The

External Assesment

Open debate:

Why is important to a rm to develop an external assessment?
Discuss major external forces that aect organisaBons

It is not the strongest of the species that

survive, nor the most intelligent, but the

one most responsive to change.
Charles Darwin

 Strategic Management. Strategic Management reduced model:

Strategy
implementaBon

Strategy
formulaBon

Strategy
evaluaBon

Feedback

Perform
external
audit

Develop
Vision and
Mission
statements

Generate,
evaluate
and select
Strategies

Establish
long-term
objecBves

Perform
internal
audit

Strategic Management




Dunia Moreno

Feedback

Implement strategies
Management,
MarkeBng, Finance and
ProducBon issues

Measure &
evaluate
performance

The purpose of an external audit is to develop a nite list

of opportuniBes that could benet a rm and threats
that should be avoided.

As the term nite suggests, the external audit is not
aimed at developing an exhausBve list of every possible
factor that could inuence the business; rather, it is
aimed at idenBfying key variables that oer acBonable
responses.

Firms should be able to respond either oensively or
defensively to the factors by formulaBng strategies that
take advantage of external opportuniBes or that
minimize the impact of potenBal threats.

The Process of Performing an External Audi

To perform an external audit, a company rst must gather
compeBBve intelligence and informaBon about social, cultural,
demographic, environmental, economic, poliBcal, legal,
governmental, and technological trends.

Once informaBon is gathered, it should be assimilated and
evaluated. These key external factors can vary over Bme and by
industry.

External forces:
1. Economic forces

2. Social, cultural, demographic and environmental forces

3. Poli<cal, legal and governmental forces

4. Technological forces

5. Compe<<ve forces

 RelaBonships between key external forces and

an organisaBon:

1. Economic forces

2. Social, cultural, demographic and
environmental forces

3. Poli<cal, legal and governmental
forces

4. Technological forces

5. Compe<<ve forces

Compe<tors
Suppliers
Distributors
Creditors
Customers
Employees
Communi<es
Managers
Stockholders
Labour unions
Governments
Trade associa<ons
Special interest groups
Products
Services
Markets
Natural environment

AN ORGANISATIONS
OPPORTUNITIES AND
THREATS

External trends and events signicantly aect all products, services, markets
and organisa<ons in the world

1) Economic forces:
Table 3.1 Key economic variables to be monitored

Availability of credit

Stock market trends

Level of disposable income

Foreign countries economic conditions

Propensity of people to spend

Import / Export factors

Interest rates

Inflation rates

Demand shifts for different categories of

goods and services

Money market rates

Income differences by region and consumer

groups

Government budget deficits

Price fluctuations

Gross domestic product trend

Monetary policies

Consumption patterns

Tax rates

Unemployment trends

Fiscal policies

Worker productivity levels

Value of $, , ,, in world markets

UE policies / USA policies / OPEC policies /

LDC Coalitions of lesser developed countries

2) Social, Cultural, Demographic and Environmental

Forces
These external forces have a major impact upon
virtually all products, services, markets and customers.
For example: US is ge[ng older and less Caucasian
Ge[ng older is good news for restaurants, hotels, airlines, funeral
homes, resorts, health care but not for another products and
services
Caucasian tastes are not the same than those from African-
Americans, NaBve Americans, Asians

Environmental Forces: Except terrorism, no greater threat

to business and society exists than the conBnuous
degradaBon of our natural environment.

Table 3.2 Key Social, cultural, Demographic and environmental variables

Childbearing rates

Attitudes toward work

Energy conservation

N of special interest groups

Buying habits

Social programs

N of marriages / N of divorces

Ethical concerns

N of births / N of deaths

Attitudes toward saving

N of Churches / Churches
members

Immigration and emigration rates

Sex roles

Social Security programs

Attitudes toward investing

Life expectancy rates

Racial equality

Per capita income

Use of birth control

Location of retailing, manufacturing and

service business

Attitudes toward business

Lifestyles
Traffic congestion
Inner-city environments
Average disposable income
Trust in government

Social responsibility
Attitudes toward careers
Population changes by race,
age, sex / by city, county,
state, region and country

