Analyzing the external

environment
External Strategic
Management Audit

– Environmental Scanning

– Industry Analysis

Zipcar planning – Learning about the environment

https://www.youtube.com/watch?v=zFaaJ79h88U
External Strategic
Management Audit

Purpose of External Audit

 Identify
 Opportunities
 Threats
Layers of the business environment

Why Alibaba Gave Up On U.S. Consumers

https://www.youtube.com/watch?v=9Kx8Jlz4oAY
External Audit – Sources of Information
for competitive intelligence
•Internet
•Libraries
•Suppliers
•Distributors
•Salespersons
•Customers
•Competition
Performing External Audit

Key Crititical Success Factors –

 Vary over time
 Vary by industry
I/O Perspective Firm Performance

Industry Properties

Economies of Scale

Barriers to Market Entry

Product Differentiation

Level of Competitiveness

Industry rate of growth

Competitive Profile Matrix
(CPM)
 Identify critical success factors specific for
the industry
 Assign weights to each factor according to
its importance. Total of all weigthed factors
should be 1
 Rate the company and its 2 main
competitors for each factor (1 – 4)
1 = very poor performance
 4 = very good performance
Competitive Profile Matrix
(CPM)
Critical Success Weight APPLE SAMSUNG GOOGLE
Factors Rating Total Rating Total Rating Total
Score Score Score

Innovation 0.30 4 1.20 3 0.90 4 1.20

Market Share 0.10 1 0.10 3 0.30 1 0.10

Competitive Pricing 0.15 2 0.30 3 0.45 4 0.60

Brand Image 0.10 4 0.40 2 0.20 4 0.40

Customer 0.20 3 0.60 3 0.60 4 0.80

Satisfaction
Advertising 0.15 4 0.60 3 0.45 1 0.15

Total 1.00 3.20 2.90 3.25

 Competitive Profile Matrix
Ryanair British Airways EasyJet
Critical Success factors Weights Rating Score Rating Score Rating Score

Advertising 0.08 1 0.08 2 0.16 3 0.24

Financial position 0.10 3 0.30 2 0.20 4 0.40
Customer loyalty 0.12 2 0.24 4 0.48 3 0.36
E-commerce 0.08 4 0.32 3 0.24 2 0.16
Management 0.08 2 0.16 3 0.24 4 0.32
Ticket Fare competitiveness 0.12 4 0.48 2 0.24 3 0.36
Fleet 0.10 4 0.40 3 0.30 2 0.20
Customer service 0.12 2 0.24 4 0.48 3 0.36
Market share 0.10 4 0.40 2 0.20 3 0.30
Employee morale 0.10 1 0.10 3 0.30 4 0.40
Totals: 1 2.72 2.84 3.10
 Competitive Profile Matrix (CPM)
Critical Success Factors Marriott Hyatt Starwood
Weight Rating Score Rating Score Rating Score
Strategic location 0.04 4 0.16 2 0.08 3 0.12
Superior quality services 0.09 4 0.36 4 0.36 4 0.36
Economies of scale 0.08 4 0.32 3 0.24 2 0.16
Economies of scope 0.08 4 0.32 2 0.16 3 0.24
Optimized operation 0.07 3 0.21 3 0.21 4 0.28
Strong brand communication 0.05 4 0.20 4 0.20 3 0.15
Ability to capture market share 0.09 2 0.18 3 0.27 4 0.36
Diversified workforce 0.05 4 0.20 4 0.20 4 0.20
Brand portfolio 0.08 3 0.24 4 0.32 2 0.16
Strong virtual presence 0.06 4 0.24 4 0.24 4 0.24
Ethical corporate governance 0.07 4 0.28 4 0.28 4 0.28
Multi-awarded loyalty programs 0.08 4 0.32 3 0.24 3 0.24
Affordability of the prices 0.07 2 0.14 3 0.21 4 0.28
Financial stability 0.09 3 0.27 4 0.36 3 0.27
TOTAL 1.00 3.42 3.37 3.34
Economic Forces
 Trends in the currency’s value
 European Union
 Layoffs
 Economic standard of living
 Economic crisis
 Interest rates

Monitor Key Exchange rates

Variables
Inflation

Wage rates

Import / export

COVID-19’s unequal economic recession

https://www.youtube.com/watch?v=ilGzAHPaxgg
Social, Cultural, Demographic,
and Environmental Forces

 Trends
 More households with people living alone
 Aging individuals – affects all organizations
 Population shifts
 Decimation and degradation of the natural
environment
Social, Cultural, Demographic,
and Environmental Forces
21st Century Trends
•More educated consumers
•Aging population
•Minorities more influential
•Local rather than national solutions
•Changing customers
Millennials shopping habits: https://www.youtube.com/watch?v=64yTZOfyCJ0
Gen-Z Matters More than Millennials:
https://www.youtube.com/watch?v=Y8mZx4o32vs
Social, Cultural, Demographic,
and Environmental Forces
Global trends
•Regionalization: RCEP trade agreement
•Changing incentives for foreign investments
•Changing emerging markets
•New markets in Africa:
CNN: Latest African gold rush: Hotels
http://edition.cnn.com/2013/05/08/business/hot
els-africa-expansion/index.html
Social, Cultural and
Demographic Forces

