Transcript Chapter 3 The External Assessment

External Assessment
&
Internal Assessment
Ch 3 -1
External Assessment ….
Also called;
• Environmental scanning
• Industry analysis
Ch 3 -2
External Audit/ scanning
Identification & Evaluation of
factors/events/trends beyond the
control of a single firm
Increased foreign competition
Changes in lifestyles
Information technology/ computer
revolution
Ch 3 -3
Categories of External Forces
• Economic
• Social, and environmental
• Political, governmental, and legal
• Technological
Ch 3 -4
What does External Audit help?
It helps in getting competitive intelligence on
factors;
• Social
• Economic
• Political and legal
• Technological
Ch 3 -5
Sources of information include
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Magazines, journals..
Internet
Libraries ( university, public)
Suppliers
Distributors
Customers
Ch 3 -6
Economic forces
Monitor key economic variables;
• Availability of credit (Interest rates)
• Level of disposable income
• Consumption pattern
• Inflation rate
• Tax rates
Ch 3 -7
Economic forces
• Example
when interest rates rises, funds needed for
capital expansion becomes more costly
and unavailable.
Ch 3 -8
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)
Ch 3 -9
Social, Demographic & Environmental
Forces (cont’d)
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.
Ch 3 -10
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)
Ch 3 -11
Political, Government & Legal Forces
(cont’d)
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Import export regulations(custom tax)
Location and severity of terrorist activities
Employment laws(hiring, firing laws)
Compensation laws(salary, bonus,
increments) etc.
Ch 3 -12
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
Ch 3 -13
governmental actions
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.
Ch 3 -14
Technological forces
Example:
In office supply industry, business
customers find that purchasing supplies
over the internet to be more convenient
than shopping in a store.
Ch 3 -15
Internal Audit
Ch 3 -16
Internal Audit/Scanning
Parallel process with external audit
•Information from:
• Management
• Marketing
• Finance/accounting
• Production
• Research & Development
Ch 3 -17
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.
Ch 3 -18
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.
Ch 3 -19
Examples of strengths & weaknesses
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.
Ch 3 -20
Management
Function
Planning
Strategy Formulation
Organizing
Strategy Implementation
Motivating
Strategy Implementation
Staffing
Strategy Implementation
Controlling
Strategy Evaluation
Ch 3 -21
Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
Ch 3 -22
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
Ch 3 -23
Production
The production function of a business
consist of all those activities that
transforms inputs into goods and services.
 Process
 Capacity
 Workforce
 Quality
Ch 3 -24
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
Ch 3 -25
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.
Ch 3 -26
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.
Ch 3 -27