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Topic 7 - The External Audit (Part 2) (External Factor Evaluation Matrix…
Topic 7 - The
External Audit (Part 2)
5 Forces Model
1. Rivalry Among
Competing Firms
Focus on competitive advantage of strategies over other firms
Conditions that cause high rivalry
Number of competing firms are high
Consumers can switch brand easily
Product is perishable
Consumer demand is falling
Rivals sell similar products / services
2. Potential Entry of
New Competitors
Barriers to entry
Lack of experience
Strong customer loyalty
Strong brand preferences
Large capital requirement
Tariffs
Lack of access to raw materials
3. Potential Development of
Substitute Products
Pressure Increase When
Price of substitutions decrease
Consumers' switching cost decrease
4. Bargaining Power
of Suppliers
Backward integration is gaining control
Increased When
Few suppliers
Few Substitutes
Cost of switching raw material is high
5. Bargaining Power
of Consumers
Customers being concentrated or buying in volume affects intensity of competition
Conditions Where Consumers Gain
Bargaining Power
If buyers are particularly important
If buyers can inexpensively switch
If buyers are informed about sellers' product, prices and costs
Sources of External
Information
a) Unpublished
Customer surveys
Market research
Interviews
Conversation with
stakeholders
b) Published
Journals
Reports
Documents
Newspapers
Manuals
Banks
External Factor
Evaluation Matrix
Economic
Social
Cultural
Demographic
Environmental
Political
Governmental
Legal
Technological
Competitive
Steps
List 20 key external factors
Weight from 0.0 to 1.0
Rate the effectiveness from 7 - 4
Multiply weight rating
Sum weighted scores
Forecasting Tools
& Techniques
Educated assumptions about future trends and events
Business
Analytics
Using software to mine huge volumes data
Help executives make decision
Industry
Analysis
Competitive Profile
Matrix (CPM)
Identify firm's major competitors
Identify their strengths and weaknesses