Average level of education

Attitudes toward authority

Government regulation

Regional changes in tasted and

preferences

Attitudes toward retirement /

leisure time / product quality /
customer service

Pollution control
Attitudes toward foreign peoples

N of women and minorities

workers
% Recycling / Waste
management / Air pollution /
endanger species
N of high school and college
graduates

3) PoliBcal, Governmental and legal forces

Table 3.3 Some poliBcal Government and legal variables

Government regulations or deregulations

Changes in tax laws

Special tariffs

Political action committees

Number, severity and location of

government protest

N of patents and changes in patent laws

Level of defence expenditures

Legislation on equal employment

Level of government subsidies

Antitrust legislation

Relationships between main areas in the

world (China, Russia, USA, UE, Japan,
Africa)

Import-export regulations

Government fiscal and monetary policy

changes

Political conditions in foreign countries

Special local, state and federal laws

Lobbying activities

Size of government budgets

World oil, currency and labour markets

Location and severity of terrorist activities

Local, state and national elections

4) Technological forces:

- RevoluBonary technological changes and discoveries

- Internet
- E-commerce
- Faster distribuBon

An eecBve technology strategy is built on a penetraBng
analysis of technology opportuniBes an threats, and an
assessment of the relaBve importance of these factors to
overall corporate strategy.
Not all sectors are aected equally by technological
developments. The communicaBon, electronics, aeronauBcs
and pharmaceuBcal industries are much volaBle than the
texBle, forestry or metal industries.
Ex. Oce depot was the rst oce supply Co. to establish
web site distribuBon.

4) CompeBBve forces:
CollecBng and evaluaBng informaBon on compeBtors
is essenBal for successful strategy formulaBon.
Moreover, rms do not publish any nancial or
markeBng informaBon.
Table 3.4 Key quesBons about compeBtors
1. What are the major competitors strengths?

7.

How are our products or services positioned

relative to major competitors?

8.

To what extend are new firms entering and old

firms leaving this industry?

9.

What key factors have resulted in our present

competitive position in this industry?

2. What are the major competitors weaknesses?

3. What are the major competitors objectives and strategies?
4. How will the major competitors most likely respond to
current economic, social, cultural, demographic,
environmental, political, governmental, legal, technological
and competitive trends affecting our industry?
5. How vulnerable are the major competitors to our
alternative company strategies?
6. How vulnerable are our alternative strategies to successful
counterattack by our major competitors?

10. How have the sales and profit rankings of major

competitors in the industry changed over recent
years?
11. What is the nature of supplier and distributors
relationships in this industry?

5 Groups: you will have to look for real examples of real

companies aected by:

- Economic forces

- Social, cultural, demographic and
environmental forces

- PoliBcal, legal and governmental
forces

- Technological forces

- CompeBBve forces

ForecasBng tools:
1-EFE Matrix

2-CompeBBve Matrix

1- The external Factor Evalua<on Matrix (EFE Matrix):

This matrix allows strategists to summarize and
evaluate economic, social, cultural, demographic,
environmental, poli=cal, governmental, legal,
technological and compe==ve informaBon.

EFE Matrix can be developed in 5 steps:

1. List key external factors. Include a total of 10 to 20
factors, including both OpportuniBes and Threats,
that aect the rm and its industry. List the
opportuniBes rst and then the threats. Be as
specic as possible, using percentages, raBos and
comparaBve numbers whenever possible.

List key external factors.

Table 3.5 EFE Matrix example: Local Ten-Theatre Cinema Complex
Key external Factors
Opportunities

1.
2.
3.
4.
5.
6.
7.

Rowan County is growing 8% annually in population

TDB University is expanding 6% annually
Major competitor across town recently ceased operations
Demand for going to cinema growing 10% annually
Two new neighbourhoods being developed within 3 miles
Disposable income among citizens grew 5% in prior year
Unemployment rate in county declined to 3,1%

Threats

8. Trend toward healthy eating eroding concessions sales

9. Demand for online movies and DVDs growing 10%/year
10. Commercial property adjacent to cinemas for sale
11. TDB University installing an on-campus movie-theatre
12. County and City property taxes increasing 25% this year
13. Local religious groups object to R-rated movies being shown
14. Movies rented from local Blockbuster store up 12%
15. Movies rented last quarter from Time Warner up 15%

2. Assign to each factor a weight that ranges from:

0.0 not important, to 1.0 very important.

