External analysis
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External Analysis. External Analysis. Monitoring, Evaluating, Forecasting, and Disseminating information from the external environment Management tool to: Avoid surprises Work to ensure long-term health Identify opportunities and threats. OVERVIEW. External

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External Analysis

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External Analysis


External Analysis

  • Monitoring, Evaluating, Forecasting, and Disseminating information from the external environment

  • Management tool to:

    • Avoid surprises

    • Work to ensure long-term health

    • Identify opportunities and threats


OVERVIEW

  • External

    • Analyze Global Societal (Macro) Factors

    • Analyze Global Task (Micro) Factors

      • Industry

      • Competitors


SOCIETAL (MACRO)

TECHNOLOGICAL

TASK (MICRO)

Industry

ECONOMIC

POLITICAL/

LEGAL

INTERNAL

Competitors

SOCIOCULTURAL


Macro (Societal)

External Environment


Economic Trends & Forecasts

  • Gross National Product (GNP)

    • Total market value all goods & services final consumption in nation

  • Gross Domestic Product (GDP)

    • Value all goods & services produced in nation

  • Disposable Personal Income (DPI)

  • Consumer Price Index (CPI)

  • Interest Rates

  • Import/Export Trends

  • Unemployment Trends

  • Inflation Rates


Sociocultural Trends & Forecasts

  • Demographic trends

  • Life style changes

  • Level of education

  • Value placed on leisure time

  • Social responsibility

  • Environmental concerns

  • Buying habits


U.S. Sociocultural trends shaping future

  • Increasing environmental awareness

  • Growth of the seniors market

  • New baby boomlet

  • Decline of the mass market

  • Pace and location of life

  • Changing households


Political/Legal

  • Antitrust legislation

  • Environmental laws

  • Tax laws

  • Trade regulations

  • Political stability

  • Contract laws

  • Intellectual property


Technological Variables

  • New products and processes

    • Automation

    • Business-to-business


Technological Variables

  • Information Age Developments

    • Selling on the Internet

      • In just 3 years, 90 million people swap information or do deals on the Internet.

      • It took 30 years for radio to reach 60 million

      • It took 15 years for TV to reach 60 million


WORKSHEETS

Societal (Macro)

External Environment Analysis


Global Task (Micro)External Analysis


SOCIETAL (MACRO)

TECHNOLOGICAL

TASK (MICRO)

Industry

ECONOMIC

POLITICAL/

LEGAL

INTERNAL

Competitors

SOCIOCULTURAL


INDUSTRY

  • Group of firms producing a similar product or service.

  • Often defined by sources such as:

    • government (SIC codes),

    • analysts (Valueline,Investment Analysts, Standard & Poor’s).

    • Trade Associations

  • Multiple segments

  • Worldwide, Global, Domestic


Example of Importance of Industry Attractiveness

  • Average return on investment 1988-1992

  • Source: Compustat and Michael Porter’s analysis


Return on Investment = net income/average investment (long term

debt+preferred stock+common equity+retained earnings)


Components of an Industry Analysis


1. Market Share Analysis

  • Definition of “market”

  • Definition of competitors

  • Share Trends - Past, Present, Future

U.S. Widget Market

1993

U.S. Widget Market

1998

U.S. Widget Market

2003


2. Industry Financial Analysis

  • Sales

  • Net Income

  • Other Indicators

  • Ratios


3. Overall Assessment of Competitiveness

Potential

Entrants

  • Five Forces Model

Rivalry

Among

Firms

Buyers

Suppliers

Substitutes


COMPETITORS


Positioning within IndustriesTrucking Industry ROI ‘88-92

Industry Average

5.1%


Competitors

Who?

  • Product Form - brands that directly compete

  • Product Category - products with similar characteristics

  • Generic Competition - products that satisfy the same customer needs

  • Budget Competition - products that compete for the customer’s budget


Which Competitors to Analyze

  • The market leader (largest share)

  • The most profitable competitor

  • The competitor most like us

  • The fastest-growing competitor


What to analyze

  • Sales

  • Profit Rankings

  • Objectives

  • Strategies

  • Capabilities


U.S. RestaurantChain Industry

  • Strategic Groups

High

Red Lobster

Olive Garden

Pizza Hut

Chi-Chi’s

IHOP

Bob Evans

Shoney’s

Denny’s

PRICE

McDonald

Burger King

Wendy’s

Low

Limited

Menu

Full

Menu

Product-Line Breadth


Two Segment Questions

  • External question:

    • What share of the total market do we have?

  • Internal question:

    • How much does that market contribute to our:

      • Sales; Net Income; Assets


Segments

  • Geographic Segments

    • U.S.; Europe; Pacific, etc.

  • Customer Segments

    • home market; business market; government market.

  • Product Segments

    • fruit-beverage market

    • alcoholic beverage market

  • Business Segments

    • Johnson Controls has 4

      • Auto; Controls; Plastic; Battery


Concept: External Analysis

  • Processes:

    • Analyze Global Societal (Macro) Factors

    • Analyze Global Task (Micro) Factors

      • Industry

      • Competitors

  • Goal:

    • To identify opportunities and threats.


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