1. Group Members:
Ahmad Rif’at Bin Abdul Rahman
Mohamad Aizuddin Bin Abu Bakar
2011778845
Muhamad Zikrullah Bin Bahrunnizam
2011789027
Muhamad Shakir Bin Mohd Samsuri
2011503187
2011120835
Date of Presentation:
6th Oct 2013
1

2. 3.1 Nature of an External Audit
 Purpose: To develop a finite list of opportunities that could
benefit a firm & threats that should be avoided.
 Not aimed at developing an exhaustive list of every possible
factor that could be influence the business, rather;
 Aimed at identifying key variables that offer actionable
responses.
 Firms should be able to respond either offensively or
defensively to the factors…HOW??
 By formulating strategies that take advantage of external
opportunities or that minimize the impact of potential threats.

3. Cont....

4. Cont....

5. 3.2 The Process of Performing an
External Audit
Must involves as many managers & employees
WHY ???
o Lead to understanding & commitment from
organizational members
o Appreciate having the opportunity to contribute
ideas
o To gain a better understanding of their firm’s
industry, competitors, and markets

6. Cont.… Process of Performing
Gather competitive intelligence &
information about “E,S,C,P,E,L,T,G,D”
Assimilated and evaluated

7. Cont.…
 Firstly:o A company must gather competitive intelligence &
information about:








Economic
Social
Cultural
Political
Environmental
Legal
Technological
Governmental
Demographic
Key External Forces/ Factors

8. Cont.…
Secondly:o Once information is gathered, it should be assimilated
& evaluated
o The key external factors should be listed on flip
charts/ chalkboard & request all managers to rank the
factors identified: From 1 the most important opportunity/ threat
 To 20 for the least important opportunity/ threat
o Key external factors may vary over time & by industry

9. Cont.…
o The variables commonly used include:










Market share
Breadth of competitive products
World economies
Foreign affiliates
Proprietary & key account advantages
Price competitiveness
Technological advancement
Population shifts
Interest rates
Pollution abatement but…
The relationship with suppliers/ distributors are often a
critical success factor

10. Cont.…
o These key external factors should be:



Important to achieving long-term & annual objectives
Measurable
Applicable to all competing firms
Hierarchical in the sense that some will pertain to the overall
company & others will be more narrowly focused on
functional/ divisional areas
 Communicated & distributed widely in the organization

11. Key External Factors
The Industrial Organization (I/O) View
The Industrial Organization (I/O) approach
to competitive advantage advocates that
external (industry) factors are more
important than internal factors in a firm for
achieving competitive advantage.
3-11

12. Economic Forces
• Have a direct impact on the potential attractiveness of
various strategies.
• Also cause discretionary income decline and the demand for
discretionary goods falls.
• It is also when the market rises, consumer business wealth
will expands.
• Key Economic Variable To Be Monitored.:
 Interest Rate
 Inflation Rates
 Unemployment Trend
 Import /Export factors
 Fiscal Policy
 Monetary Policy
3-12

13. Social, Cultural, Demographic, and Natural
Environmental Forces
• Changes in social, culture, demography &
environmental tends are shaping the way
American live, work, produce and
consume.
• When new trends are creating a different
type of consumer and consequently, a
need for different product, services and
strategies.
3-13

14. Political, Governmental, and Legal
Forces
The increasing global interdependence
among economies, markets, governments,
and organizations makes it imperative that
firms consider the possible impact of political
variables on the formulation and
implementation of competitive strategies.
Represented a key of opportunities or threats
for both small & large organizations.
3-14

15. Technological Forces
 The Internet has changed the very nature of
opportunities and threats by:
–Transform the life cycles of products,
–increasing the speed of distribution,
–creating new products and services,
–erasing limitations of traditional geographic markets,
–changing the historical trade-off between production
standardization and flexibility.
 The Internet is altering economies of scale, changing
entry barriers, and redefining the relationship between
industries and various suppliers, creditors, customers,
and competitors
3-15

16. Competitive Forces
 An important part of an external audit is identifying rival firms
and determining their strengths, weaknesses, capabilities,
opportunities, threats, objectives, and strategies
 Characteristics of the most competitive companies:
1.Market share matters
2.Understand and remember precisely what business you are in
3.Whether it’s broke or not, fix it–make it better
4.Innovate or evaporate
5.Acquisition is essential to growth
6.People make a difference
7.There is no substitute for quality
3-16

17. Competitive Intelligence Programs
• Competitive intelligence (CI)
– 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
The three basic objectives of a CI program are:
1. to provide a general understanding of an industry and its
competitors
2. to identify areas in which competitors are vulnerable and to
assess the impact strategic actions would have on
competitors
3. to identify potential moves that a competitor might
make that would endanger a firm’s position in the
market
3-17

18. Sources of External Information
• Unpublished sources include customer
surveys, market research, speeches at
professional and shareholders’ meetings,
television programs, interviews, and
conversations with stakeholders.
• Published sources of strategic information
include periodicals, journals, reports,
government documents, abstracts, books,
directories, newspapers, and manuals.
3-18

