Business Policy and Strategy III Case Study
Hello everyone, I have an Assignment for you today. This assignment must be DONE by Wednesday, October 21, 2020, no later than 10 pm. By the way, I need this assignment to be PLAGIARISM FREE & a Spell Check when completed. Make sure you READ the instructions CAREFULLY. Now without further ado, the instructions to the assignments are below:
Read “Exemplary Company Showcased: Netflix, Inc. (NFLX)” on page 90 of your course textbook. As you read, pay close attention to Netflix’s strategy, and write a case study describing the points listed below.
- What are Netflix’s internal strengths and weaknesses?
- Who are Netflix’s competitors?
- Do you see Netflix’s strategy as effective or ineffective? Why?
Your case study must be at least one page in length, not counting a title page and reference page. Outside sources are not a requirement for this case study, but if you choose to use them, they must be cited and referenced according to APA standards.
By the way, below I have several attachments that will aide you in this assignment. The first two attachments are screen shots of the article on page 90 of the textbook “Exemplary Company Showcased: Netflix, Inc. (NFLX)” which you will read to complete this assignment. Next attachment is the Unit Study Guide. The fourth & fifth attachments are Chapter 3 & chapter 4 PowerPoints going over what’s needed to understand this course. Remember NO PLAGIARISM & I need will need a PLAGIARISM REPORT upon completion.
BBA 4951, Business Policy and Strategy 1
Course Learning Outcomes for Unit III
Upon completion of this unit, students should be able to:
3. Analyze external and internal audit processes.
9. Assess the strategy evaluation process.
Reading Assignment
Chapter 3: The External Assessment
Chapter 4: The Internal Assessment
Unit Lesson
External Assessments
During this unit, we will explore the factors that impact an internal and external assessment. Let us begin with
the external assessment. To effectively develop a successful strategic plan, the organization must be aware
and adapt to the external environments. These environments include identifying and incorporating trends
affecting their stakeholders. These trends can shift and be affected by the economy, competition, tax burdens,
and many other factors.
Take a look at the Chipotle Mexican Grill Case Study on the bottom of page 60 of your course textbook.
Chipotle is a chain of about 1,700 restaurants in the United States and in several other countries. Chipotle
Mexican Grill is considered as a fast, casual dining establishment whose vision statement is Food With
Integrity. It extends many benefits to its salaried, part-time, and entry-level workers. It tries to meet society’s
expectations for the humane treatment of animals. Unlike its competitors, it is experiencing revenue growth of
about 20% a year. The restaurant sector grows about 1% annually. Consider the sustainability of the Chipotle
business strategy that invests in its workers, promotes its managers from within, and insists on humane
operations. Do you think it will be able to maintain its revenue growth in 5, 10, and 20 years in a changing
economy and with potential new competitors? What strategies would you recommend for them?
Let us also consider external assessments outside of the United States. What happens when a company has
reached its fullest potential within the United States? Should they remain steady, or should they seek global
opportunities? Many organizations to include retailers, fast food, and other entities have expanded
internationally to grow their companies. Examples include Starbucks, McDonalds, and Walmart, which can be
found in many different countries. In addition, you may notice outside companies expanding within the United
States. A prime example is Ikea, who continuously grows their North American operations. Organizations also
consider the economic outlook before proceeding with development in a country. For example, China has had
a decade long economic boom, and many corporations have taken this opportunity to expand into new
territories, thus increasing our overall reliance on a global-based community. Take a look at the chart located
on page 64 of your textbook—Table 3-2 Ten Advantages of a Strong Dollar for Domestic Firms. Which do you
think is more beneficial for a domestic organization? A strong or weak dollar?
Other external factors often affecting a corporation include political, governmental, and legal challenges both
domestically and abroad. One issue with a clear divide is minimum wage and a living wage. The minimum
wage is determined by the government, while a living wage can be influenced by the corporation and other
competing factors. Another governmental external factor is the Healthcare Reform Act, which requires
corporations to provide health insurance for their employees. This cost can be expensive to the company and
UNIT III STUDY GUIDE
External and Internal Assessment
BBA 4951, Business Policy and Strategy 2
UNIT x STUDY GUIDE
Title
is generally passed on to consumers and also may decrease the overall salary of the employee. Another
challenge is deciphering whether to tax or not to tax Internet commerce. Many states feel they are losing out
on needed revenue due to the tax free association with Internet sales. Some states have lobbied and passed
bills to formally tax all Internet sales transactions. Amazon.com has been an opponent of taxation but must
abide by the state requirements.
As we have learned, the external assessment can be a very powerful tool if approached with the correct
perspective. If the external assessment is used in a punitive way to restructure leadership or redesign the
business structure, we have missed the boat on the real power of the external assessment. As leaders, we
need to have a general understanding of the industry and be able to identify areas in which competitors are
vulnerable and be able to predict potential moves that competitors might make that could be a threat to us.
