Lesson-3-MGT-406-THE-EXTERNAL-AUDIT

The External Audit

Overview

• The External Audit focuses on identifying and evaluating trends and events that are beyond a single firm's control.

• Reveals key opportunities and threats confronting an organization, enabling managers to formulate strategies that leverage opportunities and mitigate threats.

Learning Objectives

• Building confidence

• Engaging the audience

• Utilizing visual aids

• Final tips and takeaways

Key Sources of Information

1. Locate vital external information crucial for decision-making.

2. Discuss forecasting tools and techniques used in analysis.

3. Develop and utilize an External Factor Evaluation (EFE) Matrix.

4. Develop and use a Competitive Profile Matrix.

Nature of an External Audit

• Eye contact with the audience fosters intimacy and involvement.

• Use narratives to create memorable presentations.

• Encourage questions and provide thoughtful answers to enhance participation.

• Implement live polls/surveys for audience engagement.

External Forces Categories

1. Economic Forces

2. Social, Cultural, and Natural Environmental Forces

3. Political, Governmental, and Legal Forces

4. Technological Forces

5. Competitive Forces

Relationship Between Key External Forces and an Organization

• Voice Modulation: Important for effective communication; includes pitch, tone, and volume manipulation to convey emotion and maintain interest.

• Body Language: Effective body language enhances the message; includes meaningful eye contact, purposeful gestures, and good posture.

Process of Performing an External Audit

• Know your material ahead of time.

• Anticipate common questions.

• Rehearse responses.

• Maintaining composure during Q&A is crucial for confidence.

  • Stay calm, listen actively, pause and reflect, maintain eye contact.

Effective Communication

• Communicating effectively makes a lasting impact; resonates with the audience's experiences and values.

Industrial Organization View

• The Industrial Organization (I/O) approach emphasizes that external (industry) factors are more crucial than internal factors for competitive advantage.

Economic Forces

• The impact of economic conditions on strategic planning and execution.

Social, Cultural, Demographic and Natural Environmental Forces

• Factors that influence organizational behavior and market trends.

Political, Governmental, and Legal Forces

• Importance of considering the impacts of political variables on business strategies, especially amid global interdependence.

• Laws and regulations can affect a business’s market positioning and operations.

Technological Forces

• Effects of technological advancements on industry standards and operations.

Competitive Forces

• Identify rival firms and evaluate their strengths, weaknesses, and strategies.

• Characteristics of highly competitive companies:

  • Continual market share increase.

  • Use of vision/mission to guide decisions.

  • Emphasis on continual adaptation and improvement.

  • Focus on hiring and retaining top talent.

  • Desire to maintain global cost competitiveness.

Key Questions About Competitors

1. What are the strengths and weaknesses of our major competitors?

2. What are their objectives and strategies?

3. How will they respond to various external trends?

4. How vulnerable are they to our strategies?

5. What is the nature of supplier and distributor relationships in this industry?

Competitive Intelligence Programs

• Competitive Intelligence (CI) involves gathering and analyzing information about competitors to further business goals.

Legal and Ethical Ways to Obtain Competitive Intelligence

• Hire executives from rival firms, reverse-engineer products, conduct surveys, on-site visits, and monitor trade publications.

Objectives of a Competitive Intelligence Program

1. Understand the industry and competitors.

2. Identify competitors' vulnerabilities.

3. Predict potential competitor actions that could threaten market position.

Michael Porter's Five Forces Model

• Assesses competitive pressures within an industry based on:

  • Potential for substitutes.

  • Bargaining power of suppliers.

  • Rivalry among firms.

  • Bargaining power of consumers.

  • Potential entry of new competitors.

Analyzing the Five Forces

1. Identify elements impacting the firm.

2. Evaluate the strength of each element.

3. Determine if the combined strengths warrant industry entry or retention.

Barriers to Entry

• Important factors include government policies, tariffs, access to resources, brand loyalty, and market saturation.

Sources of External Information

• Information can be obtained from unpublished sources (like customer surveys and interviews) and published sources (such as reports and journals).

Forecasting Tools and Techniques

• Forecasting involves making educated assumptions about future trends, acknowledging that no forecast is perfect.

Business Analytics

• Utilize software for data mining to support executive decision-making.

EFE Matrix Steps

1. List 20 key external factors.

2. Assign weights (0.0 to 1.0).

3. Rate effectiveness of strategies.

4. Multiply weight by rating and sum scores.

Competitive Profile Matrix (CPM)

• Identifies competitors, assessing their strengths and weaknesses in relation to a sample firm's strategy.

Questions Section

• Invite questions to clarify topics or deepen understanding.