External Assessment

Dr. Sajjad Haider

Deptt of Business Management
External Environment
 External Environmental Analysis

An ongoing process that includes:

 1. Scanning: Identifying early signals of

environmental changes and trends

 2. Monitoring: Detecting meaning through ongoing

observations of environmental changes and trends
 External Environmental Analysis…

 3. Forecasting: Developing projections of anticipated

outcomes based on monitored changes and trends

 4. Assessing and Re-assessing: Determining the timing

and importance of environmental changes and
trends for firms’ strategies and their management
External Strategic Management
Audit
– Environmental Scanning
– Industry Analysis
Scanning is aimed to meticulously study all segments in the
general environment. Through scanning, firms identify early
signals of potential changes in the general environment and detect
changes that are already underway.
o e.g. Amazon uses specialized software and algorithms to
scan and predict consumer needs.
o Some internet sites use “cookies” to obtain information
from those who visit their websites.
Industry Environment

 The industry environment is the set of factors

that directly influences a firm and its
competitive actions and competitive
responses: the threat of new entrants, the
power of suppliers, the power of buyers,
the threat of product substitutes, and the
intensity of rivalry among competitors.
External Strategic Management
Audit
Identify & evaluate factors beyond the control of a
single firm
 Global Crises – current pandemic situation

 Toyota Corp. expected 80pc drop in it’s profits in 2020

and recently it announced 40% cut down in it’s global
production given the shortage of Semiconductors and
the rising Covid cases in Japan.
 Job losses, and resulting decreasing consumer
spending

 Increased foreign competition

 External Strategic Management
Audit
Purpose of an External Audit
 Develop a finite list of
 opportunities that could benefit a firm

 threats that should be avoided

The external audit is not aimed at developing an

exhaustive list of every possible factor that could
influence the business; rather aimed at identifying key
influencing factors that needs attention.
External Audit
 Gather competitive intelligence
 Assimilate and integrate information
 Evaluate

Resulting in a list of the most important key external factors

that will help in better understanding the external environment
and making strategies that aimed to minimize the threat of
external factors and maximize the chances of reaping the
external opportunities.

 The more information and knowledge a firm can obtain about

its competitors, the more likely it is that it can formulate and
implement effective strategies.
 Major competitors’ weaknesses external opportunities
 Major competitors’ strengths key threats.
Tesla overtook Toyota to be the most valuable
Automotive Company
 External Strategic Management Audit

Population shifts
o Migrations from
rural areas to
urban and
metropolitan areas
and resulting
availability of
labor,
consumerism as
well as increasing
pressure on cities.
Aging population

“The world’s population is ageing”

~ United Nations

One of the growing concern of 21st century is the population

ageing.
This would have implications for nearly every sectors;
o labor supply;
o financial markets;
o the demand for goods and services;
o healthcare and social protection etc.
Aging population

o Some countries such as Japan, China, and the U.S and

some European countries to some extend, are
experiencing rising numbers of aging population.

o China is not only the country with the largest population

on earth, it is also the country with the fastest aging
population as of steeply rising life expectancy and
declining birth rate (Statista, 2020)
Aging population – a welcoming sign of increasing life
expectancy, and the challenges associated with it
External Strategic Management
Audit (Cont…)
 Fear of traveling, travel
restrictions
 Stock market volatility
 Tariffs, trade embargos,
quotas
 China imposed almost 80% tariff
on barely imports from Australia
(on May 18, 2020). Australia is
the biggest barley supplier to
China, about $1.3b a year.
Performing External Audit

Long-term Orientation

Measurable
External
Factors Applicable to
Competing Firms

Hierarchical
Social, Cultural, Demographic, and
Natural Environmental Forces
 US Facts

 Aging population
 Less White
 Widening gap between rich & poor
 2025 = 18.5% population > 65 years
 2075 = no ethnic or racial majority
Social, Cultural, Demographic, and
Natural Environmental Forces
 Trends
 More American households with people living
alone
 Aging Americans – affects all organizations
 Pandemics and Epidemics, e.g.
 Covid-19 and it’s health, social, environmental, political
and economic impacts
 Remote work and Work-from-home (WFH) and it’s
implications for workplaces
Political, Governmental, and
Legal Forces
Government Regulation
Key opportunities & threats
 Antitrust legislation
 (to promote fair business practices and
competitive env.)
 Competition Commission of Pakistan (CCP)

https://www.cc.gov.pk/
The CCP is an independent quasi-regulatory, quasi-
judicial body that helps ensure healthy competition
between companies for the benefit of the economy.
Political, Governmental, and
Legal Forces
Government Regulation
Key opportunities & threats
 Tax rates
 Lobbying activities

