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External Analysis

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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  1. External Analysis

  2. 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

  3. OVERVIEW • External • Analyze Global Societal (Macro) Factors • Analyze Global Task (Micro) Factors • Industry • Competitors

  4. SOCIETAL (MACRO) TECHNOLOGICAL TASK (MICRO) Industry ECONOMIC POLITICAL/ LEGAL INTERNAL Competitors SOCIOCULTURAL

  5. Macro (Societal) External Environment

  6. 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

  7. Sociocultural Trends & Forecasts • Demographic trends • Life style changes • Level of education • Value placed on leisure time • Social responsibility • Environmental concerns • Buying habits

  8. 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

  9. Political/Legal • Antitrust legislation • Environmental laws • Tax laws • Trade regulations • Political stability • Contract laws • Intellectual property

  10. Technological Variables • New products and processes • Automation • Business-to-business

  11. 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

  12. WORKSHEETS Societal (Macro) External Environment Analysis

  13. Global Task (Micro)External Analysis

  14. SOCIETAL (MACRO) TECHNOLOGICAL TASK (MICRO) Industry ECONOMIC POLITICAL/ LEGAL INTERNAL Competitors SOCIOCULTURAL

  15. 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

  16. Example of Importance of Industry Attractiveness • Average return on investment 1988-1992 • Source: Compustat and Michael Porter’s analysis

  17. Return on Investment = net income/average investment (long term debt+preferred stock+common equity+retained earnings)

  18. Components of an Industry Analysis

  19. 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

  20. 2. Industry Financial Analysis • Sales • Net Income • Other Indicators • Ratios

  21. 3. Overall Assessment of Competitiveness Potential Entrants • Five Forces Model Rivalry Among Firms Buyers Suppliers Substitutes

  22. COMPETITORS

  23. Positioning within IndustriesTrucking Industry ROI ‘88-92 Industry Average 5.1%

  24. 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

  25. Which Competitors to Analyze • The market leader (largest share) • The most profitable competitor • The competitor most like us • The fastest-growing competitor

  26. What to analyze • Sales • Profit Rankings • Objectives • Strategies • Capabilities

  27. 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

  28. 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

  29. 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

  30. 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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