The weight indicates the relaBve importance of that factor of being
successful in the rms industry.

THE SUM OF ALL WEIGHTS ASSIGNED TO THE FACTORS MUST
EQUAL 1,0.

Assign a weight.
Table 3.5 EFE Matrix example: Local Ten-Theatre Cinema Complex
Key external Factors
Opportunities

1.
2.
3.
4.
5.
6.
7.

Rowan County is growing 8% annually in population

TDB University is expanding 6% annually
Major competitor across town recently ceased operations
Demand for going to cinema growing 10% annually
Two new neighbourhoods being developed within 3 miles
Disposable income among citizens grew 5% in prior year
Unemployment rate in county declined to 3,1%

Weight

0,05
0,08
0,08
0,07
0,09
0,06
0,03

Threats

8. Trend toward healthy eating eroding concessions sales

9. Demand for online movies and DVDs growing 10%/year
10. Commercial property adjacent to cinemas for sale
11. TDB University installing an on-campus movie-theatre
12. County and City property taxes increasing 25% this year
13. Local religious groups object to R-rated movies being shown
14. Movies rented from local Blockbuster store up 12%
15. Movies rented last quarter from Time Warner up 15%

0,12
0,06
0,06
0,04
0,08
0,04
0,08
0,06

Total

1.00

3. Assign a raBng between 1 and 4 to each key

external factor to indicate how eecBvely the
rms current strategies respond to the factor:

4= The response is superior

3= The response is above average
2= The response is average
1= the response is poor

Ra=ngs are thus company-based, while in step 2 are
industry-based. It is important to note that both threats and
opportuniBes can receive a 1, 2, 3 or 4.

Table 3.5 EFE Matrix example: Local Ten-Theatre Cinema Complex

Key external Factors
Opportunities

Weight

Rating

0,05
0,08
0,08
0,07
0,09
0,06
0,03

3
4
3
2
1
3
2

8. Trend toward healthy eating eroding concessions sales

9. Demand for online movies and DVDs growing 10%/year
10. Commercial property adjacent to cinemas for sale
11. TDB University installing an on-campus movie-theatre
12. County and City property taxes increasing 25% this year
13. Local religious groups object to R-rated movies being shown
14. Movies rented from local Blockbuster store up 12%
15. Movies rented last quarter from Time Warner up 15%

0,12
0,06
0,06
0,04
0,08
0,04
0,08
0,06

4
2
3
3
2
3
2
1

Total

1.00

1.
2.
3.
4.
5.
6.
7.

Rowan County is growing 8% annually in population

TDB University is expanding 6% annually
Major competitor across town recently ceased operations
Demand for going to cinema growing 10% annually
Two new neighbourhoods being developed within 3 miles
Disposable income among citizens grew 5% in prior year
Unemployment rate in county declined to 3,1%

Threats

4. MulBply each factors weight by its raBng to determine a

weighted score.

5. Sum the weighted scores for each variable to determine the
total weighted score for the organisaBon.

The highest possible total weighted score for an organisaBon is
4.0, regardless the number or opportuniBes and threats listed.

If the total weighted score is 4.0 indicates that an
organisaBon is responding in an outstanding way to
exisBng opportuniBes and threats.
A total score of 1.0 indicates that the rms strategies are
not capitalizing on opportuniBes or avoiding external
threats.

Table 3.5 EFE Matrix example: Local Ten-Theatre Cinema Complex

Key external Factors
Opportunities

Weight

Rating

0,05
0,08
0,08
0,07
0,09
0,06
0,03

3
4
3
2
1
3
2

0,15
0,32
0,24
0,14
0,09
0,18
0,06

8. Trend toward healthy eating eroding concessions sales

9. Demand for online movies and DVDs growing 10%/year
10. Commercial property adjacent to cinemas for sale
11. TDB University installing an on-campus movie-theatre
12. County and City property taxes increasing 25% this year
13. Local religious groups object to R-rated movies being shown
14. Movies rented from local Blockbuster store up 12%
15. Movies rented last quarter from Time Warner up 15%

0,12
0,06
0,06
0,04
0,08
0,04
0,08
0,06

4
2
3
3
2
3
2
1

0,48
0,12
0,18
0,12
0,16
0,12
0,16
0,06

Total

1.00

1.
2.
3.
4.
5.
6.
7.

