External Strategic Management Audit

External Audit

• An external audit focuses on identifying and evaluating trends and events beyond the control of a single firm.
• It reveals key opportunities and threats confronting an organization, enabling managers to formulate strategies to take advantage of opportunities and avoid or reduce the impact of threats.

Nature of an External Audit

• The external audit aims to identify key variables that offer actionable responses.
• Firms should be able to respond either offensively or defensively to external factors by formulating strategies that take advantage of external opportunities or minimize the impact of potential threats.

Political, Governmental, and Legal Variables

• Government regulations or deregulations can impact an organization.
• Changes in tax laws, political action committees, and voter participation rates are significant political factors.
• Government fiscal and monetary policy changes, import-export regulations, and special local, state, and federal laws can affect organizations.

American Labor Unions

• The extent to which a state is unionized can be a significant political factor in strategic planning decisions related to manufacturing plant location and other operational matters.
• The size of American labor unions has fallen sharply in the last decade due to the erosion of the U.S. manufacturing base.

Competitive Intelligence Programs

• Identify potential moves that a competitor might make that would endanger a firm's position in the market.
• Identify areas in which competitors are vulnerable and assess the impact of strategic actions on competitors.

Market Commonality and Resource Similarity

• Market commonality refers to the number and significance of markets that a firm competes in with rivals.
• Resource similarity refers to the extent to which the type and amount of a firm's internal resources are comparable to a rival.

The Five-Forces Model of Competition

• Rivalry among competing firms is the most powerful of the five forces and focuses on competitive advantage of strategies over other firms.
• Potential entry of new competitors is influenced by barriers to entry, such as economies of scale, technology, and government regulatory policies.
• Potential development of substitute products can pressure existing firms when prices of substitutes decrease and consumers' switching costs decrease.
• Bargaining power of suppliers is increased when there are few substitutes, high switching costs, and high concentration.
• Bargaining power of consumers is higher when products are standard or undifferentiated, and consumers are concentrated or buying in volume.

Industry Analysis: The External Factor Evaluation (EFE) Matrix

• The EFE Matrix involves listing key external factors, weighting them from 0 to 1, rating the effectiveness of current strategies, multiplying weight and rating, and summing weighted scores.
• The EFE Matrix helps organizations prioritize and address key external factors affecting their operations.

This quiz assesses your understanding of conducting an external strategic-management audit, major external forces affecting organizations, and key sources of external information. It also covers forecasting tools used in strategic management.