Successful businesses are constantly looking in the rear view mirror while, at the same time, looking well into
the economic future (David & David, 2017). The key is to constantly be aware of the needs of the customer.
“When customers are concentrated or large in number or in volume, their bargaining power represents a
majority force affecting the intensity of completion in an industry” (David & David, 2017, p. 74), thus the
external assessments utilized by the business need to be sensitive to the consumer.
Internal Assessments
There is not a one size fits all related to an internal assessment of an organization. There are multiple types of
organizations to include colleges, hospitals, retailers, and government. These entities all function differently
and often need a customized assessment to truly assess their performance. An internal audit is the
organization’s self-evaluation of their strength and weaknesses. The audit can better illustrate how an
organization’s departments are incorporated and how modifications and updates can be implemented. It is
also just as important to ensure the organization properly communicates their intent and expectations of an
audit to their employees.
Every organization has an organizational culture. Let us use an example of the U.S. Armed Forces; the Army
and Air Force have a very distinctive culture, even though they are both on the same side and work toward
the same goals. An organizational culture is defined by a pattern of behavior that an organization has
developed to handle a problem or external threat. New members coming into the organization will often be
integrated into the organization’s culture, thus continuing the pattern of behavior. These examples include
ceremonial, values, beliefs, and rituals.
Management and Marketing
There are five main characteristics related to the activities of management. These include planning,
organizing, motivating, staffing, and controlling.
Function Description Stage of
Strategic
Management
Example
Planning Preparing for the
future.
Strategy
formulation
Planning for
the next
release of a
product or
service.
Organizing Job description,
control and
coordination.
Strategy
implementation
Coordinating
the efforts to
release the
product to
include where
and how.
Motivating Shaping human
behaviors
Strategy
implementation
Encouraging
the company’s
sales
associates to
become
excited and
BBA 4951, Business Policy and Strategy 3
UNIT x STUDY GUIDE
Title
motivated by
the release of
the new
product. This
excitement will
trickle down to
the consumer
and other
stakeholders.
Staffing Human resource
management
Strategy
implementation
Identifying the
right
personnel for
the
organization to
include
implementers,
managers,
and leaders.
Controlling Results oriented,
rewards, sanctions
Strategy
evaluation
Identifying
goals and
rewards for
top sales
person(s) for
the new
product
release.
Marketing
Marketing includes the process of creating and fulfilling a customer’s needs and wants for a particular service
or product. Let us use an example of the energy drink “Red Bull.” Who are the commercials targeting for this
beverage? The target audience can be a demographic of adventurous young adults who are seeking new
challenges. The commercials promote that Red Bull “gives you wings,” thus you will feel a huge rush of
energy and will have the ability to keep going well into the night. Red Bull must also consider pricing and
distribution in an effort to remain relevant and profitable. For example, do you feel Red Bull would be a drink
of choice at an affluent sushi bar, or would this drink be more appropriate at a sporting venue or a late night
concert?
Reference
David, F. R., & David, F. R. (2017). Strategic management: A competitive advantage approach, concepts and
cases (16th ed.) [VitalSource Bookshelf version]. Retrieved from
https://online.vitalsource.com/#/books/9780134167947
Suggested Reading
The chapter presentations below will provide you with additional information on this unit’s concepts.
Click here to access the PowerPoint version of the Chapter 3 Presentation.
Click here to access the PDF version of the Chapter 3 Presentation.
Click here to access the PowerPoint version of the Chapter 4 Presentation.
Click here to access the PDF version of the Chapter 4 Presentation.
https://online.columbiasouthern.edu/bbcswebdav/xid-93529245_1
https://online.columbiasouthern.edu/bbcswebdav/xid-93529244_1
https://online.columbiasouthern.edu/bbcswebdav/xid-93529247_1
https://online.columbiasouthern.edu/bbcswebdav/xid-93529246_1
Strategic Management Concepts: A
Competitive Advantage Approach
Sixteenth Edition
Chapter 4
The Internal Assessment
Copyright
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Learning Objectives (1 of 2)
4.1 Describe the nature and role of an internal assessment
in formulating strategies.
4.2 Discuss why organizational culture is so important in
formulating strategies.
4.3 Identify the basic functions (activities) that make up
management and their relevance in formulating strategies.
4.4 Identify the basic functions of marketing and their
relevance in formulating strategies.
4.5 Discuss the nature and role of finance and accounting
in formulating strategies.
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Learning Objectives (2 of 2)
4.6 Discuss the nature and role of production/operations in
formulating strategies.
4.7 Discuss the nature and role of research and
development (R&D) in formulating strategies.
4.8 Discuss the nature and role of management information
systems (MIS) in formulating strategies.
4.9 Explain value chain analysis and its relevance in
formulating strategies.
4.10 Develop and use an Internal Factor Evaluation (IFE)
Matrix.
