its resources and putting them to productive use
- 28. Key Internal Forces.. Resource Based View (RBV) As RBV; Internal resources are more important than external factors RBV argues resources that are simultaneously valuable, rare, inimitable, and non substitutable(VRIN) are sources of competitive advantage (Barney, 1991). Includes: corporate culture, unique historical conditions, managerial capabilities, property rights, information, knowledge etc
- 29. Resource Based View (RBV)… Resources are assets employed in the activities and processes of the organization. They can be tangible or intangible. Resources fall within several categories: Human Financial Physical Technological Informational
- 30. Internal Audit •Identifying strength and weakness in : •Management •Marketing •Finance/accounting •Production/operations •Research & Development •Management information Systems Is assessing internal environment/factors
- 31. Management Functions of Management 1. Planning 2. Organizing 3. Motivating 4. Staffing 5. Controlling
- 32. Management Planning Stage When Most Important Function Strategy Formulation Organizing Strategy Implementation Motivating Strategy Implementation Staffing Controlling Strategy Implementation Strategy Evaluation
- 33. Management Planning Beginning of management process Bridge between present & future Improves likelihood of attaining desired results
- 34. Planning Forecasting Establishing objectives Devising strategies Developing policies Setting goals Management
- 35. Management Organizing Achieves coordinated effort Defines task & authority relationships Departmentalization Delegation of authority
- 36. Organizing Organizational design Job specialization Job descriptions Job specifications Span of control Unity of command Coordination Job design Job analysis Management
- 37. Management Motivating Influencing to accomplish specific objectives Communication – major component
- 38. Motivating Leadership Communication Work groups Job enrichment Job satisfaction Needs fulfillment Organizational change Morale Management
- 39. Management Staffing Personnel management Human resources management
- 40. Staffing Wage & salary admin. Employee benefits Interviewing Hiring Discharging Training Management development Affirmative Action EEO Labor relations Management
- 41. Management Controlling Establishing performance standards Ensure actual operations conform to planned operations Taking corrective actions
- 43. Management Audit Checklist •Does the firm use strategic management concepts? •Are objectives/goals measurable? Well communicated? •Do managers at all levels plan effectively?
- 44. Management Audit Checklist •Do managers delegate well? •Is the organization’s structure appropriate? •Are job descriptions clear? •Are job specifications clear? •Is employee morale high?
- 45. Management Audit Checklist •Is employee absenteeism low? •Is employee turnover low? •Are the reward mechanisms effective? •Are the organization’s control mechanisms effective?
- 46. Marketing Customer Needs/Wants for Products/Services 1. Defining 2. Anticipating 3. Creating 4. Fulfilling
- 47. Marketing Marketing Functions 1. Customer analysis 2. Selling products/services 3. Product & service planning 4. Pricing 5. Distribution 6. Marketing research 7. Opportunity analysis
- 48. Customer Analysis Customer surveys Consumer information Market positioning strategies Customer profiles Market segmentation strategies Marketing
- 49. Advertising Sales Promotion Publicity Sales force management Customer relations Dealer relations Marketing Selling Products/Services
- 50. Test marketing Brand positioning Devising warrantees Packaging Product features/options Product style Quality Marketing Planning Product/Service
- 51. Forward integration Discounts Credit terms Condition of sale Markups Costs Unit pricing Marketing Pricing
- 52. Warehousing Channels Coverage Retail site locations Sales territories Inventory levels Transportation Marketing Distribution
- 53. Data collection Data input Data analysis Support business functions Marketing Marketing Research
- 54. Assessing costs Assessing benefits Assessing risks Cost/benefit/risk analysis Marketing Opportunity Analysis
- 55. Marketing Opportunity Analysis 1. Are markets segmented effectively? 2. Is the organization positioned well among competitors? 3. Has the firm’s market share been increasing? 4. Are the distribution channels reliable & cost effective? 5. Is the sales force effective?
- 56. Marketing Opportunity Analysis 6. Does the firm conduct market research? 7. Are product quality & customer service good? 8. Are the firm’s products/services priced appropriately? 9. Does the firm have effective promotion, advertising, & publicity strategies?
- 57. Marketing Opportunity Analysis 10.Are the marketing planning & budgeting effective? 11.Do the firm’s marketing managers have adequate experience and training?