Rowan County is growing 8% annually in population

TDB University is expanding 6% annually
Major competitor across town recently ceased operations
Demand for going to cinema growing 10% annually
Two new neighbourhoods being developed within 3 miles
Disposable income among citizens grew 5% in prior year
Unemployment rate in county declined to 3,1%

Weighted
Score

Threats

2,58

 QuesBons:
Which is the most important factor for being successful
in the industry based on the example given?
Why?

Which are the factors where the cinema complex is

doing beker?
Why?

What does the total weighted score mean? (2,58)

2 - The compe<<ve prole matrix (CPM):

The CompeBBve Prole Matrix idenBes a rms
major compeBtors and its parBcular strengths and
weaknesses in relaBon to a sample rms strategic
posiBon.

1. List the criBcal success factors factors that we consider KEY in order to
be successful in the industry:
Examples: adverBsing, product quality, management, nancial posiBon, public
image, global expansion, market share.

2. Assign to each factor a weight that ranges from:

0.0 not important, to 1.0 very important
The weight indicates the relaBve importance of that factor to being successful in the
rms industry.
THE SUM OF ALL WEIGHTS ASSIGNED TO THE FACTORS MUST EQUAL 1,0

3. Assign a raBng between 1 and 4 to each CriBcal Success Factor. This rates
refer to strengths and weaknesses and the values are as follows:

1= Major weakness
2= Minor weakness
3= Minor strength
4= Major strength

4. MulBply each factors weight by its raBng to determine a weighted score

for each compeBtor.
5. Sum the weighted scores for each variable to determine the total weighted
score for compeBtors. The highest possible total weighted score for each
compeBtor is 4.0, regardless the Key success factors.

Table 3.6 CompeBBve Prole Matrix example

Company 1
Critical Success Factors

Company 2

Company 3

Weight

Rating

Score

Rating

Score

Rating

Score

Advertising

0,20

0,20

0,80

0,60

Product Quality

0,10

0,40

0,30

0,20

Price Competitiveness

0,10

0,30

0,20

0,40

Management

0,10

0,40

0,20

0,30

Financial position

0,15

0,60

0,30

0,45

Customer Loyalty

0,10

0,40

0,30

0,20

Global Expansion

0,20

0,80

0,20

0,40

Market Share

0,05

0,05

0,20

0,15

Total

1.00

3,15

2,50

2,70

 Main dierences between CPM and EFE

Matrix:
CPM: criBcal success factors are broader, they do
not include specic or factual data
EFE Matrix talks about OpportuniBes and Threats
CPM Matrix talks about Strengths and
Weaknesses of our compeBtors
CPM: We can compare raBngs and total weighted
scores for rival rms to our rm

 Class exercise:
1. Develop an EFE Matrix for my university:
Purpose: More colleges and universiBes are embarking

upon strategic-management process. InsBtuBons are

consciously and systemaBcally idenBfying and evaluaBng
external opportuniBes and threats facing higher educaBon in
your state, the naBon and the world
Work in groups to prepare the EFE Matrix for MBA
Present in class your results and compare them with those
from other groups
Discuss dierences

 Class exercises:
2. Develop a CompeBBve Prole Matrix for my university:

Purpose: Your college or university competes with all other

educaBonal insBtuBons in the world, especially those in your own

state/region. State funds, students, faculty, sta and federal funds
are areas of compeBBveness. Other areas include specic
programs, outside programs, academic reputaBon, locaBon and
career services. The purpose of this exercise is to give you pracBce,
thinking compeBBvely about the business of educaBon in your
state
Work in groups & idenBfy 2 colleges or universiBes in G.C. Discuss in
your groups about parBcular strengths and weaknesses of those
compeBtors
Prepare a CPM that includes MBA and the 2 compeBng insBtuBons,
include at least the following factors in your analysis: TuiBon costs,
Quality of faculty, academic reputaBon, average class size, campus
landscaping, athleBc programs, quality of students, graduate programs,
locaBon, grade of success ge[ng job aoer nishing
Present and discuss the results in class