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Figure 4-1 A Comprehensive Strategic-
Management Model
Source: Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988):
40. Also, Ratnaningsih, Anik, and 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.
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Key Internal Forces
• Distinctive competencies
– A firm’s strengths that cannot be easily matched
or imitated by competitors
– Building competitive advantages involves taking
advantage of distinctive competencies.
Figure 4-2 The Process of Gaining Competitive Advantage
in a Firm
Weaknesses → Strengths → Distinctive Competencies →
Competitive Advantage
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The Process of Performing an Internal Audit
• The internal audit
– Requires gathering, assimilating, and prioritizing
information about the firm’s management, marketing,
finance, accounting, production/operations, research
and development (R and D), and management
information systems operations
– Provides more opportunity for participants to
understand how their jobs, departments, and divisions
fit into the whole firm
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The Resource-Based View (RBV) (1 of 3)
• The Resource-Based View (RBV) Approach
– contends that internal resources are more important for
a firm than external factors in achieving and sustaining
competitive advantage
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The Resource-Based View (RBV) (2 of 3)
• Proponents of the RBV contend that organizational
performance will primarily be determined by internal
resources that can be grouped into three all-encompassing
categories:
– physical resources
– human resources
– organizational resources
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The Resource-Based View (RBV) (3 of 3)
• For a resource to be valuable, it must be either (1) rare,
(2) hard to imitate, or (3) not easily substitutable.
• These three characteristics of resources are called
Empirical Indicators
• These enable a firm to implement strategies that improve
its efficiency and effectiveness and lead to a sustainable
competitive advantage.
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Integrating Strategy and Culture
• Organizational culture significantly affects planning
activities.
• If strategies can capitalize on cultural strengths, such as a
strong work ethic or highly ethical beliefs, then
management often can swiftly and easily implement
changes.
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Organizational Culture
• Organizational culture is “a pattern of behavior that has
been developed by an organization as it learns to cope
with its problem of external adaptation and internal
integration and that has worked well enough to be
considered valid and to be taught to new members as
the correct way to perceive, think, and feel.”
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Cultural Products
• Values
• Beliefs
• Rites
• Rituals
• Ceremonies
• Myths
• Stories
• Legends
• Sagas
• Language
• Metaphors
• Symbols
• Folktales
• Heroes and heroines
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Table 4-2 Aspects of Organizational Culture
Dimension Low Degree Degree Degree High
1. Strong work ethic; arrive early and leave late 1 2 3 4 5
2. High ethical beliefs; clear code of business ethics followed 1 2 3 4 5
3. Formal dress; shirt and tie expected 1 2 3 4 5
4. Informal dress; many casual dress days 1 2 3 4 5
5. Socialize together outside of work 1 2 3 4 5
6. Do not question supervisor’s decision 1 2 3 4 5
7. Encourage whistle-blowing 1 2 3 4 5
8. Be health conscious; have a wellness program 1 2 3 4 5
9. Allow substantial “working from home” 1 2 3 4 5
10. Encourage creativity, innovation, and open-mindedness 1 2 3 4 5
11. Support women and minorities; no glass ceiling 1 2 3 4 5
12. Be highly socially responsible; be philanthropic 1 2 3 4 5
13. Have numerous meetings 1 2 3 4 5
14. Have a participative management style 1 2 3 4 5
15. Preserve the natural environment; have a sustainability program 1 2 3 4 5
Fifteen Example (Possible) Aspects of an Organization’s Culture
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Management
The functions of management consist of five basic
activities:
• planning
• organizing
• motivating
• staffing
• controlling
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The Basic Functions of Management (1 of 2)
• Planning: forecasting, establishing objectives, devising
strategies, and developing policies
• Organizing: organizational design, job specialization, job
descriptions, span of control, coordination, job design, and
job analysis
• Motivating: leadership, communication, work groups,
behavior modification, delegation of authority, job
enrichment, job satisfaction, needs fulfillment,
organizational change, employee morale, and managerial
morale
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The Basic Functions of Management (2 of 2)
• Staffing: wage and salary administration, employee
benefits, interviewing, hiring, firing, training, management
development, employee safety, equal employment
opportunity, and union relations
• Controlling: quality control, financial control, sales control,
inventory control, expense control, analysis of variances,
rewards, and sanctions
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Management Audit Checklist of
Questions (1 of 2)
1. Does the firm use strategic-management concepts?
2. Are company objectives and goals measurable and well
communicated?
3. Do managers at all hierarchical levels plan effectively?
4. Do managers delegate authority well?
5. Is the organization’s structure appropriate?
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Management Audit Checklist of
Questions (2 of 2)
6. Are job descriptions and job specifications clear?
7. Is employee morale high?
8. Are employee turnover and absenteeism low?
9. Are organizational reward and control mechanisms
effective?
