The External Assessment

•Lecture 7
 EXTERNAL AUDIT

• External audit (aka industry analysis)

• focuses on identifying and evaluating trends and
events beyond the control of a single firm
• reveals key opportunities and threats confronting
an organization so that managers can formulate
strategies
 The Nature of an External Audit

• The external audit 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.
 DESCRIBING THE BUSINESS ENVIRONMENT

• How does the external environment shape

opportunity and provide constraint?
• PESTEL (or PEST) type analysis often used
• Highlights potential issues for firms, but:
 which are most important?
 which can management influence?
 how should strategy respond?
 PESTEL: IDENTIFICATION OF FACTORS THAT
MAY SHAPE THE BUSINESS ENVIRONMENT

• Political (govt support, policies, state ownership,....)

• Economic (growth, inflation, ...)
• Social (demography, culture, ...)
• Technological (new products, delivery channels etc)
• Environmental (new concerns)
• Legal (constraints, opportunities)
 THE INDUSTRIAL ORGANIZATION
(I/O) VIEW

• The Industrial Organization (I/O) approach to

competitive advantage advocates that external
(industry) factors are more important than internal
factors in a firm for achieving competitive
advantage.
• Michael Porter says organizational performance will
be primarily determined by industry forces
POLITICAL, AND GOVERNMENTAL FACTORS

• 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.
• Political conditions in foreign countries

• International relations (foreign relations)

• Level of defense expenditures

• Tax rate

• Local, state and national elections

 ECONOMIC FACTORS

• Inflation rates
• Interest rates
• Unemployment rates
• Value of $ in international markets
• Import/export factors
• Stock market trends
• Income differences
• Propensity of people to spend
SOCIAL, CULTURAL, AND DEMOGRAPHIC FORCES

• Population changes by race, age, geographic area

• Regional changes in demands and preferences

• Social security programs

• Life expectancy rates

• Social responsibility issues

 TECHNOLOGICAL FORCES

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,
• changing the historical trade-off between production
standardization and flexibility.
 TECHNOLOGICAL FORCES

• The Internet has lowered entry barriers, and redefined the

relationship between industries and various suppliers, customers,
and competitors.

Technological advancements can:

• Create new markets
• Result in a proliferation of new and improved products
• Change the relative competitive cost positions in an industry
• Render existing products and services obsolete
 ENVIRONMENTAL FACTORS

• How can understanding the environment help

appreciate/formulate strategies choices?
• Position of the company in relation to the environment
and possible strengths & weaknesses, opportunities &
threats (SWOTs)
• Environmental regulations
• Energy/Water conservation
• Pollution control (e.g., reduction in carbon emissions,
reduce use of plastic)
 LEGAL FACTORS

• Equal employment laws (give equal opportunities

to all, gender bias, to not discriminate on
characteristics/disability, etc.)

• Changes in patent laws

• Local, state and federal laws

• Import – export regulations

GROUP PROJECT PRESENTATION & INDIVIDUAL REPORT

The question
Select a company from the list below. Answer all parts of the question.
Drawing on relevant academic strategy concepts and performance data:
a) to what extent and how can the strategy followed by the company be explained by
theories of positioning, resources or other approaches to strategy; and
b) to what extent and why do you consider that the current strategy is likely to succeed?
You will need to decide and justify the time period over which you will analyse strategy
and performance.
70% of the marks are for part (a) and 30% for part (b).
 
Select one company from the following list:
Vodafone, Amazon, Sony, Samsung, International Business Machines (IBM), Microsoft,
Ford
OR select one public company headquartered in Pakistan of your choice.
Information for group presentation:
• Make a group of 5 students (max).
• Presentations should last 20 mins.
• Group presentations will be followed by 10 mins Q&A by the panel
(assessors/markers) and audience (students).
• Presentations will be held in weeks 22nd Nov. – 10th Dec.

Information for individual assignment:

• Each student will be required to submit an individual report on the
companies mentioned in the list (slide 17) OR any Pakistani
company of your choice – must be publicly listed and headquartered
in Pakistan.
• WORD LIMIT FOR INDIVIDUAL REPORT: 3500 WORDS
• Assignment submission date: 22nd Nov.
Important information for group presentation:
• You may chose your own group.
• Groups must be of 5 students (based on the total strength of class).
There can only be 6 students in a group in case students are left
unassigned to a group.
• All group members must present and must not exceed the time limit of
presentation. If you exceed the time limit of presentation a penalty may
be imposed.
• Each student must present (so if there are 5 students in a group, then
each student must present for 4 mins …)
Important information for individual assignment:
• The word limit excludes references, tables, graphs and diagrams. If you exceed
the word limit a penalty may be imposed.
• It is essential that you follow normal academic conventions on citation and
referencing of sources. Failure to appropriately cite and reference sources,
including failing to acknowledge sources, overly-close paraphrasing etc can be
deemed plagiarism and is a serious academic issue. Where plagiarism is found
penalties can be applied, including a mark of zero.
• This work should be completed on an individual basis. You should not discuss
your work with others; nor should you share plans or drafts. Please bear in mind
that collusion is a serious academic matter that can lead to penalties being
imposed.
• Use the Harvard system to cite and reference your sources.
• Make sure you number the pages in your work.