ENVIRONMENT

AL
ASSESSMENT
•• EXTERNAL
EXTERNAL •• INTERNAL
INTERNAL
ASSESSMENT
ASSESSMENT ASSESSMENT
ASSESSMENT

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“ It in not the strongest of the species that
survive, nor the most intelligent, but the one
most responsive to change.” – Charles
Darwin

“ Nothing focuses the mind better than the

constant sight of a competitor who wants to
wipe you off the map.” – Wayne Calloway,
Former CEO, Pepsi Co
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• This chapter examines the tools and concepts
needed to conduct an external strategic
management audit (sometimes called
environmental scanning or industry
analysis).

• An external audit focuses on identifying and

evaluating trends and events beyond the control
of a single firm.

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 A. Nature of an EXTERNAL AUDIT

Purpose – to develop a finite list of

opportunities that could benefit a firm and threats that
should be avoided

Keynotes – Identifying and evaluating external

opportunities and threats enables organizations:

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1 . To develop a clear mission

2. To design strategies to achieve long-term objective, and

3. To develop policies to achieve annual objectives

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The Process of Performing an External
Audit

1. Must gather first the competitive intelligence

and information about key external forces

2. Final list of the most key external factors

that should be communicated and distributed
widely in the organization

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 The 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.
1. ECONOMIC FORCES

• Factors which determine the state of

competitive environment in which a firm
operates. 

• These forces affect the outcome of the firm's

marketing activities, by determining the
volume and strength of demand for the its
products.

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ECONOMIC FORCES
Economic factors have a direct impact on the potential attractiveness of
various strategies.

￮ When interest rates rise, funds

needed for capital expansion
become more costly or unavailable

￮ When interest rates rise,

discretionary income declines, and
the demand for discretionary
goods falls

￮ When the market rises, consumer

and business wealth expands.

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Some economic forces are: Foreign countries’ economic conditions
Import/export factors
 Shift to a service economy in the United
States
 Availability of credit
 Level of disposable income Demand shifts for different categories
 Propensity of people to spend of goods and services
 Interest rates Income differences by region and
 Inflation rates consumer groups
 Money market rates Price fluctuations
 Federal government budget deficits Export of labor and capital from the
 Gross domestic product trend United States
 Consumption patterns Monetary policies
 Unemployment trends Fiscal policies
 Worker productivity levels Tax rates
 Value of the dollar in world markets European Economic Community (EEC)
 Stock market trends policies
Organization of Petroleum Exporting
Countries (OPEC) policies
Coalitions of Lesser Developed
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• The investor needs to be prepared for a change in economic
factor and its consequences, by knowing the impact of economic
factors investor can take the right decision in terms of
investment.
• These factors also help management in decision making and to
be prepared for any positive or negative changes in the
economy.

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2. SOCIAL, CULTURAL, DEMOGRAPHIC, AND
NATURAL ENVIRONMENT FORCES

• Social, cultural, demographic, and environmental

trends are shaping the way people live, work,
produce, and consume.

• New trends are creating a different type of

consumer and, consequently, a need for different
products, different services, and different
strategies.

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• 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

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Key Social, Cultural, Demographic,
Natural Environment Variables
• Childbearing rates
• Number of special-interest
groups
• Number of marriages
• Number of divorces
• Number of births
• Number of deaths
• Immigration and emigration
rates
• Social Security programs
• Life expectancy rates
• Per capita income
• Location of retailing,
manufacturing,
• and service businesses
• Attitudes toward business
• Lifestyles
• Traffic congestion
• Inner-city environments
• Average disposable income
• Trust in government
• Attitudes toward government
and
• Attitudes toward work
• Buying habits
• Ethical concerns
• Attitudes toward saving
• Sex roles
• Attitudes toward investing
• Racial equality
• Use of birth control
• Average level of education
• Government regulation
• Attitudes toward retirement
• Attitudes toward leisure time
• Attitudes toward product quality
• Attitudes toward customer
service
• Pollution control
• Attitudes toward foreign
peoples
• Energy conservation
• Social programs
• Number of churches
• Number of church members
• Social responsibility
• Attitudes toward careers
• Population changes by race, age,
sex, and
• level of affluence
• Attitudes toward authority
• Population changes by city,
county, state,
• region, and country
• Value placed on leisure time
• Regional changes in tastes and
preferences
• Number of women and minority
workers
• Number of high school and
college
• graduates by geographic area
• Recycling
• Waste management
• Air pollution
• Water pollution
• Ozone depletion
• Endangered species
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3. POLITICAL, GOVERNMENTAL, AND LEGAL FORCES

• Federal, 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.