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Marketing
Marketing
• the process of defining, anticipating, creating, and fulfilling
customers’ needs and wants for products and services
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Functions of Marketing
• Customer analysis
• Selling products and services
• Product and service planning
• Pricing
• Distribution
• Marketing research
• Cost/ benefit analysis
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Customer Analysis
• Customer Analysis
– the examination and evaluation of consumer needs,
desires, and wants
– involves administering customer surveys, analyzing
consumer information, evaluating market positioning
strategies, developing customer profiles, and
determining optimal market segmentation strategies
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Selling Products and Services
• Selling
– includes many marketing activities, such as
advertising, sales promotion, publicity, personal selling,
sales force management, customer relations, and
dealer relations
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Product and Service Planning
• Product and Service Planning
– includes activities such as test marketing; product and
brand positioning; devising warranties; packaging;
determining product options, features, style, and
quality; deleting old products; and providing for
customer service
– important when a company is pursuing product
development or diversification
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Pricing
• Pricing
– Five major stakeholders affect pricing decisions:
consumers, governments, suppliers, distributors, and
competitors
– Sometimes an organization will pursue a forward
integration strategy primarily to gain better control over
prices charged to consumers.
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Distribution
• Distribution
– includes warehousing, distribution channels,
distribution coverage, retail site locations, sales
territories, inventory levels and location, transportation
carriers, wholesaling, and retailing
– especially important when a firm is striving to
implement a market development or forward integration
strategy
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Marketing Research
• Marketing Research
– the systematic gathering, recording, and analyzing of
data about problems relating to the marketing of goods
and services
– can uncover critical strengths and weaknesses
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Cost/Benefit Analysis
• Cost/Benefit Analysis
– Three steps are required:
1.compute the total costs associated with a decision
2.estimate the total benefits from the decision
3.compare the total costs with the total benefits
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Marketing Audit Checklist of Questions (1 of 2)
1. Are markets segmented effectively?
2. Is the organization positioned well among competitors?
3. Has the firm’s market share been increasing?
4. Are present channels of distribution reliable and cost
effective?
5. Does the firm have an effective sales organization?
6. Does the firm conduct market research?
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Marketing Audit Checklist of Questions (2 of 2)
7. Are product quality and customer service good?
8. Are the firm’s products and services priced appropriately?
9. Does the firm have an effective promotion, advertising,
and publicity strategy?
10.Are marketing, planning, and budgeting effective?
11.Do the firm’s marketing managers have adequate
experience and training?
12.Is the firm’s Internet presence excellent as compared to
rivals?
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Finance/Accounting Functions (1 of 4)
The functions of finance/accounting comprise three
decisions:
1. The investment decision
2. The financing decision
3. The dividend decision
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Finance/Accounting Functions (2 of 4)
• Investment Decision (Capital Budgeting)
– the allocation and reallocation of capital and resources
to projects, products, assets, and divisions of an
organization
• Financing Decision
– determines the best capital structure for the firm and
includes examining various methods by which the firm
can raise capital
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Finance/Accounting Functions (3 of 4)
• Dividend Decisions
– concern issues such as the percentage of earnings
paid to stockholders, the stability of dividends paid over
time, and the repurchase or issuance of stock
– determine the amount of funds that are retained in a
firm compared to the amount paid out to stockholders
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Finance/Accounting Functions (4 of 4)
1. How has each ratio changed over time?
2. How does each ratio compare to industry norms?
3. How does each ratio compare with key competitors?
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Table 4-4 A Summary of Key Financial
Ratios (1 of 4)
Ratio How Calculated What it measures
Liquidity Ratios
Current Ratio Current assets over Current liabilities The extent to which a firm can meet its
short-term obligations
Quick Ratio
Current assets minus inventory over Current liabilities The extent to which a firm can meet its
short-term obligations without relying
on the sale of its inventories
Leverage Ratios
Debt-to-Total-
Assets Ratio
Total debt over Total assets The percentage of total funds provided
by creditors
Debt-to-Equity
Ratio
Total debt over Total stockholders’ equity The percentage of total funds provided
by creditors versus by owners
Long-Term Debt-
to-Equity Ratio
Long-term debt over Total stockholders’ equity The balance between debt and equity in
a firm’s long-term capital structure
Times-Interest-
Earned Ratio
Profits before interest and taxes over Total interest charges the extent to which earnings can
decline without the firm becoming
unable to meet its annual interest costs
Current assets
Current liabilities
Current assets minus inventory
Current liabilities
Total debt
Total assets
Total debt
Total stockholders’ equity
Long-term debt
Total stockholders’ equity
Profits before interest and taxes
Total interest charges
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A Summary of Key Financial Ratios (2 of 4)
