External Audit

Class Objectives
Describe how to carry out a Strategic External Audit s Discuss the main external
forces that affect organizations. s Discuss the most important prognostic tools
in strategic planning s Discuss the importance of monitoring trends and externa
l events.
s
Class Objectives (cont.)
Explain how to develop an EFE Matrix s Explain how to develop a Competitive Prof
ile Matrix s Discuss the importance of obtaining competitive intelligence s Desc
ribe the trend towards cooperation between competitors.
s
Five Key External Forces
1 .- 2 .- Social Economic, Cultural, Demographic, Environmental 3 .- Political,
Governmental and Legal 4 .- 5 .- Competitive Technology
Key External Forces
Competitive Economic Technological Cultural Environmental Government Social Poli
cy Legal
Demographic
The Importance of External Environment on Behavior Company
Changes in the External Environment Changes in Consumer Demand Changes in produc
ts and services that a company offers
Relationship between Key External Forces and the Organization
Cultural Forces Economic Forces demographic, environmental and Technological For
ces Competitive Forces • Competitors • Creditors • Suppliers • Customers • Emplo
yees • Managers • Owners • Unions • Governments • Associations • Interest Groups
• Products • Services • Markets • Natural environment
Opportunities and Threats to Organization
External Audit Process
s s
Produce high share of continuous flow of personal information
competitive intelligence, economic trends, socio-cultural, demographic, etc. .
.
s
s
Massage / digest / evaluate information in ad-hoc meetings. Identify critical su
ccess factors.
should be key goals Few Measurable
s
Widely circulated within the company's list of critical factors.
Provides savings Cyberspace
Paper Copies Telephone Advertising Time Money
Economic Forces: Examples of variables that need to be monitored (Table 4-1) s D
isposable Income Levels of Interest Rates Inflation s s s Trends Unemployment Ta
x Depreciation s s s budget deficits s Bag Trends in External Economic Condition
s
s
Social Forces, Cultural, Demographic and Environmental: Examples of variables th
at need to be monitored (Table 4-2) Income Per Capita Disposable Income Levels s
s Changes in Population by Age, Region. s Attitudes toward the hours of "leisur
e" s average level of education. s Attitudes Toward Consumer Services s Changing
Tastes and Preferences s increase in the "Environmental Awareness"
s
Political Forces, Governmental and Legal: Examples of variables that need to be
monitored (Table 4-4) Privatization, Democratization Institutionalization s s s
Education Expenditure s Environmental Law International Relations Regulations s
/ s deregulation Laws Import / Export s Sectoral Policies
s
Technological Forces See (Table 4-5)
What technologies do you use my business? s How important is c / u of them in c
/ u of the products? s What technologies are on the inputs I use? How to evolve
in the future? s How is my relationship to technology in my industry? s What is
the rate of technological change in my sector?
s
Overview of Information Technology
Developing countries to privatize Telephone:
1993 Singapore South Korea Latvia 1994 The Pakistan Peru Bolivia 1995 Hungary Ru
ssia Cavo Verde Côte d'Ivoire Czech Rep. Sri Lanka India Indonesia Thailand Turk
ey Uganda 1996 Albania Congo Ghana Guinea Guinea Moldova Nicaragua Panama Paragu
ay New Taiwan Zambia 1997 El Salvador Honduras Poland
Key Questions about our Competition
Who are our Competitors? What goals is my competition?
Where are they?
What are your strengths?
What are your weaknesses?
How vulnerable we are in front of their strategies?
Competition Intelligence
s
Basic missions
Provide a general understanding of the industry and its "players" Identify t
he weak areas of competition and to estimate the impact that has on their strate
gic moves. Identify possible reprisals and their impact on our business.
s
Features
Flexibility, timeliness, cooperation
s
All employees are intelligence agents.
Usual Sources of Intelligence Information
Guilds s s Stock Exchange Notices in the newspaper s Clients Distributors s s s
Suppliers Other competitors
s
Seven characteristics that describe the most competitive companies (USA)
The involvement of the SI market account.€s Understand and remember exactly what
my business. s make things better. s constantly reinvent the company. s acquisi
tions are essential for growth. s People do make a difference. s no substitute f
or quality and cost competitiveness.
s
Information Sources
The INEI www.inei.gob.pe
Production Forecast
s
Quantitative Techniques
Econometric Model: A set of equations
represent the behavior of the economy and are estimated from historical data.
Linear regression and extrapolation
s
Qualitative Techniques
Estimates Groups Sellers Executive Opinion Market research Delphi meth
od Delphi or "Brainstorming"
Model of the "Five Forces" Porter Competition
Potential Development of Substitute Products
Bargaining Power of Suppliers
Rivalry among competing firms
Negotiating Power Consumer
Income Potential New Competition
EFE MATRIX
EVALUATION OF EXTERNAL FACTORS
EFE Matrix
s
Allows strategists to summarize and assess the economic, social, cultural, demog
raphic, environmental, political, governmental, legal, technological and competi
tive
Construction of an EFE Matrix
s s
s
s
s
List key external factors: Opportunities and Risks (10-20) assigned to each fact
or weights of 0-1 or less important. This weight indicates the relative importan
ce factor for success in the industry. The sum must be = 1 Assign a score of 1-4
to each factor which will indicate how effective the current strategies being c
ompared to that factor. (4 = superior effectiveness, 3 = above average, 2 = aver
age 1 = below) Multiply each factor's weight by its rating to determine a weight
ed score Sum weighted scores of each variable to determine the total weighted sc
ore of the organization
EPC MATRIX COMPETITIVE ASSESSMENT PROFILE
Competitive Profile Matrix
s
s
s
s s
Possible to identify the most important tournament of the company and its partic
ular strengths and weaknesses of a company relative to a group of competing comp
anies. The weights and scores on the MPC and the AP have the same meaning. Howev
er, the MPC will include both internal and external affairs. The scores relate t
o the different strengths and weaknesses with the EFE Matrix
critical success factors are broader. Do not include specific data and can foc
us on domestic issues. critical success factors are not grouped into opportuni
ties and threats in the EFE The MPC scores and total weighted scores of organi
zations are compared between them.
Example of MPC
AVON L'Oreal P & G
Critical Success Factors Weight Rating Score. Rating Score. Rating Score.
Advertising Product Quality Price Competitiveness Management Financial Position
Customer Loyalty Participation Growth McDo. TOTAL 0.20 0.10 0.10 0.10 0.15 0.10
0.20 0.05 1.00 1 4 3 4 4 4 4 1 0.2 0.4 0.3 0.4 0.6 0.4 0.8 0.05 3.15 4 4 3 3 3 4
2 4 0.80 0.40 0.30 0.30 0.45 0.40 0.40 0.20 3.25 3 3 4 3 3 2 2 3 0.60 1.20 1.20
1.20 1.80 0.80 1.60 0.15 8.55