chapter 3 notes

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Management and Organizational Studies
Management and Organizational Studies 4410A/B
Raymond Leduc

Chapter 3The External AssessmentExternal analysis is often referred to as environmental scanning or industry analysis it involves identifying and evaluating trends and events beyond the control of a single firm and helps managers formulate strategies to deal with opportunities and threatsThe purpose of an external audit is to develop a list of opportunities that the firm could benefit from and threats that should be avoided o The list should be finite so that only key variables are identifiedExternal forces can be split into 5 categories o Economic GDP is a very important variable in strategic planning across countriesFactors have a direct impact on the attractiveness of certain strategies ie when interest rates rise the cost of expansion is more costly discretionary income falls and demand for discretionary goods fallA low value of the dollar means lower imports and higher exports o Socialculturaldemographicnatural environment o PoliticalgovernmentallegalFor firms that depend heavily on government contractssubsidies political forecasts are a key aspect of an external auditCountries have resorted to protectionism in the face of global recession o TechnologicalThe internet has changed opportunities and threats by altering the life cycles of products increasing the speed of distribution creating new products erasing lines between geographic markets and changing the tradeoff between standardization and flexibilityTo capitalize on ecommerce firms are introducing chief information officer and chief technology officershows the growing importance of IT in strategic mgmtThe CIO is like a manager and managers the firms relationship with stakeholdersThe CTO is like a technician and focuses on technical issues like data acquisitionprocessing support systems and softwarehardware purchasesNo company or industry is insulated against emerging technological developmentsTechnology mgmt is one of the key responsibilities of strategists o CompetitiveIdentify rival firms and determine their strengths weaknesses capabilities opportunities etcSeven characteristics that describe the most competitive firms 1 Market share matters 2 Understand and remember what business youre in 3 Whether or not its brokefix it always strive to making things better 4 Innovate or evaporate5 Acquisition is vital for growth 6 People make a difference 7 No substitute for quality and no bigger threat than failing to be costcompetitive worldwide changes in external forces translate into changes in consumer demand for both industrial and consumer products o It can affect the types of products developed nature of positioning and market segment strategies the choice of businesses to acquiresell o Can affect both suppliers and distributorsAn external audit should involve as many managers and employees as possibleTo do an external audit a company should first gather competitive intelligence and information about external trends suppliers distributors salespeople customers and competitors are good sources of info o This information should then be evaluated so that only the most important opportunities and threats are collected o Both opportunities and threats can be key external factorsSigmund Freud states that key external factors that should be identified by managers should be i Important to achieving longterm annual objectives
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