Ratio How Calculated What it measures
Activity Ratios
Inventory
turnover
Sales over Inventory of finished goods Whether a firm holds excessive stocks
of inventories and whether a firm is
slowly selling its inventories compared
to the industry average
Fixed Assets
turnover
Sales over Fixed assets Sales productivity and plant and
equipment utilization
Total Assets
turnover
Sales over Total assets
Whether a firm is generating a
sufficient volume of business for the
size of its asset investment
Accounts
Receivable
turnover
Annual credit sales over Accounts receivable The average length of time it takes a
firm to collect credit sales (in
percentage terms)
Average
Collection
Period
Accounts receivable over total credit sales per 365 days The average length of time it takes a
firm to collect on credit sales (in days)
Sales
Inventory of finished goods
Sales
Fixed assets
Sales
Total assets
Annual credit sales
Accounts receivable
Accounts receivable
Total credit sales/365 days
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A Summary of Key Financial Ratios (3 of 4)
Ratio How Calculated What it measures
Profitability Ratios
Gross Profit
Margin
Sales minus cost of goods sold over Sales the total margin available to cover
operating expenses and yield a profit
Operating Profit
Margin
Earnings before interest and taxes EBIT over Sales Profitability without concern for taxes
and interest
Net Profit Margin Net income over sales After-tax profits per dollar of sales
Return on total
Assets (ROA)
Net income over Total assets After-tax profits per dollar of assets;
this ratio is also called return on
investment (ROI)
Return on
Stockholders’
Equity (ROE)
Net Income over Total stockholders’ equity After-tax profits per dollar of
stockholders’ investment in the firm
Earnings Per
Share (EPS)
Net income over Number of shares of common stock outstanding Earnings available to the owners of
common Stock
Price-Earnings
Ratio
Market price per share over Earnings per share Attractiveness of firm on equity
markets
Sales minus cost of goods sold
Sales
Earnings before interest and taxes EBIT
Sales
Net income
Sales
Net income
Total assets
Net income
Total stockholders’ equity
Net income
Number of shares of common stock outstanding
Market price per share
Earnings per share
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A Summary of Key Financial Ratios (4 of 4)
Ratio How Calculated What it measures
• Growth Ratios
Sales Annual percentage growth in
total sales
Firm’s growth rate in sales
Net Income Annual percentage growth in
profits
Firm’s growth rate in profits
Earnings Per Share Annual percentage growth in
EPS
Firm’s growth rate in EPS
Dividends Per Share Annual percentage growth in
dividends per share
Firm’s growth rate in dividends
per share
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Finance/Accounting Audit Checklist (1 of 2)
1. Where is the firm financially strong and weak as indicated
by financial ratio analyses?
2. Can the firm raise needed short-term capital?
3. Can the firm raise needed long-term capital through debt
and/or equity?
4. Does the firm have sufficient working capital?
5. Are capital budgeting procedures effective?
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Finance/Accounting Audit Checklist (2 of 2)
6. Are dividend payout policies reasonable?
7. Does the firm have good relations with its investors and
stockholders?
8. Are the firm’s financial managers experienced and well
trained?
9. Is the firm’s debt situation excellent?
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Production/Operations
• Production/operations function
– consists of all those activities that transform inputs into
goods and services
• Production/operations management deals with inputs,
transformations, and outputs that vary across industries
and markets.
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Table 4-6 The Basic Functions (Decisions)
Within Production/Operations
Decision Areas Example Decisions
1. Process these decisions include choice of technology, facility layout, process
flow analysis, facility location, line balancing, process control, and
transportation analysis. Distances from raw materials to production
sites to customers are a major consideration.
2. Capacity these decisions include forecasting, facilities planning, aggregate
planning, scheduling, capacity planning, and queuing analysis.
Capacity utilization is a major consideration.
3. Inventory these decisions involve managing the level of raw materials, work-in-
process, and finished goods, especially considering what to order,
when to order, how much to order, and materials handling.
4. Workforce these decisions involve managing the skilled, unskilled, clerical, and
managerial employees by caring for job design, work measurement, job
enrichment, work standards, and motivation techniques.
5. Quality these decisions are aimed at ensuring that high-quality goods and ser-
vices are produced by caring for quality control, sampling, testing,
quality
assurance, and cost control.
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Table 4-7 Implications of Various Strategies
on Production/Operations
Various Strategies Implications
1. Become a low-cost
provider
Creates high barriers to entry
Creates larger market
Requires longer production runs and fewer product changes
2. Become a high-quality
provider
Requires more quality-assurance efforts
Requires more expensive equipment
Requires highly skilled workers and higher wages
3. Provide great
customer service
Requires more service people, service parts, and equipment
Requires rapid response to customer needs or changes in
customer tastes
Requires a higher inventory investment
4. Be the first to introduce
new products
Has higher research and development costs
Has high retraining and tooling costs
5. Become highly
automated
Requires high capital investment
Reduces flexibility
May affect labor relations
Makes maintenance more crucial
6. Minimize layoffs Serves the security needs of employees and may develop
employee loyalty
Helps attract and retain highly skilled employees
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Production/Operations Audit Checklist
1. Are supplies of raw materials, parts, and subassemblies
reliable and reasonable?
