Podcast
Questions and Answers
An external audit focuses solely on internal factors affecting an organization.
An external audit focuses solely on internal factors affecting an organization.
False
Porter’s Five-Forces Model is relevant for formulating strategies in an organization.
Porter’s Five-Forces Model is relevant for formulating strategies in an organization.
True
An external assessment is used exclusively for recognizing internal strengths and weaknesses.
An external assessment is used exclusively for recognizing internal strengths and weaknesses.
False
Firms can respond offensively or defensively to external factors as identified in an external audit.
Firms can respond offensively or defensively to external factors as identified in an external audit.
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The External Factor Evaluation (EFE) Matrix is not used in strategic management.
The External Factor Evaluation (EFE) Matrix is not used in strategic management.
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Economic forces include factors such as inflation rates and unemployment trends.
Economic forces include factors such as inflation rates and unemployment trends.
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The AQCD test stands for Actionable, Quantitative, Comparative, and Developmental.
The AQCD test stands for Actionable, Quantitative, Comparative, and Developmental.
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SCDE forces are limited to social and cultural aspects and do not include demographic or environmental factors.
SCDE forces are limited to social and cultural aspects and do not include demographic or environmental factors.
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Online retail grocery shopping growth from 12% to 16% in 2018 is an example of a factor that passed the AQCD test.
Online retail grocery shopping growth from 12% to 16% in 2018 is an example of a factor that passed the AQCD test.
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Competitive forces refer to the economic conditions of foreign countries only.
Competitive forces refer to the economic conditions of foreign countries only.
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Study Notes
Strategic Management Concepts: A Competitive Advantage Approach, Concepts and Cases
- Book title: Strategic Management: A Competitive Advantage Approach
- Edition: Seventeenth
- Chapter 3: The External Assessment
Learning Objectives (Part 1)
- Describe the nature and purpose of an external assessment in formulating strategies
- Identify and discuss 10 external forces that impact organizations
- Explain Porter's Five-Forces Model and its relevance in formulating strategies
Learning Objectives (Part 2)
- Describe key sources of information for identifying opportunities and threats
- Discuss forecasting tools and techniques
- Explain how to develop and use an External Factor Evaluation (EFE) Matrix
- Explain how to develop and use a Competitive Profile Matrix (CPM)
External Audit
- Focuses on identifying and evaluating trends and events beyond the control of a single firm
- Reveals key opportunities and threats facing an organization
- Helps managers formulate strategies to take advantage of opportunities and reduce the impact of threats
Purpose of an External Audit
- Aimed at identifying key variables for actionable responses
- Enables firms to respond offensively or defensively through strategy formulation
Key External Forces
- Economic forces
- Social, Cultural, Demographic, and Environmental (SCDE) forces
- Political, Governmental, and Legal forces
- Technological forces
- Competitive forces
The AQCD Test
- Actionable
- Quantitative
- Comparative
- Divisional
- A measure of the quality of an external factor
Competitive Intelligence (CI)
- Systematic, ethical process for gathering and analyzing information about the competition and general business trends to support business goals
Porter's Five-Forces Model
- Potential development of substitute products
- Bargaining power of suppliers
- Rivalry among competing firms
- Bargaining power of consumers
- Potential entry of new competitors
Components of Porter's model
- Identify key elements of each force affecting the firm
- Assess how strong and significant each element is for the firm
- Determine if the collective impact justifies entering/remaining in the industry
Competitive Profile Matrix (CPM)
- Identifies major competitors' strengths and weaknesses in relation to a sample firm's strategic positions
- Critical success factors include internal and external issues
Sources of External Information (Part 1)
- Unpublished sources: customer surveys, market research, speeches, meetings, interviews, discussions with stakeholders
- Published sources: periodicals, journals, reports, government documents, abstracts, books, directories, newspapers, manuals
Sources of External Information (Part 2)
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IBISWorld
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Lexis-Nexis Academic
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Lexis-Nexis Company Dossier
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Mergent Online
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PrivCo, Regional Business News
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S&P NetAdvantage
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Value Line Investment Survey
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U.S. Securities and Exchanges Commission
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Company Annual Reports On-Line (CAROL)
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Forecasting Tools & Techniques: educated assumptions about future trends; forecast perfection is not expected
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Making Assumptions: Best estimates of the impact of external factors over which managers have little control but can significantly affect performance
Industry Analysis: The External Factor Evaluation (EFE) Matrix
- Summarize & evaluate social, cultural, demographic, economic, environmental, political, governmental, legal, technological, and competitive factors
EFE Matrix Steps
- List key external factors
- Assign weights (0 - 1.0) to factors
- Rate the effectiveness of current strategies (1 - 4)
- Multiply weights by ratings
- Calculate total weighted scores
Industry Analysis: Competitive Profile Matrix (CPM)
- Identify major competitors and their strengths and weaknesses
- Analyze competitor strategic positions
- Critical success factors should encompass internal and external elements
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Description
Test your knowledge on the external assessment in strategic management with this quiz. Explore the significance of external forces and Porter's Five-Forces Model in shaping organizational strategies. Additionally, understand key tools like the EFE Matrix and CPM for strategic evaluation.