Avg. Educational Level

Monitor Key Per Capita Income

Variables
Avg. Disposable Income

Governmental Regulation
Social, Cultural and Demographic
Forces
Leisure-Time Values

Consumer Behavior

Attitudes Toward Saving

Monitor Key Ethical Concerns

Variables Social Responsibility

Energy Conservation

Recycling
Health concerns shape product design:
https://amp.cnn.com/cnn/2019/07/16/business/nestle-chocolate-no-added-
sugar/index.html?__twitter_impression=true
Natural Environment Perspective
Legislation on Climate Change

 Taxes based on greenhouse-

gas emissions
https://www.youtube.com/watch
?v=CilVymuAM8A
 Use of renewable energy and
reduction in waste
 Carbon credit market:
https://www.youtube.com/watch
?v=FQSaoPPe2F0
 Other initiatives:
https://www.youtube.com/watch
?v=MaORMXMkG6Y
Environmental Forces

Waste Management

Monitor Key Energy usage

Variables Resource Depletion

Endangered Species
Political, Governmental, and
Legal Forces

Government Regulation

Key opportunities & threats

 Antitrust legislation
 Tax rates

 Lobbying efforts

 Patent laws

 Political climate
Political, Governmental, and
Legal Forces

Globalization of Industry
 Worldwide trend toward similar
consumption patterns
 Global buyers and sellers
 E-commerce
 Technology for instant currency transfers
Key Political, Governmental, and Legal
Variables

Regulation/deregulation

Tax law changes

Special tariffs

Government subsidies

Environmental protection laws

Key Political, Governmental, and Legal
Variables (cont’d)

Anti-trust enforcement

Global relationships

Import/export regulations

Political conditions

Location and severity of terrorist activity

Is Google a monopoly? https://www.youtube.com/watch?v=7rH_W5PN8ns

Technological Forces

Major Impact –
•Internet
•Wireless applications
•Smart phones
•Social media
•Alibaba: The future of the hotel
industry
https://www.youtube.com/watch?v
=rnGpSZmj-cA
Technological Forces

Source: Springwise.com
Technological Forces

Significance of IT
•Chief Information Officer (CIO)
•Chief Technology Officer (CTO)
Competitive Forces

Collection & evaluation of data on

competitors is essential for successful
strategy formulation

Who is competing with Uber? | CNBC Explains

https://www.youtube.com/watch?v=g1dTjROL8Uc
Key Questions Concerning Competitors

Their strengths

Their weaknesses

Their objectives and strategies

Their responses to external variables

Their vulnerability to our alternative strategies

Key Questions Concerning Competitors (cont’d)

Our vulnerability to strategic counterattack

Our product/service positioning

Entry and exit of firms in the industry

Key factors for our current position in industry

Sales/profit rankings of competitors over time

Key Questions Concerning Competitors (cont’d)

Nature of supplier & distributor relationships

The threat of substitute products/services

Should we keep our strategies secret from

employees and stakeholders?
Why Amazon Is Going After Netflix
https://www.youtube.com/watch?v=PZ75QyqbKf4
The Five-Forces Model of Competition

HBR video: https://hbr.org/video/3590615226001/the-explainer-porters-

five-forces
Forecasting Tools and Techniques
 Forecasts are educated assumptions
about future trends and events
 Quantitative techniques – most appropriate when historical data
is available and there is a constant relationship
 Qualitative techniques

 Coronavirus – forecasts to predict effect

on sales based on:
 Effect of seasonality on sales
 Sales channels – online – outline
 Consumer psychology related variables
 Availability of alternatives
 Dependence on other related industries that might be affected
Source: https://demand-planning.com/2018/03/29/predictive-
analytics-real-life-use-cases/
External Factor Evaluation Matrix
for an airline
Opportunities Weight Rating W. Score
Industry Consolidation 0.11 4 0.44
Increased demand for air travel 0.12 3 0.36
Privatization in EU countries 0.10 2 0.20
Growth of low-cost sector 0.08 4 0.32
Opportunities in the Middle East and Africa 0.16 3 0.48
Threats
Declining margins 0.10 1 0.10
Increased security regulations 0.05 3 0.15
Fuel cost increasing 0.08 2 0.16
Increasing taxes 0.05 2 0.10
Economic downturn 0.15 1 0.15
Total Weighted Score 1.0 2.46
1 = poor; 2 = below average; 3 = above average; 4 = superior