External Strategic Management Audit

Also called:
Environmental scanning
Industry analysis

Ch.3-1
Fred R. David
External Strategic Management Audit

External Audit:
Identification and evaluation of trends and
events beyond control of single firm
Increased foreign competition
Populations shifts
Aging society
Information technology
Computer revolution

Ch.3-2
Fred R. David
 Nature of External Audit

Purpose:

Development of Finite List:

Opportunities
Threats to be avoided

Ch.3-3
Fred R. David
 Key External Forces

Five (5) broad categories:

1. Economic forces
2. Social, cultural, demographic, &
environmental forces
3. Political, governmental, and legal forces
4. Technological factors
5. Competitive forces
Ch.3-4
Fred R. David
 Key External Factors

Key External Factors:

1. Oriented to long-term & annual objectives

2. Measurable
3. Applicable to all competing firms
4. Hierarchical
Overall company
Divisional or functional areas

Ch.3-5
Fred R. David
 Performing an External Audit

Key factors:
Vary over time
Vary by industry

Ch.3-6
Fred R. David
 Industry Analysis (EFE)
External Factor Evaluation Matrix
Summarize & evaluate:

Economic Demographic Governmental

Social Environmental Technological

Cultural Political Competitive

Ch.3-7
Fred R. David
 Industry Analysis (EFE)

Five-Step process:
List key external factors (10-20)
Opportunities & threats
Assign weight to each (0 to 1.0)
Sum of all weights = 1.0

Ch.3-8
Fred R. David
 Industry Analysis (EFE)
Five-step process:

Assign 1-4 rating to each factor

Firms current strategies response to the
factor

Multiply each factors weight by its rating

Produces a weighted score
Ch.3-9
Fred R. David
 Industry Analysis (EFE)

Five-step process:
Sum the weighted scores for each
Determines the total weighted score
for the organization.
Highest possible weighted score for
the organization is 4.0; the lowest,
1.0. Average = 2.5
Ch.3-10
Fred R. David
 USTKey External Factors Weighted
Weight Rating
Opportunities score

Global markets untapped .15 1 .15

Increased demand .05 3 .15
Astronomical Internet growth .05 1 .05
Pinkerton leader in discount market .15 4 .60
More social pressure to quit smoking .10 3 .30
Threats
Legislation against the tobacco industry .10 2 .20
Production limits on tobacco .05 3 .15
Smokeless market SE region U.S. .05 2 .10
Bad media exposure from FDA .10 2 .20
Clinton Administration .20 1 .20
TOTAL 1.00 2.10
Ch.3-11
Fred R. David
 Industry Analysis (EFE)

Total weighted score of 4.0 =

Organization response is outstanding to
threats & weaknesses

Total weighted score of 1.0 =

Firms strategies not capitalizing on
opportunities or avoiding threats
Ch.3-12
Fred R. David
 Industry Analysis (EFE)

UST (in the previous example), has

a total weighted score of 2.10
indicating that the firm is below
average in its effort to pursue
strategies that capitalize on external
opportunities and avoid threats.

Ch.3-13
Fred R. David
 Industry Analysis (EFE)

Important

Understanding of the factors used in the

EFE Matrix is more important than the
actual weights and ratings assigned.

Ch.3-14
Fred R. David
 Competitive Forces

Competitive Intelligence Programs:

Systematic and ethical process for

gathering and analyzing information
about the competitions activities
and general business trends to
further a business own goals.
Ch.3-15
Fred R. David
 Competitive Analysis: Porters Five-
Forces Model
Potential development
of substitute products

Bargaining power Rivalry among Bargaining power

of suppliers competing firms of consumers

Potential entry of new

competitors

Ch.3-16
Fred R. David
 Global Challenge

International Challenge faced by U.S. firms:

How to gain and maintain exports to other

nations

How to defend domestic markets against

imported goods

Ch.3-17
Fred R. David
 Industry Analysis (CPM)
Competitive Profile Matrix

Identifies firms major competitors

and their strengths & weaknesses
in relation to a sample firms
strategic position

Ch.3-18
Fred R. David
 (CPM) Procter
Avon LOreal & Gamble
Critical Success Weight Rating Score Rating Score Rating Score
Factor
Advertising 0.20 1 0.20 4 0.80 3 0.60
Product Quality 0.10 4 0.40 4 0.40 3 0.30
Price Competition 0.10 3 0.30 3 0.30 4 0.40
Management 0.10 4 0.40 3 0.30 3 0.30
Financial Position 0.15 4 0.60 3 0.45 3 0.45
Customer Loyalty 0.10 4 0.40 4 0.40 2 0.20
Global Expansion 0.20 4 0.80 2 0.40 2 0.40
Market Share 0.05 1 0.05 4 0.20 3 0.15
Total 1.00 3.15 3.25 2.80
Ch.3-19
Fred R. David