CHAPTER+3 - CHAPTER 3 THE EXTERNAL ASSESSMENT AUDIT...

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CHAPTER 3 THE EXTERNAL ASSESSMENT
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THE NATURE OF AN EXTERNAL AUDIT The purpose of an external audit is to develop a finite list of opportunities that could benefit a firm and avoid threats. Figure 3-1 illustrates how the external audit fits into the strategic-management process.
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Key External Forces 1. External forces can be divided into five broad categories: (1) economic forces; (2) social, cultural, demographic, and environmental forces; (3) political, governmental, and legal forces; (4) technological forces; and (5) competitive forces. 2. Relations among these forces and an organization are depicted in Figure 3-2. External trends and events significantly affect all products, services, markets, and organizations in the world. 3. Changes in external forces translate into changes in consumer demand for both industrial and consumer products and services.
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The Process of Performing an External Audit The process of performing an external audit must involve as many managers and employees as possible. As emphasized in earlier chapters, involvement in the strategic-management process can lead to understanding and commitment from organizational members.
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The Process of Performing an External Audit To perform an external audit, a company first must gather competitive intelligence and information about social, cultural, demographic, environmental, economic, political, legal, governmental, and technological trends. a. Individuals can be asked to monitor various sources of information such as key magazines, trade journals, and newspapers. b. The Internet is another source for gathering strategic information, as are corporate, university, and public libraries. c. Suppliers, distributors, salespersons, customers, and competitors represent other sources of vital information.
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The Process of Performing an External Audit Once information is gathered, it should be assimilated, evaluated, and prioritized. Key external factors should be important to achieving long term and annual objectives, measurable, applicable to all competing firms, and hierarchical in the sense that some will pertain to the overall company while others will be more narrowly focused.
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THE INDUSTRIAL ORGANIZATION (I/O) VIEW External Factors versus Internal Factors External factors are more important than internal factors in a firm achieving competitive advantage. Organizational performance is primarily determined by industry forces. Managing strategically from the I/O perspective entails firms striving to compete in attractive industries, avoiding weak or faltering industries, and gaining a full understanding of key external factor relationships.
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THE INDUSTRIAL ORGANIZATION (I/O) VIEW Factors Affecting Firm Performance 1. Firm performance is primarily based on industry properties such as economies of scale, barriers to market entry, product differentiation, and level of competitiveness.
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CHAPTER+3 - CHAPTER 3 THE EXTERNAL ASSESSMENT AUDIT...

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