Lecture 3 Flashcards
(16 cards)
What is the purpose of external assessment in strategic management?
To identify and evaluate factors beyond the control of the firm that affect its strategy (i.e., opportunities and threats)
What are the five major categories of external forces?
Economic
Social, Cultural, Demographic & Environmental
Political, Governmental & Legal
Technological
Competitive
What questions guide the assessment of competitive forces?
What are our rivals’ strengths/weaknesses?
What unique offerings do they provide?
How will they respond to external change?
How vulnerable are they to our strategy?
What are characteristics of competitive firms
Market share matters
Know your industry
Innovate constantly
Acquire to grow
People make the difference
Fix what works
Prioritize quality
What is the purpose of Porter’s Five Forces model?
To analyze industry structure and determine its competitiveness and profitability
What are the five forces in Porter’s model?
Threat of new entrants
Bargaining power of suppliers
Threat of substitutes
Bargaining power of buyers
Competitive rivalry
What makes entry into an industry easy?
Low capital requirements
Weak brand loyalty
Open distribution channels
Low economies of scale
Few regulations
Low switching costs
What makes it hard to enter an industry?
Strong brand loyalty
High capital requirements
Gov’t regulations
Raw material access barriers
High economies of scale
When do suppliers have strong bargaining power?
Few suppliers exist
Suppliers’ product is vital
Switching costs are high
Supplier can “integrate forward” (become a competitor)
What creates a strong threat of substitutes?
Low switching costs for buyers
Substitutes are cheaper or better
Substitute firms have high profitability
What is the purpose of the EFE matrix?
To summarize and evaluate key external opportunities and threats impacting a business
What are the steps in constructing an EFE matrix?
List the 10 most important external factors (Opportunities and Threats)
Assign each a weight from 0.01 to 1.00
Assign a rating from 1–4 (1 = poor response, 4 = superior)
Multiply weight × rating = weighted score
Add all weighted scores for total
What does the total weighted EFE score tell you?
Above 2.5 = strong response to external environment
Below 2.5 = weak response; change needed
What is the difference between the EFE and CPM matrices?
EFE focuses on how well a firm responds to external factors
CPM compares multiple firms on critical success factors
What are three ways of gathering data for external assessment?
Scanning – general observation
Monitoring – specific issue tracking
Competitive Intelligence – analyzing rival moves