19. Competitive Analysis:
Porter’s Five-Force Model
1
2
3
• RIVALRY AMONG COMPETING FIRMS
• POTENTIAL ENTRY OF NEW COMPETITORS
• POTENTIAL DEVELOPMENT OF SUBTITUTE
PRODUCT

20. 4
5
• BARGAINING POWER OF SUPPLIERS
• BARGAINING POWER OF
CUSTOMER

21. 1.
Rivalry Among Competing firms
• Strategies of one firm can be successful only when they
can provide competitive advantage over the strategies of
rival firms.
• Rivalry among the competing firms will increase when:
i.
ii.
iii.
iv.
the numbers of competitors increase
competitor become equal in size and capability
demand for the product declines
customer can switch brand easily
• rival firms become weakness, firm will benefits the
opportunity by increase marketing and production

22. 2.
Potential Entry of New Competitor
• new firms can easily enter a particular industry, will
increase the intensity of competitiveness among the
firms.
• barrier that facing by the new entry:
i.
ii.
iii.
iv.
•
need to gain technology and specialized know-how
lack of experience
strong customer loyalty or strong brand preference
large capital requirement
when new entry has a strong capability, existing firm
will block the new entry

23. 3.
Potential Development of
Substitute Product
• firm are compete with the producer of substitute
products in other industry.
• appearance of substitute products puts a ceiling on the
price that can be charged
• competitive pressure arising from substitute product
increase as the relative price of substitute products
declines and customers cost of switching decrease
• for example, producers of eyeglasses and contact lenses
are face increasing competitive pressures from laser eye
surgery.

24. 4.
Bargaining Power of Suppliers
• Occurs when large number of supplier, only few good
substitute raw materials and cost of switching raw
materials is high
• firms may use a backward integration strategy to gain
control of supplier
• In others industry, seller are use forging strategic
partnership with supplier

25. 5.
Bargaining Power of Customers
• occurs when customers are concentrated or large in
number or buy in volume
• Bargaining power of customer is higher when products
being purchased are standard
• others firm will offer extended warranties or special
services to gain customer loyalty.
• Customer can negotiate selling price, warranty coverage,
and accessory packages to a greater extent

26. • Its affect the competitive advantage in certain
circumstances:
i. If they can inexpensively switch to competing brands
ii. If they are particularly important to the seller
iii. If seller are struggling in the face of failing consumer
demand
iv. If they are informed about seller’s product, prices and
cost
v. If they have discretion in whether and when they
purchase the product

27. Forecasting Tools and Techniques
• Forecasts are educated assumption about the future
trends and events.
• need to allocate sufficient time and effort to study the
underlying bases for published forecasts and develop
internal forecasts of their own
• Accurate forecast will provide a major competitive
advantage for organizations

28. • Forecasting tools divided into two:
a) Quantitative techniques

appropriate when historical data are available and when
the relationships among key variables are expected to remain
the same in the future.
a) Qualitative techniques

forecasting is based on judgments, opinions, intuition,
emotions, or personal experiences and is subjective in nature.

29. Making Assumptions
• assumption is the best present estimates of the impact of
the major external factors
• give a significant impact on performance or the ability to
achieve desired results.
• Assumptions are needed only for future trends and
events that are most likely to have a significant effect on
the company’s business

30. What Is EFE Matrix
Strategies to summarize and evaluate:
Economic
Social
Cultural
Demographic
Environmental
Political
Governmental
Legal
Technological
Competitive information

31. Steps To Develop EFE Matrix
• Step 1 : (List Key External Factors as Identified in
The External Audit Process).
-list 15 to 20 factors including
opportunities and threats that affect the
firm
-can be in percentage, ratios or number

32. • Step 2 : Assign To Each Factor a Weight That
Ranges From 0.0 (Not Important) to 1.0 (Very
Important)
- the sum of all weights assigned to the factors
must equal 1.0
• Step 3 : Assign a Rating Between 1 and 4 To Each
Key External Factor
- Ratings are based on effectiveness of the
firm’s strategies
- 4 = superior, 3 = above average, 2 = average,
1 = poor

33. • Step 4 : Multiply Each Factor’s Weight By Its
Rating To Determine a Weighted Score
• Step 5 : Sum The Weighted Scores For Each
Variable To Determine The Total Weighted Score
For the Organization.
- highest possible total weighted score is 4.0,
lowest possible score is 1.0 and the average
total weighted is 2.5
- score of 4.0 indicates that an organization is
responding in an outstanding way to
existing
opportunities and threats in its industry

35. The Competitive Profile
Matrix (CPM)
• Function:
- to identifies a firm’s major competitor
and its particular strength & weakness in
relation to a sample firm’s strategies
position
• Critical success factors include internal & external issues.
• Ratings:
4 = major strength, 3 = minor strength,
2 = minor strength, 1 = major weakness
• The ratings and total weighted scores for rival firms can be
compared to the sample firm