What external forces need to be considered?
Neu-Ulm University of Applied Sciences
September 3, 2024
After this session, you should have a solid understanding of
Before we start: Any questions or comments regarding the different types of strategies discussed last week?
Who wants to explain the Strategy Flywheel?
Scanning the environment to identify key variables so that strategies can be formulated to take advantage of the opportunities and reduce the impacts of the threats.
External forces can be divided into five broad categories:
Economic; social, cultural, demographic, and environmental; political, governmental, and legal; technological; and competitive forces.
What are legal and ethical means of obtaining competitive intelligence, defined as the acquisition of insights about competitors that are important to one’s own business?
The essence of strategy formulation is coping with competition.
Porter proposed a framework for competitive analysis of a specific industry based on five basic forces that determine the ultimate profit potential of that industry.
Maneuvers such as price competition, product introductions, advertising battles, etc. are often used by rivals jockeying for position (i.e., “ploys”).
Long-term, global, and transformative trends that bring about fundamental changes and transformations in various domains and at multiple levels.
The Zukunftsinstitut identifies 12 long-term, transformative forces that impact all aspects of society, economy, and individual lives:
Globalisation, urbanization, silver society, health, new work, knowledge culture, connectivity, mobility, neo-ecology, individualisation, gender-shift, and security.
Neo-ecology: climate change requires sustainable and environmental practices.
Form groups of three to four students, discuss the reading material provided by Hallegatte (2009), and create a summary of the key findings concerning the importance of climate change for contemporary firms, the difficulties encountered when dealing with it, and strategies for robust decision-making. Additionally, reflect on the implications these findings have for strategic management.
Each group should be prepared to present their findings in a five-minute presentation. Please prepare slides for this within the next 25 minutes.
Some decisions are consequential and irreversible or nearly irreversible – one-way doors – and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions. But most decisions aren’t like that – they are changeable, reversible – they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups. Jeff Bezos, 2015 Letter to the shareholders
An External Factor Evaluation (EFE) matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information.
The EFE matrix shows how the organization responds to existing opportunities and threats in its industries. Or, in other words, how the firm’s existing strategies effectively take advantage of existing opportunities and minimize the potential adverse effects of external threats.
The following steps should be taken in order to create a EFE matrix:
A total weighted score of 4.0 indicates that the organization is responding in an outstanding way to existing threats and opportunities in the industry.
EFE matrix for a local 10-theater cinema complex
Key External Factors | Weight | Rating | Score |
---|---|---|---|
Opportunities | |||
1. Two new neighborhoods developing within 3 miles | 0.09 | 1 | 0.09 |
2. TDB University is expanding 6% annually | 0.08 | 4 | 0.32 |
3. Major competitor across town recently closed | 0.08 | 3 | 0.24 |
4. Demand for going to cinemas growing 10% | 0.07 | 2 | 0.14 |
5. Disposable income among citizens up 5% in prior year | 0.06 | 3 | 0.15 |
6. Rowan County is growing 8% annually in population | 0.05 | 3 | 0.15 |
7. Unemployment rate in county declined to 3.1% | 0.03 | 2 | 0.06 |
8. Unemployment rate in county declined to 3.1% | 0.03 | 2 | 0.06 |
Threats | |||
9. Trend toward healthy eating eroding concession sales | 0.12 | 4 | 0.48 |
10. Demand for online movies and DVDs growing 10% | 0.06 | 2 | 0.12 |
11. Commercial property adjacent to cinemas for sale | 0.06 | 3 | 0.18 |
12. TDB University installing an on-campus movie theater | 0.04 | 3 | 0.12 |
13. County and city property taxes increasing 25% | 0.08 | 2 | 0.6 |
14. Local religious groups object to R-rated movies | 0.04 | 3 | 0.12 |
15. Movies rented at local Red Box’s up 12% | 0.08 | 2 | 0.16 |
16. Movies rented last quarter from Time Warner up 15% | 0.06 | 1 | 0.06 |
Total | 1.00 | 2.58 |
Anthropic2 is dedicated to developing AI systems that are safe and beneficial for society. The company is involved in various initiatives to ensure AI is used responsibly.
Apply what you have learned about external strategic audits and develop an EFE matrix that identifies and assesses the key external factors for Anthrophic.
The following questions are designed to review and consolidate what you have learned and are a good starting point for preparing for the exam.
Read Peteraf (1993) and make notes on following questions:
The external strategic management audit is sometimes also called environmental scanning or industry analysis.
You might also read an essay by Dario Amodei, the CEO of antrophic about “Machines of Loving Grace — How AI Could Transform the World for the Better”