External Audit Class Objectives Describe how to carry out a Strategic External Audit s Discuss the main external

forces that affect organizations. s Discuss the most important prognostic tools in strategic planning s Discuss the importance of monitoring trends and externa l events. s Class Objectives (cont.) Explain how to develop an EFE Matrix s Explain how to develop a Competitive Prof ile Matrix s Discuss the importance of obtaining competitive intelligence s Desc ribe the trend towards cooperation between competitors. s Five Key External Forces 1 .- 2 .- Social Economic, Cultural, Demographic, Environmental 3 .- Political, Governmental and Legal 4 .- 5 .- Competitive Technology Key External Forces Competitive Economic Technological Cultural Environmental Government Social Poli cy Legal Demographic The Importance of External Environment on Behavior Company Changes in the External Environment Changes in Consumer Demand Changes in produc ts and services that a company offers

Relationship between Key External Forces and the Organization Cultural Forces Economic Forces demographic, environmental and Technological For ces Competitive Forces • Competitors • Creditors • Suppliers • Customers • Employees • Mana ers • Owners • Unions • Governments • Associations • Interest Groups • Products • Services kets • Natural environment Opportunities and Threats to Organization External Audit Process s s Produce high share of continuous flow of personal information competitive intelligence, economic trends, socio-cultural, demographic, etc. .. s s Massage / digest / evaluate information in ad-hoc meetings. Identify critical su ccess factors. should be key goals Few Measurable s Widely circulated within the company's list of critical factors. Provides savings Cyberspace Paper Copies Telephone Advertising Time Money Economic Forces: Examples of variables that need to be monitored (Table 4-1) s D isposable Income Levels of Interest Rates Inflation s s s Trends Unemployment Ta

x Depreciation s s s budget deficits s Bag Trends in External Economic Condition s s Social Forces, Cultural, Demographic and Environmental: Examples of variables th at need to be monitored (Table 4-2) Income Per Capita Disposable Income Levels s s Changes in Population by Age, Region. s Attitudes toward the hours of "leisur e" s average level of education. s Attitudes Toward Consumer Services s Changing Tastes and Preferences s increase in the "Environmental Awareness" s Political Forces, Governmental and Legal: Examples of variables that need to be monitored (Table 4-4) Privatization, Democratization Institutionalization s s s Education Expenditure s Environmental Law International Relations Regulations s / s deregulation Laws Import / Export s Sectoral Policies s Technological Forces See (Table 4-5) What technologies do you use my business? s How important is c / u of them in c / u of the products? s What technologies are on the inputs I use? How to evolve in the future? s How is my relationship to technology in my industry? s What is the rate of technological change in my sector? s Overview of Information Technology Developing countries to privatize Telephone: 1993 Singapore South Korea Latvia 1994 The Pakistan Peru Bolivia 1995 Hungary Ru ssia Cavo Verde Côte d'Ivoire Czech Rep. Sri Lanka India Indonesia Thailand Turkey Uganda 1996 Albania Congo Ghana Guinea Guinea Moldova Nicaragua Panama Paraguay New Taiwan Zambia 1997 El Salvador Honduras Poland Key Questions about our Competition Who are our Competitors? What goals is my competition? Where are they? What are your strengths? What are your weaknesses? How vulnerable we are in front of their strategies? Competition Intelligence s Basic missions Provide a general understanding of the industry and its "players" Identify the w eak areas of competition and to estimate the impact that has on their strategic moves. Identify possible reprisals and their impact on our business. s Features Flexibility, timeliness, cooperation s All employees are intelligence agents. Usual Sources of Intelligence Information

Guilds s s Stock Exchange Notices in the newspaper s Clients Distributors s s s Suppliers Other competitors s Seven characteristics that describe the most competitive companies (USA) The involvement of the SI market account.€s Understand and remember exactly what m y business. s make things better. s constantly reinvent the company. s acquisiti ons are essential for growth. s People do make a difference. s no substitute for quality and cost competitiveness. s Information Sources The INEI www.inei.gob.pe Production Forecast s Quantitative Techniques Econometric Model: A set of equations represent the behavior of the economy and are estimated from historical data. Linear regression and extrapolation s Qualitative Techniques Estimates Groups Sellers Executive Opinion Market research or "Brainstorming" Model of the "Five Forces" Porter Competition Potential Development of Substitute Products Bargaining Power of Suppliers Rivalry among competing firms Negotiating Power Consumer Income Potential New Competition EFE MATRIX EVALUATION OF EXTERNAL FACTORS EFE Matrix s Allows strategists to summarize and assess the economic, social, cultural, demog raphic, environmental, political, governmental, legal, technological and competi tive Construction of an EFE Matrix s s s s s List key external factors: Opportunities and Risks (10-20) assigned to each fact Delphi method Delphi

or weights of 0-1 or less important. This weight indicates the relative importan ce factor for success in the industry. The sum must be = 1 Assign a score of 1-4 to each factor which will indicate how effective the current strategies being c ompared to that factor. (4 = superior effectiveness, 3 = above average, 2 = aver age 1 = below) Multiply each factor's weight by its rating to determine a weight ed score Sum weighted scores of each variable to determine the total weighted sc ore of the organization EPC MATRIX COMPETITIVE ASSESSMENT PROFILE Competitive Profile Matrix s s s s s Possible to identify the most important tournament of the company and its partic ular strengths and weaknesses of a company relative to a group of competing comp anies. The weights and scores on the MPC and the AP have the same meaning. Howev er, the MPC will include both internal and external affairs. The scores relate t o the different strengths and weaknesses with the EFE Matrix critical success factors are broader. Do not include specific data and can focus on domestic issues. critical success factors are not grouped into opportunities and threats in the EFE The MPC scores and total weighted scores of organization s are compared between them. Example of MPC AVON L'Oreal P & G Critical Success Factors Weight Rating Score. Rating Score. Rating Score. Advertising Product Quality Price Competitiveness Management Financial Position Customer Loyalty Participation Growth McDo. TOTAL 0.20 0.10 0.10 0.10 0.15 0.10 0.20 0.05 1.00 1 4 3 4 4 4 4 1 0.2 0.4 0.3 0.4 0.6 0.4 0.8 0.05 3.15 4 4 3 3 3 4 2 4 0.80 0.40 0.30 0.30 0.45 0.40 0.40 0.20 3.25 3 3 4 3 3 2 2 3 0.60 1.20 1.20 1.20 1.80 0.80 1.60 0.15 8.55