EXTERNAL

ASSESSMENT
EXTERNAL AUDIT
External audit
Finite list of opportunities and threats
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 to take advantage of the opportunities and
avoid or reduce the impact of threats
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.
EXTERNAL ENVIRONMENT
VARIABLES
Societal Environment : General forces that donot hamper
short run activities but impact long term decisions
Economic
Technological
Political legal
Socio-cultural

Task Environment : those elements that directly affect

the corporation and are affected by it
Localcommunities
Unions
Customers
Suppliers
competitors
 General Environment
Dimensions Macro
in the broader society that influence an
industry and the firms within it

Industry Environment
Setof factors that directly influences a firm and its
competitive actions and response

Micro
Competitor Environment
Focuses on each company against which a firm
directly competes
KEY EXTERNAL FORCES
External forces can be divided into five broad
categories:
economic forces

social, cultural, demographic, and natural

environment forces
political, governmental, and legal forces

technological forces

competitive forces
THE PROCESS OF PERFORMING AN
EXTERNAL AUDIT
First, gather competitive intelligence and
information about economic, social, cultural,
demographic, environmental, political,
governmental, legal, and technological trends.
Information should be assimilated and evaluated

A final list of the most important key external

factors should be communicated
Key external factors should be:
important to achieving long-term and annual
objectives
measurable

applicable to all competing firms, and

hierarchical in the sense that some will pertain

to the overall company and others will be more
narrowly focused on functional or divisional areas
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.
Firm performance is based more on industry properties

Economies of scale

Barriers to market entry

Product differentiation

The economy

Level of competitiveness
ECONOMIC FORCES
Economic forces have a direct impact on the
potential attractiveness of various firms
Example when interest rates rise : funds become

more expensive In such case, discretionary

income declines, hence demand for such goods
decline as well
Propensity to consume
Interest rates
Inflation rates
Unemployment trends
Launching business takes 25 days or more
Economic freedom index
SOCIAL, CULTURAL, DEMOGRAPHIC,
AND NATURAL ENVIRONMENTAL
FORCES
Consists of factors related to human relationships within
the society, the development, forms and functions of such
a relationship and learned and shared behaviour of
groups of human beings having a bearing on the business
of the organizations.
Demographic characteristics population, its distribution

Socio cultural concerns pollution, consumerism,

corruption, use of media

Socio cultural attitudes : social customs, rituals and

beliefs, changing lifestyle pattern of India

Family structure

Role and position of men, women and children etc.

Educational level, awareness, work ethics etc

 Given that India will become the youngest country by 2021, with 64% of its
population in the working age group of 20-35,(currently 28%) according to
the 2013-14 Economic Survey, companies need to shape their strategies to
remain relevant to this section, called millennial or Generation Y.
Companies like Infosys, IBM India, InMobi and Microsoft India, where
millennial talent is a significant part of the workforce, are implementing
initiatives to attract, retain and engage this group.
Infosys has already done away with a formal dress code. Since June,
employees are required to wear smart business casuals on all days. The
company also engages talent by listening to the employees and
implementing their ideas. One example that highlights this approach is
Murmuration, a crowd-sourcing initiative launched across Infosys offices in
August 2014 to find innovative ideas that could be built into the company
strategy. The company has already implemented 10 ideas from the 2,700
entries it received.
In an internal survey, IBM found millennials to be a highly misunderstood
workforce. The myths are that their career goals and expectations are
unrealistic, they need endless praise, they are digital addicts, says Singh.
But what they actually want is clear career goals, and the ability to engage
them constantly and help drive innovation in the workplace, adds Singh.
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.
Trumps policies affect on India IT engineers visa.
60% of whose $108 billion exports go to the US.
Tax laws
Environment protection laws
competition Act
Labor laws
make in india
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.

The Internet is changing entry barriers, and redefining the relationship between
industries and various suppliers, creditors, customers, and competitors
Many firms now have a Chief Information Officer (CIO) and a Chief
Technology Officer (CTO) who work together to ensure that information
needed to formulate, implement, and evaluate strategies is available where and
when it is needed
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.
COMPETITIVE FORCES
An important part of an external audit is identifying rival firms
and determining their strengths, weaknesses, capabilities,
opportunities, threats, objectives, and strategies
Characteristics of the most competitive companies:
Market share matters
Understand and remember precisely what business you are in
Whether its broke or not, fix itmake it better
Innovate or evaporate
Acquisition is essential to growth
People make a difference
There is no substitute for quality
Example : Fiat, Italy
PORTERS FIVE FORCE MODEL