 Patent laws
Political, Governmental, and
Legal Forces
 Protectionist policies
 Governments taking equity stakes in
companies
o Protectionism, is a policy of protecting domestic
industries against foreign competition by means of
tariffs, subsidies, import quotas, or other restrictions
placed on the imports of foreign goods and services.

o Contrary, economists believe that the world economy

generally benefits from free trade.
Political, Governmental, and Legal
Forces
Some Examples of Protectionism:
Tariffs – A tax on imports, and sometimes on export.
Quotas – limiting the quantity of imports
Trade Embargoes – ban on certain goods/services from a
region/country
Subsidies – If a government subsidizes domestic
production, this gives them an unfair advantage over
competitors.
Administrative barriers – Making it more difficult to trade,
such as Red-tape and bureaucratic delays in obtaining
licenses / certifications etc.
Technological Forces

Major Impact –
• e.g. Internet, dot.com boom and
downfall (2001~02)
•Internet-of-things (IoT)
• A.I. (Artificial Intelligence), e.g.
driverless cars
Internet of Things (IoT)

 The IoT is a system of

interrelated computing
devices, mechanical and
digital machines, objects,
animals or people that are
provided with unique
identifiers and the ability to
transfer data over a network
without requiring human-to-
human or human-to-computer
interaction.
Amazon’s AI powered Alexa

 Alexa is an AI powered virtual assistant developed

by Amazon. It is capable of voice interaction, music
playback, making to-do lists, setting alarms,
streaming podcasts, playing audiobooks, and
providing weather, traffic, sports, and other real-
time information, such as news.
The Digital Currency

 Bitcoin and Blockchain technologies

 Chinese digital yuan
The pitfalls of Automation and Technology
Competitive Forces

Collection & evaluation of data on

competitors is essential for successful
strategy formulation
Competitive Forces
Identify Rival Firms’

•Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies
Key Questions Concerning
Competitors
 Their strengths
 Their weaknesses
 Their objectives and strategies
 Their responses to external variables
 Their vulnerability to our alternative
strategies
 Our vulnerability to strategic counterattack
Key Questions Concerning
Competitors
 Our product/service positioning
 Entry and exit of firms in the industry
 Key factors for our current position in industry
 Sales/profit ranking of competitors over time
 Nature of supplier and distributor
relationships
 The threat of substitute products/services
Competitive Intelligence

 Competitive intelligence
(CI) is a systematic and
ethical process for
gathering and analyzing
information about the
competition’s activities and
general business trends to
further a business’s own
goals (Society of
Competitive Intelligence
Professionals, SCIP).
Some examples of Corporate Espionage

Unethical tactics such as bribery, wiretapping, and

hacking should never be used to obtain information.
 Unilever sued P&G over corporate espionage activities and
obtaining secret information about its hair-care. It alleged that
P&G spent $3 million to find important business information from
garbage bins outside it office in Chicago.
 Oracle Corp. hired detectives and paid to janitors to find
information in Microsoft Corp.’s garbage bins.
 Starwood Hotels sued Hilton Hotels Corp. of allegedly stealing
more than 100,000 confidential electronic docs containing
important business related information. It alleged that two
Starwood executives, Ross Klein and Amar Lalvani, resigned from
Starwood to join Hilton and shared that important information.
Sources of Competitive Intelligence

 Internet  Consultants
 Employees  Trade journals
 Ads
 Managers
 Newspaper articles
 Suppliers  Government filings
 Distributors  Competitors
 Customers  Annual Reports of
Company, audited
 Creditors reports
Objectives of Competitive Intelligence

 Provide a general understanding of industry

and competitors
 Identify areas where competitors are
vulnerable and assess impact of actions on
competitors
 Identify potential moves that a competitor
might make
Steps to Determine if an Acceptable
Profit Can Be Earned
1. Identify key aspects or elements of each
competitive force
2. Evaluate how strong and important each
element is for the firm
3. Decide whether the collective strength of
the elements is worth the firm entering or
staying in the industry
Sources of External Information:
Unpublished Sources
 Customer surveys
 Market research
 Speeches at professional or shareholder
meetings
 Television programs, business news
 Interviews and conversations with
stakeholders
Sources of External Information:
Published Sources
 Periodicals
 Journals
 Reports
 Government documents / Govt. statistics
 Abstracts
 Books
 Directories
 Newspapers
 Manuals
Other Sources of External Information:
Management Consultaning Firms
o PricewaterhouseCoopers (PwC)
o Deloitte
o Ernst & Young (EY)
o KPMG
o McKinsey & Company
o The Nielsen Company, formerly known as
ACNielsen
o Boston Consulting Group
o Bain & Company
Sources of External Information:
Web Sites
 http://marketwatch.multexinvestor.com
 http://moneycentral.msn.com
 http://finance.yahoo.com
 www.clearstation.com
 https://us.etrade.com/e/t/invest/markets
 www.hoovers.com
The End

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