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External Assessment & Internal Assessment

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External Assessment ….

Also called;• Environmental scanning• Industry analysis

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Identification & Evaluation of factors/events/trends beyond the control of a single firmIncreased foreign competitionChanges in lifestylesInformation technology/ computer

revolution

External Audit/ scanning

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Categories of External Forces

• Economic

• Social, and environmental

• Political, governmental, and legal

• Technological

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What does External Audit help?

It helps in getting competitive intelligence on factors;

• Social• Economic• Political and legal• Technological

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Sources of information include

• Magazines, journals..• Internet• Libraries ( university, public)• Suppliers• Distributors • Customers

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Economic forces

Monitor key economic variables;

• Availability of credit (Interest rates)• Level of disposable income

• Consumption pattern

• Inflation rate• Tax rates

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• Example when interest rates rises, funds needed for

capital expansion becomes more costly and unavailable.

Economic forces

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Social, Demographic & Environmental Forces (cont’d)

Key variables may be;• Environmental concerns(tsunami)

• Changing life styles

• Average level of education

• Buying habits (less book reading)

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Example. United States is much more different today

than it was yesterday, and tomorrow promises greater changes.

These factors shapes the way people live work, produce and consumes. Changes in these factors are creating different types of consumers, different products , different services and different strategies.

Social, Demographic & Environmental Forces (cont’d)

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Political, Government & Legal Forces (cont’d)

Government Regulation can pose Key opportunities and key threats• Tax rates (Tax law changes e.g. income

tax, sales tax,)• Environmental protection laws (like NEPA in afghanistan)

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Political, Government & Legal Forces (cont’d)

• Import export regulations(custom tax)• Location and severity of terrorist activities• Employment laws(hiring, firing laws)• Compensation laws(salary, bonus,

increments) etc.

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Political, Government & Legal Forces (cont’d)

Example. Russian tax policy is too complex and changes

so frequently that every organization keeps off the books to avoid paying taxes . It is impossible to run a successful business in Russia because of frequent changes in these factors.

Many companies have abandoned their strategies because of the political and governmental actions

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Technological forces

Technological forces represent major opportunities and threats that must be considered in formulating strategies.

Technological advancement can

dramatically affect organization’s products, services, marketing practices and competitive position of a firm.

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Example: In office supply industry, business

customers find that purchasing supplies over the internet to be more convenient than shopping in a store.

Technological forces

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Internal Audit

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Internal Audit/Scanning

•Information from:• Management

• Marketing

• Finance/accounting

• Production

• Research & Development

Parallel process with external audit

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Internal Audit All organizations have strengths and weaknesses in the functional areas of business. Functional areas of a business are customer services advertizing packaging

Strengths are usually capitalized to improve the weaknesses and turning them into strengths and may be into competitive competencies.

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Examples of strengths & weaknesses

Japanese have been able to invade the US auto markets successfully, because they have proved that the quality of their cars is better than american cars.

In this example strength of Japanese cars is their comparatively good quality.

The weakness of american cars is their comparatively low quality.

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Strategic management process is a highly interactive process that requires effective coordination among management , marketing, finance, production, R & D etc.

E.g. A declining result on investment could be the result of ineffective marketing, poor management policies, research and development errors.

Examples of strengths & weaknesses

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Management

Planning

Function

Strategy Formulation

Organizing Strategy Implementation

Motivating Strategy Implementation

Staffing

Controlling

Strategy Implementation

Strategy Evaluation

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MarketingMarketing Functions

1. Customer analysis

2. Selling products/services

3. Product & service planning

4. Pricing

5. Distribution

6. Marketing research

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Finance /Accounting

Financial condition is often considered the single best measure of a firm competitive position and overall attractiveness to the investor . Determining an organization’s financial strengths and weaknesses is essential to formulate strategy effectively

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Production

The production function of a business consist of all those activities that transforms inputs into goods and services.

Process Capacity Workforce Quality

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Production audit checklist

1= raw material is of good quality

2=Are facilities, equipment, machinery and offices is in good condition.

3=Are quality control policies are effective.

4=Does the firm have technological competencies.

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Research & Development

One of the major area of internal operations that should be examined for specific strengths and weaknesses is research and development.

R&D is mainly concerned with developing new products, improving product quality, improving manufacturing efficiency and broadening the company’s technological capabilities.

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R & D Audit Checklist

1=Do we have R & D facilities. 2=Are R & D facilities effective. 3=Are the organization R & D personnel

well qualified. 4=Are present products technologically

competitive.