1. The External Assessment

2. External Strategic Management Audit
Also called:
Environmental scanning
Industry analysis

3. External Audit
The purpose of external audit is to develop a finite list of opportunities that could benefit a firm and threats that should be avoided .
External audit is aimed at to respond either offensively or defensively to the factors by formulating strategies that take advantage of external opportunities or minimize the impact of potential threat.

4. Key External Forces Five broad categories: Economic forces
Social, cultural, demographic, & environmental forces
Political, governmental, and legal forces
Technological factors
Competitive forces

5. Economic Forces Monitor Key Economic Variables: Availability of credit
Level of disposable income
Interest rates
Inflation rates
Money market rate
government budget deficits
Gross domestic product trend
Consumption patterns

6. Key Economic Variables:
Unemployment trends
Worker productivity levels
Value of the dollar in world markets
Stock market trends
Foreign countries’ economic conditions
Import/export factors
Demand shifts for goods/services
Income differences by region/customer

7. Key Economic Variables:
Price fluctuations
Exportation of labor & capital
Monetary policies
Fiscal policies
Tax rates
European economic community(EEC) policies
Organization of Petroleum Exporting Countries (OPEC)policies
Coalition of lesser developed countries (LDC) policies

8. Social, Cultural, Demographic & Environmental Forces
Major impact on:
Products
Services
Markets
customers

9. Key variables of Social, Cultural, Demographic & Environmental Forces
Life expectancy rates
Per capita income
Attitudes toward business
Average disposable income
Buying habits
Ethical concerns
Attitudes toward saving

10. Key variables of Social, Cultural, Demographic & Environmental Forces
Childbearing rates
Number of special-interest groups
Number of marriages
Number of divorces
Number of births
Number of deaths
Immigration & emigration rates

11. Key variables of Social, Cultural, Demographic & Environmental Forces
Racial equality
Average level of education
Government regulation
Attitudes toward customer service
Attitudes toward product quality
Energy conservation
Social responsibility

12. Key variables of Social, Cultural, Demographic & Environmental Forces
Value placed on leisure time
Recycling
Waste management
Air & water pollution
Ozone depletion
Endangered species

13. Political, Govt., & Legal Forces
Government Regulation
Tax rates
Lobbying efforts
Patent laws

14. Political, Govt., & Legal Forces
Increasing Global Interdependence
Strategies in a global economy
Forecast political climates
Legalistic skills
Diverse world cultures

15. Political, Govt., & Legal Forces
Globalization of Industry
Worldwide trend toward similar consumption patterns
Global buyers & sellers
E-commerce
Instant transmission of money & information across continents

16. Political, Govt., & Legal Forces
Key Political, govt., & legal variables:
Government regulation/deregulation
Tax law changes
Special tariffs
Political Action Committees (PACs)
Voter participation rates
Number of patents
Changes in patent laws

17. Key Political, Government & Legal Variables
African-American relationships
Import-export regulations
Monetary policy
Political conditions in other countries
Government budgets
World oil, currency, & labor markets
Location and severity of terrorist activities

18. Technological Forces Revolutionary technological forces: Internet
Semiconductors
XML technologies

19. Impact of Technological Forces
Internet changes the nature of opportunities and threats --
Alters life cycle of products
Increases speed of distribution
Creates new products and services
Eases limitations of geographic markets
Alters economies of scale
Changes entry barriers

20. Competitive Forces
Collection and evaluation of information on competitors is essential for successful strategy formulation

21. Competitive Forces
Competition in virtually all industries can be described as intense.

22. Competitive Forces Identifying rival firms Strengths Weaknesses
Capabilities
Opportunities
Threats
Objectives
Strategies

23. Competitive Forces Key Questions About Competitors: Their strengths
Their weaknesses
Their objectives and strategies
Their responses to all external variables (e.g. social, political, demographic, etc.)
Their vulnerability to our alternative strategies

24. Competitive Forces Key Questions About Competitors:
Our vulnerability to successful strategic counterattack
Our product and service positioning relative to competitors
Entry and exit of firms in the industry
Key factors for our current position in industry

25. Competitive Forces Key Questions About Competitors:
Sales and profit rankings of competitors over time
Nature of supplier and distributor relationships
The threat of substitute products or services

26. Competitive Forces 7 Characteristics of most competitive U.S. firms:
Market share matters
Understand what business you are in
Broke or not, fix it
Innovate or evaporate

27. Competitive Forces 7 Characteristics of most competitive U.S. firms:
Acquisition is essential to growth
People make a difference
No substitute for quality

28. Competitive Forces Competitive Intelligence Programs:
Systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’ own goals.

29. Industry Analysis Sensitivity to the business cycle
Industry life cycle analysis
Study of the structure and characteristics of an industry
Profit potential of industries :Porter model.

30. Competitive Analysis: Porter’s Five-Forces Model
Potential development
of substitute products
Rivalry among
competing firms
Bargaining power
of suppliers
Bargaining power
of consumers
Potential entry of new competitors

31. Industry Analysis (EFE)
External Factor Evaluation Matrix Summarize & evaluate:
Competitive
Political
Cultural
Technological
Environmental
Social
Governmental
Demographic
Economic

32. Industry Analysis (EFE)
Five-Step process:
List key external factors (10-20)
Opportunities & threats
Assign weight to each (0 to 1.0)
Sum of all weights = 1.0

33. Industry Analysis (EFE)
Five-step process:
Assign 1-4 rating to each factor
Firm’s current strategies response to the factor
Multiply each factor’s weight by its rating
Produces a weighted score

34. Industry Analysis (EFE)
Five-step process:
Sum the weighted scores for each
Determines the total weighted score for the organization.
Highest possible weighted score for the organization is 4.0; the lowest, Average = 2.5

35. UST—Key External Factors
.20 1
Clinton Administration 2
.10
Bad media exposure from FDA
.05
Smokeless market SE region U.S.
.15 3
Production limits on tobacco
Legislation against the tobacco industry
Threats
.30
More social pressure to quit smoking
2.10
1.00
TOTAL
.60 4
Pinkerton leader in discount market
Astronomical Internet growth
Increased demand
Global markets untapped
Weighted
score
Rating
Weight
UST—Key External Factors
Opportunities

36. Industry Analysis (EFE)
Total weighted score of 4.0 = Organization response is outstanding to threats & weaknesses Total weighted score of 1.0 = Firm’s strategies not capitalizing on opportunities or avoiding threats

37. Industry Analysis (EFE)
UST (in the previous example), has a total weighted score of 2.10 indicating that the firm is below average in its effort to pursue strategies that capitalize on external opportunities and avoid threats.

38. Industry Analysis (EFE)
Important
Understanding of the factors used in the EFE Matrix is more important than the actual weights and ratings assigned.

39. Industry Analysis
1.Study on McDonald’s in Indian market. 2. List out the factors affecting McDonlads market. 3.

40. Industry Analysis (CPM)
Competitive Profile Matrix
Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic position

41. (CPM) Procter
Avon L’Oreal & Gamble
2.80
3.25
3.15
1.00
Total
0.15 3
0.20 4
0.05 1
Market Share
0.40 2
0.80
Global Expansion
0.10
Customer Loyalty
0.45
0.60
Financial Position
0.30
Management
Price Competition
Product Quality
Advertising
Score
Rating
Weight
Critical Success Factor