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Some Political, Governmental, and Legal Variables

• Government regulations or • Sino-American relationships

deregulations
• Changes in tax laws
• Special tariffs
• Political action committees
• Voter participation rates
• Number, severity, and location of
government protests
• Number of patents
• Changes in patent laws
• Environmental protection laws
• Level of defense expenditures
• Legislation on equal employment
• Level of government subsidies
• Antitrust legislation
• Russian-American relationships
• European-American relationships
• African-American relationships
• 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 labor
markets
• Location and severity of terrorist
activities
• Local, state, and national elections

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• For industries and firms that depend heavily on government
contracts or subsidies, political forecasts can be the most
important part of an external audit.

• Many companies have altered or abandoned strategies in the

past because of political or governmental actions

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4. TECHNOLOGICAL FORCES

Revolutionary technological changes and discoveries are

having a dramatic impact on organizations.

The Internet 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.

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 Technological Advances can…
 dramatically affect organizations’ products, services,
markets, suppliers, distributors, competitors,
customers, manufacturing processes, marketing
practices, and competitive position.
 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.
 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.
 can create new competitive advantages that
are more powerful than existing advantages.

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 Examples of the Impact of Wireless Technology
 
 Airlines—Many airlines now offer wireless technology in flight.
 Automotive—Vehicles are becoming wireless.
 Banking—Visa sends text message alerts after unusual transactions.
 Education—Many secondary (and even college) students may use smart phones for
math because research shows this to be greatly helpful.
 Energy—Smart meters now provide power on demand in your home or business.
 Health Care—Patients use mobile devices to monitor their own health, such as
calories consumed.
 Hotels—Days Inn sends daily specials and coupons to hotel guests via text
messages.
 Market Research—Cell phone respondents provide more honest answers, perhaps
because they are away from eavesdropping ears.
 Politics—President Obama won the election partly by mobilizing Facebook and
MySpace users, revolutionizing political campaigns. Obama announced his vice
presidential selection of Joe Biden by a text message.
 Publishing—eBooks are increasingly available.

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5. COMPETITIVE FORCES

• An important part of an 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.

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C. INDUSTRY ANALYSIS: GLOBAL CHALLENGE
What is Industry Analysis?
• A market assessment tool designed to provide a business
with an idea of the complexity of a particular industry.

• Industry analysis involves reviewing the economic, political

and market factors that influence the way the industry
develops.

• Understanding the forces at work in the overall industry is

an important component of effective strategic planning.
WHY do firms need to do an Industry Analysis?

 It enables a company to develop a Competitive Strategy to

Survive in a market and using the forces in its favour
 Emphasize on its strengths, weaknesses, opportunities and
threats (SWOT).
 Elevate its position in the industry.
WHY do firms need to do an Industry Analysis?

 Clarify areas where strategic changes will result in the greatest

payoffs.
 Emphasize areas where industry trends indicate the greatest
significance as either opportunities or threats.
 Trim down weaknesses and threats by using competitive advantages.
EXTERNAL FACTOR EVALUATION (EFE) MATRIX

• is a strategic-management tool often used for assessment of current

business conditions. The EFE matrix is a good tool to visualize and prioritize
the opportunities and threats that a business is facing.

• External factors assessed in the EFE matrix are the ones that are subjected
to the will of social, economic, political, legal, and other external forces.
How to do an
EFE Matrix??
EFE of a Shopping Center Weight Rating Weighted Score
KEY EXTERNAL FACTORS
Opportunities
Ease of Shopping .20 3 .6
Wide Expansion .05 2 .1
Population Growth .05 3 .15
Internet Advertising .10 3 .3
Rizal/ Pantabangan (untapped Market) .05 2 .1

EFE of a Shopping Center Weight Rating Weighted Score

KEY EXTERNAL FACTORS
Threats
Government Regulation .04 1 .04
Political Situation .08 1 .08
Competition from other Low Cost .20 2 .4
Retailers
Climate Change/Global Warming .13 2 .26
Online Shopping .10 4 .4
TOTAL 1.00 2.43
 mat
Competitive
Profile
 identifies a firm’s major
competitors and its particular
STRENGTHS and
WEAKNESSES in relation to a
sample firm’s strategic position.
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KEY
COMPONENT
S
 Innovation
 Product Quality
 Customer Service
 Price Competitiveness
 Technological Competence
 Cost base
 Product Range
 Geographic Reach
 Customer Loyalty
 Management Competence
Comp
BE Best

etitiveNE
Visual offering Decision
comparison on making
market
ProfileFI
Matrix
Thank
for listening!
Reporters
Angelika Mariz Francisco
Ariane May Gonzales
Merry Grace Nuñez
Veronica Presentacion
Venus Vallejos 37