External Strategic Management Audit is sometimes called as Environmental Scanning or Industry Analysis.

External Audit identifies & evaluates factors beyond the control of a single firm such as increased foreign competition, population shifts, aging society, fear of travelling and stock market volatility.Purpose: To develop a finite list of opportunities that could benefit a firm and threats that should be avoided.

Five broad categories of Key External Forces: Economic forces Social, cultural, demographic, and environment natural forces Political, legal, and governmental forces Technological forces Competitive forceProcess of Performing External Audit

EvaluateA prioritized list of these factors could be obtained by requesting that all managers rank the factors identified, from 1 for the most important opportunity/threat to 20 for the least important opportunity/threat.AssimilateOnce information is gathered, a meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm. These key external factors should be listed on flip charts or a chalkboard.Gather Information:- competitive intelligence- informations about economic, social, cultural, demographic,environmental, political, governmental, legal, and technological trends

External Factors must be: Long-term Oriented Measurable Applicable to Competing Firms Hierarchical

Industrial Organization View-External (industry) factors are more important than internal factors in a firm achieving competitive advantage.-Organizational performance will be primarily determined by industry forces/properties such as economies of scale, barriers to market entry, product differentiation, the economy and level of competitiveness

Economic ForcesIt refers to the nature and direction of the economy in which business operates. The general state of the economy (e.g., depression, recession, recovery, or prosperity), interest rate, stage of the economic cycle, balance of payments, monetary policy, fiscal policy, are key variables in corporate investment, employment, and pricing decisions.

Social, Cultural, Demographic, and Natural Environmental ForcesSocial forces include traditions, values, societal trends, consumer psychology, and a society's expectations of business.The following are some of the key concerns in the social environment: ecology(e.g., global warming, pollution);demographics(e.g., population growth rates, aging work force in industrialized countries, high educational requirements);quality of life(e.g., education, safety, health care, standard of living); and noneconomic activities(e.g., charities).Political, Governmental, and Legal ForcesFederal, state, local, and foreign governments are major regulators, deregulators, subsidizers, employers, and customers of organizations. Political, governmental, and legal factors, therefore, can represent key opportunities or threats for both small and large organizations.Key opportunities & threats Antitrust legislation Tax rates Lobbying activities Patent laws

Technological ForcesTechnological forces have major impact on Internet which has changed the very nature of opportunities and threats by altering the life cycles of products, increasing the speed of distribution, creating new products and services, erasing limitations of traditional geographic markets, and changing the historical trade-off between production standardization and flexibility.

To effectively capitalize on e-commerce, a number of organizations are establishing two new positions in their chief information officer (CIO) - more a manager, managing the firms relationship with stakeholders chief technology officer (CTO) - more a technician, focusing on technical issues such as data acquisition, data processing, decision-support systems, and software and hardware acquisition.

Competitive Forces-Collection & evaluation of data on competitors is essential for successful strategy formulation

Key Questions Concerning Competitors Their strengths Their weaknesses Their objectives and strategies Their responses to external variables Their vulnerability to our alternative strategies Our vulnerability to strategic counterattack Our product/service positioning Entry and exit of firms in the industry Key factors for our current position in industry Sales/profit ranking of competitors over time Nature of supplier and distributor relationships The threat of substitute products/services

Competitive IntelligenceThis is a systematic and ethical practice for gathering and analyzing information about the competitions activities and general business trends to further a businesss own goals.

Misperceptions about CI1. Running an intelligence program requires lots of people, computers, and other resources.2. Collecting intelligence about competitors violates antitrust laws.3. Intelligence gathering is an unethical business practice.

Market Commonality - number and significance of markets that a firm competes in with rivals Resource Similarity - type and amount of a firms internal resources are comparable to a rivalPrepared by:Astilla, Jeanie Racelle D.3-BSA2