External Strategic Management Audit

• External assessment involves analyzing the external environment for risks, opportunities, and talent.
• External environment analysis aids strategic planning by identifying current or prospective opportunities and threats.

Key external forces

• Key external forces: economics, social, cultural, demographic, environmental, political, governmental and legal
• External factors should be important for achieving long-term goals, measurable, applicable to competing firms, and hierarchical.

External management audit

• External strategic management audit involves environment scanning and industry analysis.
• External Audits identify and evaluate trends and events outside of a single firm's control, such as increased foreign competition, population shifts, aging society, information technology, and computer revolution
• Its purpose is to develop opportunities and avoid threats

Environment effect on firms

• Changes in the external environment cause changes in consumer demand and in the products and services a firm offers
• Key external forces such as economic, technological, and competitive forces are affected by Competitors, Suppliers, Stockholders, Labor Unions, etc.
• The overall market leads to the identification of Opportunities and Threats

Economic Forces

• Economic forces examples: interest rates, tax rates, inflation rates, consumption patterns, and value of the dollar
• Key economic variables to be monitored: inflation rates, gross domestic product trend, unemployment trends, import/export factors, price fluctuations, tax rates, and federal government budget deficits.

Social, Cultural, Demographic, and Environmental Forces

• Social, cultural, demographic, and environmental forces: examples include population, race, age, marriage/divorce rates, buying habits, ethical concerns, gender roles, social responsibility, and pollution concerns.
• It affects consumer habits as well as potential opportunities and threats.
• Key variables in this category include number of marriages and divorces, number of births and deaths, immigration and emigration rates, life expectancy rates, attitudes toward government, and ethical concerns.

Political, Governmental, and Legal Forces

• Political, governmental, and legal forces involve government regulation/deregulation, subsidizing, employing, consuming, tax and antitrust laws, patent legislation, lobbying, import/export regulations, as well as fiscal and monetary policies.
• Federal, state, local, and foreign governments are major regulators, deregulators, subsidizers, employers, and customers of organizations that represent opportunities or threats
• Political forecasts are important for industries and firms heavily dependent on government contracts/subsidies,
• Changes in patent laws, antitrust legislation, tax rates and lobbying activities can significantly affect firms.
• Consider government regulations/ deregulations, changes in tax laws, special tariffs, number of patents, environmental protection laws, legislation on equal employment, political conditions in foreign countries, and lobbying activities.

Technological Forces

• Technological forces incorporate advances and applications in technology.
• Threats and opportunities may result from technological forces.
• Examples of the impact of wireless technology:
  • Airlines offer in-flight wireless
  • Vehicles become wireless
  • Visa sends text message alerts for unusual transactions
  • Students use smartphones for math

Competitive Forces

• Understanding competitors is a must
• Competitive intelligence is a systematic and ethical process for gathering and analyzing information about competition and business trends for developing a business' own goals and strategy.
• Essential to collect and evaluate info to create a successful strategy
• Firms may have divisions competing in different industries making it difficult to identify major competitors
• The most competitive companies strive to increase market share, use vision and mission to guide, improve the firm, adapt and innovate, grow through acquisition, hire and retain the best, and stay cost-competitive
• Porter’s Five-Forces Model includes consideration of potential development of substitute products, bargaining power of suppliers/consumers, rivalry among competing firms, and potential entry of new competitors.
• Key Questions about Competitors include: Who are they? Where are they Located? What are their Weaknesses and Strengths? What are Competitors' Objectives? How Vulnerable are we to the Competitors' Strategies?

Sources of Information

• Information about environmental opportunities and threats: magazines, trade journals, newspapers, on-line databases, web sites, libraries, suppliers, distributors, salespeople, customers, and competitors.

Forecasting

• Forecasting techniques include:
  • Quantitative: regression models and trend extrapolation
  • Qualitative: salesforce estimates, juries of executive opinion, market research, scenario forecasts, brainstorming

External Factor Evaluation (EFE) Matrix

• Used by strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information
• Includes listing factors (opportunities and threats), assigning weights (importance to success in the firm's industry), and ratings (how well current strategy responds to the factor).

Competitive Profile Matrix (CPM)

• CPM Identifies a firm's major competitors strengths and weaknesses
• Includes critical success factors for competing, weights (relative importance of factor to success in the industry), and ratings (company’s strength/weakness regarding each success factor).