EXTERNAL STRATEGIC
MANAGEMENT AUDIT
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1
External Strategic Management Audit
-- ENVIRONMENTAL SCANNING
-- INDUSTRY ANALYSIS
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Ch 3 -2
External Strategic
Management Audit
IDENTIFY & EVALUATE FACTORS BEYOND THE CONTROL OF A
SINGLE FIRM
• INCREASED FOREIGN COMPETITION
• POPULATION SHIFTS
• AGING SOCIETY
• FEAR OF TRAVELING
• STOCK MARKET VOLATILITY
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Ch 3 -3
External Strategic
Management Audit
PURPOSE OF EXTERNAL AUDIT
• IDENTIFY
• OPPORTUNITIES
• THREATS
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Ch 3 -4
Key External Forces
•Economic forces
•Social, cultural, demographic &
environmental forces
•Political, governmental & legal forces
•Technological forces
•Competitive forces
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Ch 3 -5
Key External Forces & the Organization
Key
External
Forces
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Competitors
Suppliers
Distributors
Creditors
Customers
Employees
Communities
Managers
Stockholders
Labor Unions
Special Interest Groups
Products
Services
Markets
Natural Environment
Opportunities
&
Threats
Ch 3 -6
External Audit
GATHER COMPETITIVE
INTELLIGENCE –
• SOCIAL
• CULTURAL
• DEMOGRAPHIC
• ENVIRONMENTAL
• GOVERNMENTAL
• LEGAL
• TECHNOLOGICAL
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Ch 3 -7
External Audit – Sources of
Information
•Internet
•Libraries
•Suppliers
•Distributors
•Salespersons
•Customers
•Competition
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Ch 3 -8
Performing External Audit
-- KEY FACTORS
• VARY OVER TIME
• VARY BY INDUSTRY
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Ch 3 -9
Performing External Audit -Variables
•Market share
•Breadth of competing products
•World economies
•Foreign affiliates
•Proprietary account advantages
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Ch 3 -10
Performing External Audit -Variables
•Price competitiveness
•Technological advancements
•Interest rates
•Pollution abatement
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Ch 3 -11
Performing External Audit
Long-term orientation
External
Factors
Measurable
Applicable to
competing firms
Hierarchical
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Ch 3 -12
Industrial Organization (I/O)
View
-- Industry factors more important than
internal factors

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Performance determined by industry forces
Ch 3 -13
I/O Perspective Firm Performance
Industry Properties
Economies of Scale
Barriers to market entry
Product differentiation
Level of competitiveness
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Ch 3 -14
RESEARCH FINDINGS
“APPROXIMATELY 20% OF A FIRM’S PROFITABILITY CAN BE EXPLAINED BY THE INDUSTRY,
WHEREAS 36% OF THE VARIANCE IN PROFITABILITY IS ATTRIBUTED TO THE FIRM’S INTERNAL
FACTORS”
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Ch 3 -15