2. Are facilities, equipment, machinery, and offices in good
condition?
3. Are inventory-control policies and procedures effective?
4. Are quality-control policies and procedures effective?
5. Are facilities, resources, and markets strategically
located?
6. Does the firm have technological competencies?
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Research and Development Audit
1. Does the firm have R&D facilities? Are they adequate?
2. If outside R&D firms are used, are they cost-effective?
3. Are the organization’s R&D personnel well qualified?
4. Are R&D resources allocated effectively?
5. Are management information and computer systems
adequate?
6. Is communication between R&D and other organizational
units effective?
7. Are present products technologically competitive?
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Management Information Systems
• Management Information System
– Receives raw material from both external and internal
evaluation of an organization
– Improves the performance of an enterprise by
improving the quality of managerial decisions
– Collects, codes, stores, synthesizes, and presents
information in such a manner that it answers important
operating and strategic questions
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Management Information Systems Audit (1 of 2)
1. Do all managers in the firm use the information system to
make decisions?
2. Is there a chief information officer or director of
information systems position in the firm?
3. Are data in the information system updated regularly?
4. Do managers from all functional areas of the firm
contribute input to the information system?
5. Are there effective passwords for entry into the firm’s
information system?
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Management Information Systems Audit (2 of 2)
6. Are strategists of the firm familiar with the information
systems of rival firms?
7. Is the information system user-friendly?
8. Do all users of the information system understand the
competitive advantages that information can provide
firms?
9. Are computer training workshops provided for users of
the information system?
10.Is the firm’s information system continually being
improved in content- and user-friendliness?
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Value Chain Analysis (VCA)
• Value Chain Analysis (VCA)
– refers to the process whereby a firm determines the
costs associated with organizational activities from
purchasing raw materials to manufacturing product(s)
to marketing those products
– aims to identify where low-cost advantages or
disadvantages exist anywhere along the value chain
from raw material to customer service activities
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Figure 4-8 Transforming Value Chain Activities
into Sustained Competitive Advantage
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Benchmarking
• Benchmarking
– an analytical tool used to determine whether a firm’s
value chain activities are competitive compared to
rivals and thus conducive to winning in the marketplace
– entails measuring costs of value chain activities across
an industry to determine “best practices”
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The Internal Factor Evaluation (IFE) Matrix
1. List key internal factors as identified in the internal-audit
process.
2. Assign a weight that ranges from 0.0 (not important) to
1.0 (all-important) to each factor.
3. Assign a 1-to-4 rating to each factor to indicate whether
that factor represents a strength or weakness.
4. Multiply each factor’s weight by its rating to determine a
weighted score for each variable.
5. Sum the weighted scores for each variable to determine
the total weighted score for the organization.
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Table 4-8 A Sample Internal Factor Evaluation
Matrix for a Retail Computer Store (1 of 2)
Key internal Factors Weight Rating
Weighted
Score
Strengths Blank Blank Blank
1. Inventory turnover increased from 5.8 to 6.7. 0.05 3 0.15
2. Average customer purchase increased from $97 to $128. 0.07 4 0.28
3. Employee morale is excellent. 0.10 3 0.30
4. In-store promotions resulted in 20% increase in sales. 0.05 3 0.15
5. Newspaper advertising expenditures increased 10%. 0.02 3 0.06
6. Revenues from repair/service in the store up 16%. 0.15 3 0.45
7. In-store technical support personnel have MIS college
degrees.
0.05 4 0.20
8. Store’s debt-to-total assets ratio declined to 34%. 0.03 3 0.09
9. Revenues per employee up 19%. 0.02 3 0.06
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Table 4-8 A Sample Internal Factor Evaluation
Matrix for a Retail Computer Store (2 of 2)
Key internal Factors Weight Rating Weighted Score
Weaknesses Blank Blank Blank
1. Revenues from software segment of
store down 12%.
0.10 2 0.20
2. Location of store negatively impacted
by new Highway 34.
0.15 2 0.30
3. Carpet and paint in store somewhat in
disrepair.
0.02 1 0.02
4. Bathroom in store needs refurbishing. 0.02 1 0.02
5. Revenues from businesses down 8%. 0.04 1 0.04
6. Store has no website. 0.05 2 0.10
7. Supplier on-time delivery increased to
2.4 days.
0.03 1 0.03
8. Often customers have to wait to check
out
0.05 1 0.05
Total 1.00 BLANK 2.50
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Copyright
Strategic Management Concepts: A
Competitive Advantage Approach
Sixteenth Edition
Chapter 3
The External Assessment
Copyright
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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.
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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 (EFE) Matrix.
3.7 Explain how to develop and use a Competitive Profile
Matrix.
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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
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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.
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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.
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Key External Forces
External forces can be divided into five broad categories:
1. economic forces
2. social, cultural, demographic, and natural environment
forces
3. political, governmental, and legal forces
4. technological forces
5. competitive forces
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Figure 3-2 Relationships Between Key
External Forces and an Organization
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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.
