1. The document discusses performing an external audit to identify opportunities and threats from key external forces facing a firm. 2. It outlines the five key external forces: economic, social/demographic, political/legal, technological, and competitive forces. 3. For each force, it provides examples of important variables to monitor and factors that could impact a firm's strategies.

1. ‫الرحی‬ ‫الرحمن‬ ‫هللا‬ ‫بسم‬‫م‬

2. Strategic Management
BBA Fifth Semester
Ahsanullah Mohsen M.Sc.
Ahsanullah.Mohsen@ruhr-uni-Bochum.de

3. Chapter 3
EXTERNAL ASSESSMENT
• External Assessment:
• Prediction is very difficult, especially about the
future. Neils Bohr
• External Strategic Management Audit Is also called:
• Environmental scanning
• Industry analysis

4. The Nature of an External Audit
The purpose of an external audit is to develop a
finite list of opportunities that could benefit a firm
and threats that should be avoided. As the term
finite suggests, the external audit is not aimed at
developing an exhaustive list of every possible factor
that could influence the business; rather, it is aimed
at identifying key variables that offer actionable
responses. Firms should be able to respond either
offensively or defensively to the factors by
formulating strategies that take advantage of
external opportunities or that minimize the impact of
potential threats.

5. Key External Forces
1. Economic forces;
2. Social, cultural, demographic, and environmental
forces;
3. Political, governmental, and legal forces;
4. Technological forces; and
5. Competitive forces.

7. The Process of Performing an
External Audit
• The process of performing an external audit must
involve as many managers and employees as
possible
• monitor various sources of information such as key
magazines, trade journals, and newspapers.
• Once information is gathered, it should be
assimilated and evaluated
• A prioritized list of these factors could be obtained

8. ECONOMIC FORCES
Economic Factors Have a Direct Impact on the
potential attractiveness of various strategies. For
example, if interest rates rise, then funds needed for
capital expansion become more costly or unavailable
The key economic variables that a firm should
monitor are:
• availability of credit
• level of disposable income
• propensity of people to spend; and so on

9. SOCIAL, CULTURAL, DEMOGRAPHIC,
AND ENVIRONMENTAL FORCES
1. Social, cultural, demographic, and environmental changes have a
major impact on virtually all products, services, markets, and
customers.
2. Social, cultural, demographic, and environmental trends are shaping
the way how people live, work, produce, and consume. New trends
are creating a different type of consumer and, consequently, a need
for different products, services, and strategies.
3. Significant trends for the future include consumers becoming more
educated, the population aging, minorities becoming more
influential, people looking for local rather than federal solutions to
problems, and fixation on youth decreasing.

10. Key Social, Cultural, Demographic,
and Natural Environment Variables
• Racial equality
• Average level of education
• Government regulation
• Attitudes toward customer service
• Attitudes toward product quality
• Energy conservation
• Social responsibility
• Value placed on leisure time
• Recycling
• Waste management
• Air & water pollution
• Ozone depletion
• Endangered species

11. Political, Governmental, and Legal
Forces
1. Government Regulation
Key opportunities & key
threats
• Antitrust legislation
• Tax rates
• Lobbying efforts
• Paten
2. Increasing Global
Interdependence:
Impact of political variables
• Formulation of Strategies
• Implementation of Strategies
Strategists in a global
economy
• Forecast political climates
• Legalistic skills
• Diverse world cultures
3. Globalization of Industry:
• Worldwide trend toward
similar consumption patterns
• Global buyers & sellers
• E-commerce
• Instant transmission of money
& information across
continents

12. TECHNOLOGICAL FORCES
Revolutionary technological forces:
• Profound impact on organizations
• Internet
• Semiconductors
• XML (extensible markup lang.) technologies
• UWB (ultra wideband wireless) communications
Internet changes the nature of opportunities and threats
• Alters life cycle of products
• Increases speed of distribution
• Creates new products and services
• Eases limitations of geographic markets
• Alters economies of scale
• Changes entry barriers

13. Competitive Forces
Identifying rival firms:
• Strengths
• Weaknesses
• Capabilities
• Opportunities
• Threats
• Objectives
• Strategies
Key Questions about
Competitors:
• Their strengths
• Their weaknesses
• Their objectives and strategies
• Their responses to all external
variables (e.g. social, political,
demographic, etc.)
• Their vulnerability to our
alternative strategies
• Our vulnerability to successful
strategic counterattack Our
product and service
positioning relative to
competitors
• Entry and exit of firms in the
industry
• Key factors for our current
position in industry
• Sales and profit rankings of
competitors over time
• Nature of supplier and
distributor relationships
• The threat of substitute
products or services