60 PART 2. STRATEGY FORMULATION T: This chapter examines the tools and concepts needed to conduct an external strategic management audit (sometimes called environmental scanning or industry analysis. An external audit focuses on identifying and evaluating trends and events beyond the con- trol of a single firm, such as increased foreign competition, population shifts to coastal areas of the USA. an aging society, and taxing Internet sales. An external audit reveals key opportunities and threats confronting an organization so that managers can formulate strategies to take advan- tage of the opportunities and avoid or reduce the impact of threats. This chapter presents a prac- tical framework for gathering, assimilating, and analyzing external information. The Industrial Organization (I/O) view of strategic management is introduced. The Chapter 3 boxed insert company pursuing strategies based on an excellent external strate- gic analysis is PetSmart. Inc. Note that PetSmart has more than 1,200 stores in the USA and Canada. The Nature of an External Audit The purpose of an external audit is to develop a finite list of opportunities that could ben- efit a firm and threats that should be avoided. As the term finite suggests, the external audit is not aimed at developing an exhaustive list of every possible factor that could influence the business: rather. it is aimed at identifying key variables that offer actionable responses. Firms should be able to respond either offensively or defensively to the factors by formu- lating strategies that take advantage of external opportunities or that minimize the impact of potential threats. Figure 3-I illustrates with white shading how the external audit fits into the strategic-management process. STRATEGIC MANAGEMENT PetSmart Inc. Do you own a dog or cat or pet of any kind? If yes, you may be inter with their pets ested to know that PetSmart is the top pet company in the industry and just want PetSmart is the number one U.S. specialty retailer of pet food and sup- to talk about plies, with 1,270 stores in the USA and Canada. PetSmart has become their pets and pratitable and is growing rapidly as a result of excellent strategies then buy prod- based on a "humanization of pets mission whereby the company ucts or services treats pet owners as pet parents and treats pets and children offered. He says CEO Bob Moran at PetSmart says his company does not ask us the trend to- tomers "How can I help you?" but rather says "Please tell me about ward providing more natural, organic foods and products for pets is your pet." PetSmart plans to open 50 new stores each year between a rapidly growing trend and PetSmart provides the latest and greates: 2012 and 2022. A key advantage for PetSmart is its excellent strategic organic products and services. transition from being a pet-supply store to being a pet-service center In 2013, PetSmart began letting customers reserve pet rooms Ranging from 12,000 to 20,000 square feet in size, PetSmart and services online after extensively improving their website in prio stores offer more than 10,000 products, ranging from scratching posts years. The company takes full advantage of seasonal holidays by, fo- to iguana harnesses and all sold under national brands and PetSmart's example, providing numerous Halloween toys and costumes in dit- own private labels. Most of these stores include a pet hotel and pet ferent colors and makes during October each year. But the overriding hospital. The company also sells products through its PetSmart web- competitive advantage for PetSmart is their overarching philosophy to site. Stores also provide in-store boarding facilities (Pets Hotels), groom- treat pet owners like parents and to treat pets like children, providing ing services, day camps (Doggie Day Camps), and obedience training, tender loving care of both, Veterinary services are available, as well, in about 800 shops through Facing thousands of mom-and-pop pet stores nationwide as we pet hospital operator Medical Management International (known asas mass retailers such as Walmart and Target, PetSmart's major com Banfield), of which PetSmart owns about 20 percent petitor is privately held PETCO Animal Supplies, which has more than Because there are more cats in urban areas because of size con 1,000 stores in the USA and is headquartered in San Diego, Californa straints, urban PetSmart stores focus more on cats and cat customers, whereas nonurban stores focus more on dog customers. But all PetSmart Some: Based on Emily Glazer. "PetSmart Thrives Treating Owners Like stores are meeting places because Moran says customers come in Parents." Wall Street Journal (9-12-12: B7 Please, after reading the case in point: Pet Smart: 1. Post your thoughts pertaining to the following questions: A. Consider the following two-dimensional matrix with Weights on the y-axis and Ratings on the x-axis. What are example opportunities and threats that could possibly characterize Pet Smart in the four corners of the matrix (Develop a hypothetical op for Pet Smart that could be positioned in each of the four corners of the matrix)? RATINGS High Low Opportunity 1 Threat 1 Opportunity 2 Threat 2 WEIGHTS middle Opportunity 3 Threat 3 Opportunity 4 Threat 4 Low B. Give a supporting rationale for each factor 2. Respond to at least one of the post made by your class-mate Pet Smart Ext Env.PDF Note: The four corners in the matrix above are the result of an intersection between Ratings and Weights ascribed to specific threats and opportunities. Hence, the four quadrants in the matrix indicate the following scenarios: A low weight and high rating - this is a factor that is not that important for being successful in the industry but that the firm's strategies are responding to very well to the issue. .A high weight and high rating - this is a factor that is very important for being successful in the industry and the firm's strategies are responding to very well to the issue 3. A low weight and low rating - this is a factor that is not that important for being successful in the industry and the firm's strategies are not responding to very well to the issue 4. A high weight and low rating - this is a factor that is very important for being successful in the industry but that the firm's strategies are not responding to very well to the issue 