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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
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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.
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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
• GDP trends
• Consumption patterns
• Unemployment trends
• Value of the dollar
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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 (EEC) policies
• Organization of Petroleum Exporting Countries (OPEC) policies
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Advantages of a Strong Dollar (1 of 2)
1. Leads to lower exports
2. Leads to higher imports
3. Makes U.S. goods expensive for foreign consumers
4. Helps keep inflation low
5. Allows U.S. firms to purchase raw materials cheaply from other
countries
6. Allows U.S. to service its debt better
7. Spurs foreign investment
8. Encourages Americans to travel abroad
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Advantages of a Strong Dollar (2 of 2)
1. Leads to lower oil prices because oil globally is priced in
U.S. dollars
2. Encourages Americans to spend money because they
can buy more for their money
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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
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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
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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
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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
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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.
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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
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Political, Government, and Legal Variables
(2 of 2)
• USA 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
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Technological Forces (1 of 3)
New technologies such as:
• the Internet of Things
• 3D printing
• the cloud
• mobile devices
• biotech
• analytics
• autotech
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Technological Forces (2 of 3)
• robotics and
• artificial intelligence
are fueling innovation in many industries, and impacting
strategic-planning decisions.
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Technological Forces (3 of 3)
• Many firms now have a Chief Information Officer (CIO)
and a Chief Technology Officer (CTO) who work together
to ensure that information needed to formulate, implement,
and evaluate strategies is available where and when it is
needed
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Results of Technological Advances (1 of 2)
1. Major opportunities and threats that must be considered
in formulating strategies.
2. Can affect organizations’ products, services, markets,
suppliers, distributors, competitors, customers,
manufacturing processes, marketing practices, and
competitive position.
3. Can create new markets, result in new and improved
products, change the relative competitive cost positions,
and render existing products and services obsolete.
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Results of Technological Advances (2 of 2)
4. 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.
5. Can create new competitive advantages that are more
powerful than existing advantages.
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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
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Competitive Forces (2 of 2)
Characteristics of the most competitive companies:
1. Strive to continually increase market share
2. Use the vision/mission as a guide for all decisions
3. Whether it’s broke or not, fix it-make it better
4. Continually adapt, innovate, improve
5. Acquisition is essential to growth
6. Hire and retain the best employees and managers possible
7. Strive to stay cost-competitive on a global basis
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Key Questions About Competitors (1 of 3)
1. What are the strengths of our major competitors?
2. What are the weaknesses of our major competitors?
3. What are the objectives and strategies of our major
competitors?
4. 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?
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Key Questions About Competitors (2 of 3)
5. How vulnerable are the major competitors to our
alternative company strategies?
6. How vulnerable are our alternative strategies to
successful counterattack by our major competitors?
7. How are our products or services positioned relative to
major competitors?
8. To what extent are new firms entering and old firms
leaving this industry?
9. What key factors have resulted in our present competitive
position in this industry?
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Key Questions About Competitors (3 of 3)
10.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?
11.What is the nature of supplier and distributor relationships
in this industry?
12.To what extent could substitute products or services be a
threat to our competitors?
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Competitive Intelligence Programs (1 of 2)
Competitive intelligence (CI)
• 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
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Competitive Intelligence Programs (2 of 2)
The three basic objectives of a CI program are:
1. To provide a general understanding of an industry and its
competitors
2. To identify areas in which competitors are vulnerable and
to assess the impact strategic actions would have on
competitors
3. To identify potential moves that a competitor might make
that would endanger a firm’s position in the market
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Figure 3-3 The Five-Forces Model of
Competition (1 of 2)
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The Five-Forces Model of Competition (2 of 2)
1. Identify key aspects or elements of each competitive force
that impact the firm.
2. Evaluate how strong and important each element is for
the firm.
3. Decide whether the collective strength of the elements is
worth the firm entering or staying in the industry.
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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
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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 demand is falling
When rivals have excess inventory
When rivals sell similar products/services
When mergers are common in the industry
Conditions That Cause High Rivalry Among Competing Firms
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The Five-Forces Model (3 of 6)
• Potential Entry of New Competitors
– Barriers to entry are important
– Quality, pricing, and marketing can overcome barriers
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Barriers to Entry (1 of 2)
• Need to gain economies of scale quickly
• Need to gain technology and specialized know-how
• Lack of experience
• Strong customer loyalty
• Strong brand preferences
• Large capital requirements
• Lack of adequate distribution channels
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Barriers to Entry (2 of 2)
• Government regulatory policies
• Tariffs
• Lack of access to raw materials
• Possession of patents
• Undesirable locations
• Counterattack by entrenched firms
• Potential saturation of the market
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The Five-Forces Model (4 of 6)
• Potential development of substitute products
– Pressure increases when:
Prices of substitutes decrease
Consumers’ switching costs decrease
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The Five-Forces Model (5 of 6)
• Bargaining Power of Suppliers is increased when (there
are):
– Few suppliers
– Few substitutes
– Costs of switching raw materials is high
• Backward integration is gaining control or ownership of
suppliers
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The Five-Forces Model (6 of 6)
• Bargaining power of consumers
– Customers being concentrated or buying in volume
affects intensity of competition
– Consumer power is higher where products are
standard or undifferentiated
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Conditions Where Consumers Gain
Bargaining Power
1. If buyers can inexpensively switch
2. If buyers are particularly important
3. If sellers are struggling in the face of falling consumer
demand
4. If buyers are informed about sellers’ products, prices, and
costs
5. If buyers have discretion in whether and when they
purchase the product
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Sources of External Information (1 of 2)
• Unpublished sources include customer surveys, market
research, speeches at professional and shareholders’
meetings, television programs, interviews, and
conversations with stakeholders.
