THE EXTERNAL ENVIRONMENT compermive External Audit INTELLIGENCE (Soaegene Soporte wre at Oesnne ional ‘cee SStoocota fomuste "Resource siiaity Sige ampertote cane 11 Sei tert or leet of at The External Audit Process: 28 oo te hor stron and inpartant each Tegner neratnan 3 SiS i ei earn seine in einsTHE EXTERNAL ENVIRONMENT compenitive External Audit mauesce ‘Sgn cvatng ‘ended vents beyond eeotelote sre Spriaton Seale on Porter's 5 forces model if —= iain vr fecteeneer 1 erie arcs or sens of ech The External Audit Process 26 cuTHE EXTERNAL ENVIRONMENT c External Audit! focuses on reveals key identifies key identifyingand opportunities and variables that evaluating threats confronting offer trends and anorganisationso actionable events beyond that managerscan _ responses the controlofa formulate Re single strategies to take the organisation advantage of the ad opportunities and minimise the P impact of threatsUPPYILULNUIeS anu minimise the impact of threats Economic forces Social, cultural, demographic, and natural environment forces Political, legal, and governmental forces ‘Technological forces Competitive forces an organisation's relationship with the external environment The External Audit Process + gather competitive intelligence and information onwith the external environment The External Audit Process + gather competitive intelligence and information on all external factors + information to be assimilated and evaluated + communicate final list of most important external factors, where they should be: + important to achieving long term and annual objectives + measurable + applicable to all competing organisations +» hierarchical where some may affect overall organisation and others may affect functional or divisional areas FVTEAAIAL FOANREOCor divisional areas EXTERNAL FORCES 290e0d Economic forces Sociocultural Competitive Political-tegal Technological are the factors factors are forces are forces are related forces are chang that help to customs, factors that to actions of in technology determine the lifestyles and influence the governments and Which can have competitiveness values that competitive political significant impa of the Siaiatieiiees position of a conditions in the nen . society or group " processes environment in which can company in an location where the which the firm influence a industry or business conducts Operates. business's ability market business or seeks to serve to conduct business The Industrial Oraanisation (1/0) Viewofthe one eee position of a _condtionsinthe "7 etre environment in Which can company in an location where the which the firm influence a industry or business conducts operates. business's ability market business or seeks to serve to conduct business The Industrial Organisation (1/0) View Where vllarnah (induibiy) fadlors cre more imporfenl than infernal facta tna frm sehing ts aliens compilineedanitign Th rguninilional poermanenuill be primarily Aderamined by induilry forcer ie cconamier of seals, Carrio te markal wt pro Lifrantition, Ul of compiltsemats smd tH sconamiy im goniala systematic and ethical process for gathering and analysing information CO M PETITIVE about the competition's activities and general business trends to further an organisation's own goals | NTE LL EN E vate een) «0M aside eid ns ‘understanding ot competitors are vulnerable that @ competitor might ningsty ancits am toaccssthe impact ™akethat would endanger competitors statepicactions would matt have on competitors Market commonality jesscee the number and significance of markets that an Organisation competes in with rivalsgathering and analysing information about the competition's activities and general business trends to further an organisation's own goals - to provide a general * to identify areas in which _ - to identify potential moves understanding of competitors are vulnerable ee toad a an industry and its 2°41 €0 access the impact tion's position competitors strategic actions would inthe market have on competitors 2t commonality and significance of markets that an ePamnatac in with rivalegeneral business trends to turther an organisation's own goals - to provide @ general * € identify areas in which to identify potential move understanding ot cO™petitors are vulnerable that a competitor might adit a its 2% aces the impact ake a wad endang competitors sata actions would lave on competitors Market commonality ssere) the number and significance of markets that an organisation competes in with rivals Resource similarity the extent to which the type and amount of an organisation's internal resources are comparable to a rival Porter's 5 forces model an organisations position in the marketnie caren re type Ue roar ~ se. a a ae aaa to a rival Porter's 5 forces model 1 Identify key aspects or elements of each competitive force that impact the firm.Potential entry of new competitors Identify key aspects or elements of each competitive force that impact the firm. Evaluate how strong and important each element is for the firm. Decide whether the collective strength of the elements is worth the firm entering or staying in the industry. Pressure increases when: - Prices of substitutes decrease + Consumers’ switching costsPressure increases when: + Prices of substitutes decrease + Consumers’ switching costs decrease + Most powerful of the five forces t + Focus on competitive advantage S of strategies over other firms Increases when + Customers being there are: concentrated or + Large numbers buying in volume ical of suppliers affects intensity of ‘anges. Few substitutes competition wey + Gosts of + Consumer power is mpact sling ran higher where any's ‘Materials is products are es high standard oF + Barriers to entry are important undifferentiated + Quality, pricing, and marketing can overcome barriers- Most powerful of the five forces qT - Focus on competitive advantage of strategies over other firms -a+ y / are important + Customers being concentrated or buying in volume affects intensity of competition + Consumer power is higher where products are standard or undifferentiatedC F S © + Of strategies over other fir Increases when there are: - Large numbers Technological of suppliers forces are changes Few supstitutes in technology which canhavea cou eo . switching raw significant impact ona company's materials IS nracesses high- Barriers to entry are important - Quality, pricing, and marketing can overcome barriersthe industry. Pressure increases when: - Prices of substitutes decrease - Consumers’ switching costs decreasePressure increases when: + Prices of substitutes decrease + Consumers’ switching costs decrease L + Most powertul of the five wn + Focus on competitive advantage S of strategies over other fir i Increases when + Customers being there are: concentrated or + Large numbers buying in volume ogical of suppliers affects intensity of changes Few supstitutes competition seat g etstbot + Consumer power is impact switching raw higher where pany's materials is products are ses high standard or + Barriers to entry are important undifferentiated + Quality, pricing, and marketing can overcome barriers— Competitive Profile Matrix (CPM) igt CCriticalSuccess Factors Weight Rating Weighted Rating Score Pricecompettiveness 0.04 «3123 Global Expansion 006 4 a2 OrganisationalStrucure 0.021 0022 Employee Morale oor 1 oor ot Technology Ce ProductSatety oo 323 Customer Loyalty 02 2 040 3 UsMarket Share 01s 6200304 Advertising oo 4 008 4 Product Quaity oo7 3 oz 2 Productimage 02 2 040 3 Financial Postion oi 2 0323 Total 1.00 2.30 + Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions + Just because one firm receives a higher rating than another, it does not follow that the first firm is better than the secondIG VGIIGIO External Factor Evaluation (EFE) Matrix) + Total weighted score of 40 Organisation response is outstanding to threats and weaknesses = Total weighted score of 1.0 Firms strategies not capitalising on opportunities ot avoiding threats + Understanding the factors used in the EFE Matrix is ‘more important than the actual weights and ratings assigned.THE EXTERNAL ENVIRONMENT compenitive External Audit mauesce ‘Sgn cvatng ‘ended vents beyond eeotelote sre Spriaton Seale on Porter's 5 forces model if —= iain vr fecteeneer 1 erie arcs or sens of ech The External Audit Process 26 cu