60 PART 2. STRATEGY FORMULATION T: This chapter examines the tools and concepts needed to conduct an external strategic management audit (sometimes called environmental scanning or industry analysis. An external audit focuses on identifying and evaluating trends and events beyond the con- trol of a single firm, such as increased foreign competition, population shifts to coastal areas of the USA. an aging society, and taxing Internet sales. An external audit reveals key opportunities and threats confronting an organization so that managers can formulate strategies to take advan- tage of the opportunities and avoid or reduce the impact of threats. This chapter presents a prac- tical framework for gathering, assimilating, and analyzing external information. The Industrial Organization (I/O) view of strategic management is introduced. The Chapter 3 boxed insert company pursuing strategies based on an excellent external strate- gic analysis is PetSmart. Inc. Note that PetSmart has more than 1,200 stores in the USA and Canada. The Nature of an External Audit The purpose of an external audit is to develop a finite list of opportunities that could ben- efit a firm and threats that should be avoided. As the term finite suggests, the external audit is not aimed at developing an exhaustive list of every possible factor that could influence the business: rather. it is aimed at identifying key variables that offer actionable responses. Firms should be able to respond either offensively or defensively to the factors by formu- lating strategies that take advantage of external opportunities or that minimize the impact of potential threats. Figure 3-I illustrates with white shading how the external audit fits into the strategic-management process. STRATEGIC MANAGEMENT PetSmart Inc. Do you own a dog or cat or pet of any kind? If yes, you may be inter with their pets ested to know that PetSmart is the top pet company in the industry and just want PetSmart is the number one U.S. specialty retailer of pet food and sup- to talk about plies, with 1,270 stores in the USA and Canada. PetSmart has become their pets and pratitable and is growing rapidly as a result of excellent strategies then buy prod- based on a "humanization of pets mission whereby the company ucts or services treats pet owners as pet parents and treats pets and children offered. He says CEO Bob Moran at PetSmart says his company does not ask us the trend to- tomers "How can I help you?" but rather says "Please tell me about ward providing more natural, organic foods and products for pets is your pet." PetSmart plans to open 50 new stores each year between a rapidly growing trend and PetSmart provides the latest and greates: 2012 and 2022. A key advantage for PetSmart is its excellent strategic organic products and services. transition from being a pet-supply store to being a pet-service center In 2013, PetSmart began letting customers reserve pet rooms Ranging from 12,000 to 20,000 square feet in size, PetSmart and services online after extensively improving their website in prio stores offer more than 10,000 products, ranging from scratching posts years. The company takes full advantage of seasonal holidays by, fo- to iguana harnesses and all sold under national brands and PetSmart's example, providing numerous Halloween toys and costumes in dit- own private labels. Most of these stores include a pet hotel and pet ferent colors and makes during October each year. But the overriding hospital. The company also sells products through its PetSmart web- competitive advantage for PetSmart is their overarching philosophy to site. Stores also provide in-store boarding facilities (Pets Hotels), groom- treat pet owners like parents and to treat pets like children, providing ing services, day camps (Doggie Day Camps), and obedience training, tender loving care of both, Veterinary services are available, as well, in about 800 shops through Facing thousands of mom-and-pop pet stores nationwide as we pet hospital operator Medical Management International (known asas mass retailers such as Walmart and Target, PetSmart's major com Banfield), of which PetSmart owns about 20 percent petitor is privately held PETCO Animal Supplies, which has more than Because there are more cats in urban areas because of size con 1,000 stores in the USA and is headquartered in San Diego, Californa straints, urban PetSmart stores focus more on cats and cat customers, whereas nonurban stores focus more on dog customers. But all PetSmart Some: Based on Emily Glazer. "PetSmart Thrives Treating Owners Like stores are meeting places because Moran says customers come in Parents." Wall Street Journal (9-12-12: B7 Please, after reading the case in point: Pet Smart: 1. Post your thoughts pertaining to the following questions: A. Consider the following two-dimensional matrix with Weights on the y-axis and Ratings on the x-axis. What are example opportunities and threats that could possibly characterize Pet Smart in the four corners of the matrix (Develop a hypothetical op for Pet Smart that could be positioned in each of the four corners of the matrix)? RATINGS High Low Opportunity 1 Threat 1 Opportunity 2 Threat 2 WEIGHTS middle Opportunity 3 Threat 3 Opportunity 4 Threat 4 Low B. Give a supporting rationale for each factor 2. Respond to at least one of the post made by your class-mate Pet Smart Ext Env.PDF Note: The four corners in the matrix above are the result of an intersection between Ratings and Weights ascribed to specific threats and opportunities. Hence, the four quadrants in the matrix indicate the following scenarios: A low weight and high rating - this is a factor that is not that important for being successful in the industry but that the firm's strategies are responding to very well to the issue. .A high weight and high rating - this is a factor that is very important for being successful in the industry and the firm's strategies are responding to very well to the issue 3. A low weight and low rating - this is a factor that is not that important for being successful in the industry and the firm's strategies are not responding to very well to the issue 4. A high weight and low rating - this is a factor that is very important for being successful in the industry but that the firm's strategies are not responding to very well to the issue