• Published sources of strategic information include
periodicals, journals, reports, government documents,
abstracts, books, directories, newspapers, and manuals.
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Sources of External Information (2 of 2)
• finance.yahoo.com
• hoovers.com
• globaledge.msu.edu/industries/
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Forecasting Tools and Techniques
• Forecasts
– educated assumptions about future trends and events
– no forecast is perfect
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Making Assumptions
• Assumptions
– Best present estimates of the impact of major external
factors, over which the manager has little if any control,
but which may exert a significant impact on
performance or the ability to achieve desired results.
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Business Analytics
• Using software to mine huge volumes of data
• Helps executives make decisions
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Industry Analysis: The External Factor
Evaluation (EFE) Matrix
Summarize and evaluate these factors:
• Social
• Cultural
• Demographic
• Economic
• Environmental
• Political
• Governmental
• Legal
• Technological
• Competitive
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EFE Matrix Steps
1. List 20 key external factors
2. Weight from 0.0 to 1.0
3. Rate the effectiveness of current strategies from 1-4
4. Multiply weight * rating
5. Sum weighted scores
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Table 3-9 EFE Matrix for a Local 10-
Theater Cinema Complex (1 of 2)
Key External Factors Weight Rating Weighted Score
Opportunities Blank Blank Blank
1. Two new neighborhoods
developing within 3 miles
0.09 1 0.09
2. TDB University is expanding
6% annually
0.08 4 0.32
3. Major competitor across
town recently closed
0.08 3 0.24
4. Demand for going to
cinemas growing 10%
0.07 2 0.14
5. Disposable income among
citizens up 5% in prior year
0.06 3 0.18
6. Rowan County is growing
8% annually in population
0.05 3 0.15
7. Unemployment rate in
county declined to 3.1%
0.03 2 0.06
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Table 3-9 EFE Matrix for a Local 10-Theater
Cinema Complex (2 of 2)
Key External Factors Weight Rating
Weighted
Score
Threats Blank Blank Blank
8. Trend toward healthy eating eroding concession sales 0.12 4 0.48
9. Demand for online movies and DVDs growing 10% 0.06 2 0.12
10. Commercial property adjacent to cinemas for sale 0.06 3 0.18
11. TDB University installing an on-campus movie theater 0.04 3 0.12
12. County and city property taxes increasing 25% 0.08 2 0.16
13. Local religious groups object to R-rated movies 0.04 3 0.12
14. Movies rented at local Red Box’s up 12% 0.08 2 0.16
15. Movies rented last quarter from Time Warner up 15% 0.06 1 0.06
Total 1.00 Blank 2.58
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Industry Analysis: Competitive Profile
Matrix (CPM)
• Identifies firm’s major competitors and their strengths &
weaknesses in relation to a sample firm’s strategic
positions
• Critical success factors include internal and external
issues
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Table 3-12 An Example Competitive Profile
Matrix
Blank Blank Company 1
Company 1
Company 2
Company 2
Company 3
Company 3
Critical Success
Factors
Weight Rating Score Rating Score Rating Score
Advertising 0.20 1 0.20 4 0.80 3 0.60
Product Quality 0.10 4 0.40 3 0.30 2 0.20
Price
Competitiveness
0.10 3 0.30 2 0.20 1 0.10
Management 0.10 4 0.40 3 0.20 1 0.10
Financial Position 0.15 4 0.60 2 0.30 3 0.45
Customer Loyalty 0.10 4 0.40 3 0.30 2 0.20
Global Expansion 0.20 4 0.80 1 0.20 2 0.40
Market Share 0.05 1 0.05 4 0.20 3 0.15
Total 1.00 blank 3.15 blank 2.50 blank 2.20
Note: The ratings values are as follows: 1 = major weakness, 2 = minor weakness, 3 = minor strength, 4
= major strength. As indicated by the total weighted score of 2.50, Competitor 2 is weakest. Only eight
critical success factors are included for simplicity; this is too few in actuality.
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Copyright