External audit

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- Examines both quantitative and qualitative changes.
- It is a strategic management tool that aims at understanding features affecting a business but an industry
business that cannot be controlled.
- It focuses on factors that affect a business but the business has nothing much it can do regarding their effects.
Actionable Responses
- These are capable of being acted on (things that can respond offensively or defensively.)
Key external forces
- These are those influences, circumstances, or situations that a business cannot control that affect the business’
decisions that the business owner and stakeholders made.
- They can have direct impact on the ability of your business to achieve its strategic objectives.
5 Broad Categories (External Forces)
1. Economic forces
o Inflation and unemployment
o Touch interest rates, exchange rates, recession, taxes, demand and supply.
o Are external factors that influence buying habits of consumers and businesses and, therefore, affect the
performance of a company.
o Advantages of strong dollar
➢ Exports – sold/produced in one country that is sold into another country
➢ Import – bringing of goods and services in one country that was produced in another
➢ Goods expensive for foreign consumers
➢ Inflation – rise in the prices of most goods and services of daily or common use such as food,
clothing, housing, recreation, transport, consumer staples, and the like.
➢ Purchase raw materials cheaply from other countries
➢ Service its debt better
➢ Spurs foreign investment
➢ Encourages foreigner to travel abroad
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2. Social, Cultural, Demographic, Natural Environment forces
o Changes in taste, fashion, and the increase in spending power of one group like older people
o Can also affect attitudes, opinions, and interests
o Shape who we are as people
o Can impact the sales of products and revenues earned
o Family, friends, colleagues, neighbors, and the media
3. Political, Legal, and Governmental forces
o New legislations, corruption, foreign trade policy, labor laws, tax policy, environmental law, and trade
restrictions
4. Technological forces
o Being able to sell goods online or using automation in factories
o Existence of 3D technology, computer calculation speed, the ability of the computers to create random
number, energy efficiency, internet connectivity, wireless charging, automation, and security in
cryptography
5. Competitive forces
o Product features, the number of sellers, barriers to entry, information availability, and location
Competitive intelligence (C.I.)
- Result of a company’s effort to gather and analyze information about its industry, business environment,
competitors, and competitive products and services
Reverse engineering
 - Taking a part of an object to see how it works in order to duplicate or enhance the object
5 Forces Model developed by Michael E. Porter
- A method for analyzing competition of a business
- It determines the competitive intensity and the attractiveness of an industry in terms of its profitability.
o Rivalry among competing firm
➢ Cannot totally eradicate competition
o Potential entry of new competitors
o Potential development of substitute products
o Bargaining power of suppliers
o Bargaining power of consumers
Forecasting tools and techniques
- These are techniques that uses historical data as inputs to make informed estimates that are predictive in
determining the direction of future trends.
- Forecast = making prediction/forecast/assumption (educational guess work; have basis why did you arrive at
these figures); not 100% accuracy but at least there is a basis.
o Making assumption
➢ Assumption is something that is believed to be true or probably true but that is not known to
be true.
• No perfect forecast
Business analytics
- Process by which businesses use statistical methods and technologies for analyzing historical data in order to gain
new insights and improve strategic decision-making
- Kind of software purchased by companies in order for them to solve problems…
o Netflix, Splank, IBM, Rocket Fuel, Oracle