Strategic Management Chapter 3 Quiz

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Questions and Answers

An external audit focuses solely on internal factors affecting an organization.

False (B)

Porter’s Five-Forces Model is relevant for formulating strategies in an organization.

True (A)

An external assessment is used exclusively for recognizing internal strengths and weaknesses.

False (B)

Firms can respond offensively or defensively to external factors as identified in an external audit.

<p>True (A)</p> Signup and view all the answers

The External Factor Evaluation (EFE) Matrix is not used in strategic management.

<p>False (B)</p> Signup and view all the answers

Economic forces include factors such as inflation rates and unemployment trends.

<p>True (A)</p> Signup and view all the answers

The AQCD test stands for Actionable, Quantitative, Comparative, and Developmental.

<p>False (B)</p> Signup and view all the answers

SCDE forces are limited to social and cultural aspects and do not include demographic or environmental factors.

<p>False (B)</p> Signup and view all the answers

Online retail grocery shopping growth from 12% to 16% in 2018 is an example of a factor that passed the AQCD test.

<p>True (A)</p> Signup and view all the answers

Competitive forces refer to the economic conditions of foreign countries only.

<p>False (B)</p> Signup and view all the answers

Flashcards

External Assessment

Analyzing trends and events outside a company's control, to identify opportunities and threats.

External Audit Purpose

Identify key external factors affecting a company, allowing managers to formulate strategies for responding to opportunities and threats.

External Audit Focus

Identifying and evaluating trends and events outside the control of a single firm.

Porter's Five Forces

A model for analyzing the competitive intensity and attractiveness of an industry.

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EFE Matrix

A tool for evaluating external factors by assigning weights and ratings to identify crucial opportunities and threats, guiding strategic decision-making.

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External Forces

Broad categories of forces that influence an organization, including economic, social/cultural, demographic, environmental, political/legal, technological, and competitive forces.

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AQCD Test

A framework for evaluating external factors in strategic planning using Actionable, Quantitative, Comparative, and Divisional criteria.

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Economic Forces

External factors related to the economy, impacting an organization's decisions.

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Social/Cultural/Demographic/Environmental (SCDE) Forces

Forces related to social trends, cultural shifts, population demographics, and environmental changes that affect strategic decisions.

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Actionable External Factors

External factors that organizations can respond to with strategic decisions and actions.

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Study Notes

Strategic Management Concepts: A Competitive Advantage Approach, Concepts and Cases

  • Book title: Strategic Management: A Competitive Advantage Approach
  • Edition: Seventeenth
  • Chapter 3: The External Assessment

Learning Objectives (Part 1)

  • Describe the nature and purpose of an external assessment in formulating strategies
  • Identify and discuss 10 external forces that impact organizations
  • Explain Porter's Five-Forces Model and its relevance in formulating strategies

Learning Objectives (Part 2)

  • Describe key sources of information for identifying opportunities and threats
  • Discuss forecasting tools and techniques
  • Explain how to develop and use an External Factor Evaluation (EFE) Matrix
  • Explain how to develop and use a Competitive Profile Matrix (CPM)

External Audit

  • Focuses on identifying and evaluating trends and events beyond the control of a single firm
  • Reveals key opportunities and threats facing an organization
  • Helps managers formulate strategies to take advantage of opportunities and reduce the impact of threats

Purpose of an External Audit

  • Aimed at identifying key variables for actionable responses
  • Enables firms to respond offensively or defensively through strategy formulation

Key External Forces

  • Economic forces
  • Social, Cultural, Demographic, and Environmental (SCDE) forces
  • Political, Governmental, and Legal forces
  • Technological forces
  • Competitive forces

The AQCD Test

  • Actionable
  • Quantitative
  • Comparative
  • Divisional
  • A measure of the quality of an external factor

Competitive Intelligence (CI)

  • Systematic, ethical process for gathering and analyzing information about the competition and general business trends to support business goals

Porter's Five-Forces Model

  • Potential development of substitute products
  • Bargaining power of suppliers
  • Rivalry among competing firms
  • Bargaining power of consumers
  • Potential entry of new competitors

Components of Porter's model

  • Identify key elements of each force affecting the firm
  • Assess how strong and significant each element is for the firm
  • Determine if the collective impact justifies entering/remaining in the industry

Competitive Profile Matrix (CPM)

  • Identifies major competitors' strengths and weaknesses in relation to a sample firm's strategic positions
  • Critical success factors include internal and external issues

Sources of External Information (Part 1)

  • Unpublished sources: customer surveys, market research, speeches, meetings, interviews, discussions with stakeholders
  • Published sources: periodicals, journals, reports, government documents, abstracts, books, directories, newspapers, manuals

Sources of External Information (Part 2)

  • IBISWorld

  • Lexis-Nexis Academic

  • Lexis-Nexis Company Dossier

  • Mergent Online

  • PrivCo, Regional Business News

  • S&P NetAdvantage

  • Value Line Investment Survey

  • U.S. Securities and Exchanges Commission

  • Company Annual Reports On-Line (CAROL)

  • Forecasting Tools & Techniques: educated assumptions about future trends; forecast perfection is not expected

  • Making Assumptions: Best estimates of the impact of external factors over which managers have little control but can significantly affect performance

Industry Analysis: The External Factor Evaluation (EFE) Matrix

  • Summarize & evaluate social, cultural, demographic, economic, environmental, political, governmental, legal, technological, and competitive factors

EFE Matrix Steps

  • List key external factors
  • Assign weights (0 - 1.0) to factors
  • Rate the effectiveness of current strategies (1 - 4)
  • Multiply weights by ratings
  • Calculate total weighted scores

Industry Analysis: Competitive Profile Matrix (CPM)

  • Identify major competitors and their strengths and weaknesses
  • Analyze competitor strategic positions
  • Critical success factors should encompass internal and external elements

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