- 58. Finance/Accounting Determining financial strengths & weaknesses key to strategy formation
- 59. Finance/Accounting Finance/Accounting Functions 1. Investment decision (Capital budgeting) 2. Financing decision 3. Dividend decision
- 60. Firm’s ability to meet its short-term obligations Ratios Current ratio Quick (or acid test) ratio Basic Financial Ratios Liquidity Ratios
- 61. Extent of debt financing Ratios Debt-to-total assets Debt-to-equity Long-term debt-to-equity Times-interest earned Basic Financial Ratios Leverage Ratios
- 62. Effective use of firm’s resources Ratios Inventory-turnover Fixed assets turnover Total assets turnover Accounts receivable turnover Average collection period Basic Financial Ratios Activity Ratios
- 63. Effectiveness shown by returns on sales & investment Ratios Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA) Basic Financial Ratios Profitability Ratios
- 64. Effectiveness shown by returns on sales & investment Ratios Return on stockholders equity (ROE) Earnings per share Price-earnings ratio Basic Financial Ratios Profitability Ratios (cont’d)
- 65. Firm’s ability to maintain economic position Ratios Sales Net income Earnings per share Dividends per share Basic Financial Ratios Growth Ratios
- 66. Finance/Accounting Audit •Where is the firm strong/weak as indicated by financial ratio analysis? •Can the firm raise short-term capital as needed? •Can the firm raise long-term capital as needed through debt and/or equity?
- 67. Finance/Accounting Audit •Does the firm have sufficient working capital? •Are capital budgeting procedures effective? •Are dividend payout policies reasonable? •Are the firm’s financial managers experienced & well trained?
- 68. Finance/Accounting Audit Effective Financial Analysis Requires: 1. Analysis of how the ratios have changed over time 2. How the ratios compare to industry norms 3. How the ratios compare with key competitors
- 69. Production/Operations Production/Operations Functions Process Capacity Inventory Workforce Quality
- 70. Facility design Technology selection Facility layout Process flow analysis Facility location Line balancing Process control Production/Operations Process
- 71. Forecasting Facilities planning Aggregate planning Scheduling Capacity planning Queuing analysis Production/Operations Capacity
- 72. Raw materials Work in process Finished goods Materials handling Production/Operations Inventory
- 73. Job design Work measurement Job enrichment Work standards Motivation techniques Production/Operations Workforce
- 74. Quality control Sampling Testing Quality assurance Cost Control Production/Operations Quality
- 75. Production/Operations Audit •Are suppliers of materials, parts, etc. reliable and reasonable? •Are facilities, equipment & machinery in good condition? •Are inventory-control policies and procedures effective?
- 76. Production/Operations Audit •Are quality-control policies & procedures effective? •Are facilities, resources, and markets strategically located? •Does the firm have technological competencies?
- 77. Research & Development Research & Development Functions Development of new products before competitors Improving product quality Improving manufacturing processes to reduce costs
- 78. Financing as many projects as possible Use percent-of-sales method Budgeting relative to competitors How many successful new products are needed Research & Development R&D Budgets
- 79. Research & Development Audit •Are the R&D facilities adequate? •If R&D is outsourced, is it cost effective? •Are the R&D personnel well qualified? •Are R&D resources allocated effectively?
- 80. Research & Development Audit •Are MIS and computer systems adequate? •Is communication between R&D & other organizational units effective? •Are present products technologically competitive?
- 81. Management Information Systems Purpose Improve performance of an enterprise by improving the quality of managerial decisions.
- 82. Management Information Systems Information Systems CIO/CTO Security User-friendly E-commerce
- 83. Management Information Systems Audit •Do managers use the information system to make decisions? •Is there a CIO or Director of Information Systems position in the firm? •Is data updated regularly?
- 84. Management Information Systems Audit… •Do managers from all functional areas contribute input to the information system? •Are there effective passwords for entry into the firm’s information system? •Are strategists of the firm familiar with the information systems of rival firms?
- 85. Management Information Systems Audit… •Is the information system user-friendly? •Do all users understand the competitive advantages that information can provide? •Are computer training workshops provided for users? •Is the firm’s system being improved?
- 86. End Chapter 4
- 87. Assurance of Learning Exercise Strategic planning of JU Purpose External and internal factors are the underlying bases of strategies formulated and implemented by organizations. Your University or Jimma university faces numerous external opportunities/threats and has many internal strengths/weaknesses. The purpose of this exercise is to illustrate the process of identifying critical external and internal factors. External influences include trends in the following areas: economic, social, cultural, demographic, environmental, technological, political, legal, governmental, and competitive. External factors could include declining numbers of high school graduates; population shifts; community relations; increased competitiveness among colleges and universities; rising numbers of adults returning to college; decreased support from local, state, and federal agencies; increasing numbers of foreign students attending JU.or colleges; and a rising number of Internet courses.
- 88. .Assurance of Learning Exercise … Internal factors of a college or university include faculty, students, staff, alumni, athletic programs, physical plant, grounds and maintenance, student housing, administration, fundraising, academic programs, food services, parking, placement, clubs, fraternities, sororities, and public relations. Instructions Step 1 On a separate sheet of paper, write four headings: External Opportunities, External Threats, Internal Strengths, and Internal Weaknesses. Step 2 As related to your college or university, list five factors under each of the four headings. Step 3 Discuss the factors as a group/class. Report the factors . Step 4 What new things did you learn about your university or JU from the factors? How could this type of factors benefit an organization?