EXTERNAL AUDIT REPORT ASH

An external audit focuses on identifying and evaluating trends and events beyond the
control of a single firm (outside of the organization), such as increased foreign
competition, population shifts to coastal areas of the United States, an aging society,
and taxing Internet sales.
This external factors can be viewed as opportunity or threats of the entity.

THE PURPOSE AND NATURE OF AN EXTERNAL AUDIT

This external factors can be viewed as an opportunity or threats of the entity and the
purpose of external audit is to develop a finite list of opportunities that could
benefit a firm as well as threats that should be avoided. Because it is finite, it is
aimed at identifying key variables that offer only those actionable responses.

KEY EXTERNAL FORCES

(1) economic forces; (2) social, cultural, demographic, and natural environment forces;
(3) political, governmental, and legal forces; (4) technological forces; and
(5) competitive forces.

What is the relationship between key external forces and an organization?

Generally, changes in this external forces impacts the organization as a whole as it
has a direct impact on both suppliers and distributors.Examples are the changes in
types of products developed, the nature of positioning and market segmentation
strategies, type of services offered, and the choice of businesses to acquire or sell.

THE PROCESS OF PERFORMING AN EXTERNAL AUDIT

1. Gather competitive intelligence and information about economic, social, cultural,
demographic, environmental, political, governmental, legal, and technological trends.
2. Information should be assimilated and evaluated.
3. Have a prioritized list of factors that should be communicated

THE INDUSTRIAL ORGANIZATION 1/0 VIEW

The Industrial Organization view of strategic planning advocates that external
(industry)factors such as economies of scale, barriers to market entry, product
differentiation, the economy, and level of competitiveness are more important than
internal ones such as resources, capabilities, structure, and operations for gaining
and sustaining competitive advantage.An effective integration and understanding of both
external and internal factors is the key to securing and keeping a competitive
advantage.

10 EXTERNAL FACTORS THAT AFFECT ORGANIZATIONS

1. Economic Forces- a direct impact on the potential attractiveness of various
strategies (ex. High underemployment)
2. Social, cultural, demographic, and natural environmental forces- impact strategic
decisions on virtually all products, services, markets, and customers.
3. Political, Governmental, and Legal forces - The increasing global interdependence
among economies, markets, governments, and organizations makes it imperative that firms
consider the possible impact of political variables on the formulation and
implementation of competitive strategies.
-Local, state, and federal laws, as well as regulatory agencies and special-interest
groups, can have a major impact on the strategies of small, large, for-profit, and
nonprofit organizations.
-State and local income taxes and property taxes impact where companies locate
facilities and where people desire to live.
4. Technological Forces- new technologies such as the Internet of Things, 3D printing,
the cloud, mobile devices, biotech, analytics, autotech, robotics, and artificial
intelligence are fueling innovation in many industries, and impacting strategic-
planning decisions.
Chief information officer (CIO) and Chief technology officer (CTO) -they are
responsible for developing, maintaining, and updating a company’s information
database.and work together to ensure that information needed to formulate, implement,
and evaluate strategies is available where and when it is needed.
CIO is more a manager, managing the firm’s relationship with stakeholders; CTO is more
a technician, focusing on technical issues such as data acquisition, data processing,
decision-support systems, and software and hardware acquisition.

Technological advancements:
1. They represent major opportunities and threats that must be considered in
formulating strategies.
2. They can dramatically affect organizations’ products, services, markets, suppliers,
distributors, competitors, customers, manufacturing processes, marketing practices, and
competitive position.
3. They can create new markets, result in a proliferation of new and improved products,
change the relative competitive cost positions in an industry, and render existing
products and services obsolete.
4. They can reduce or eliminate cost barriers between businesses, create shorter
production runs, create shortages in technical skills, and result in changing values
and expectations of employees, managers, and customers.
5. They can create new competitive advantages that are more powerful than existing
advantages.

6. COMPETITVE FORCES - external audit is identifying rival firms and determining their
strengths, weaknesses, capabilities, opportunities, threats, objectives, and
strategies.Collecting and evaluating information on competitors is essential for
successful strategy formulation.

Seven characteristics describe the most competitive companies:

1. Strive to continually increase market share.
2. Use the vision/mission as a guide for all decisions.
3. Realize that the adage “If it’s not broke, don’t fix it” has been replaced by
“Whether it’s broke or not, fix it;” in other words, continually strive to improve
everything about the firm.
4. Continually adapt, innovate, improve—especially when the firm is successful.
5. Strive to grow through acquisition whenever possible.
6. Hire and retain the best employees and managers possible.
7. Strive to stay cost-competitive on a global basis.

Competitive intelligence (CI) - is a systematic and ethical process for gathering and
analyzing information about the competition’s activities and general business trends
to further a business’s own goals.
Three basic objectives of a CI program are:
(1) to provide a general understanding of an industry and its competitors
(2) to identify areas in which competitors are vulnerable and to assess the impact
strategic actions would have on competitors
(3) to identify potential moves that a competitor might make that would endanger a
firm’s position in the market.

PORTER’S FIVE FORCES MODEL - of competitive analysis is a widely used approach for
developing strategies.
1. Rivalry among competing firms - The strategies pursued by one firm can be successful
only to the extent that they provide competitive advantage over the strategies pursued
by rival firms.
2. Potential entry of new competitors - Barriers to entry, however, can include the
need to gain economies of scale quickly, the need to gain technology and specialized
know-how, the lack of experience, strong customer loyalty, strong brand preferences,
large capital requirements, lack of adequate distribution channels, government
regulatory policies, tariffs, lack of access to raw materials, possession of patents,
undesirable locations, counterattack by entrenched firms, and potential saturation of
the market
3. Potential development of substitute products - firms are in close competition with
producers of substitute products in other industries.
4. Bargaining power of suppliers - affects the intensity of competition in an industry,
especially when there are few suppliers, when there are few good substitute raw
materials, or when the cost of switching raw materials is especially high.
5. Bargaining power of consumers