EXTERNAL AUDIT REPORT ASH SCRIPT

Goodmorning everyone, I am Precious Ashley Calimlim together with my co-reporter John Kinder Basilio and we will be
discussing the Chapter 7, External Audit. So what are your ideas about external audit?
In this chapter, we will learn about the (table of contents/ learning objectives

Let’s define what external audit is. An external audit focuses on identifying and evaluating the trends and events beyond the
control of a single firm or the factors that occur outside the organization but can significantly impact the firm’s operations,
performance, and strategic decisions. These events can be both positive and negative which can be viewed as an opportunity or
threat for the entity. Who can give an example of an external factor? Those events such as inflation,shifts in demographics,
consumer preferences, advancements in technology, increased foreign competition, and many more.

THE PURPOSE AND NATURE OF AN EXTERNAL AUDIT

The purpose of external audit is to develop a finite list of opportunities that could benefit a firm as well as threats that should be
avoided. We identify the key variables that offer only those actionable responses. They should be able to respond either
offensively or defensively to this external factors by formulating strategies that take advantage of external opportunities or that
minimizes the impact of potential threats.

DIAGRAM
As we can see in this diagram that before making the organization’s vision and mission, strategy generation, implementation,
execution and monitoring, a company must consider first the internal (which is discussed by the last group) and external audits.
This also means that this external factors impacts the organization as a whole (from its competitors, suppliers,….)
It affect the types of products developed and services offered, the nature of positioning and market segmentation strategies,
and the choice of businesses to acquire or sell. Identifying and evaluating external opportunities and threats enables
organizations to develop a clear mission, to design strategies to achieve long-term objectives, and to develop policies to achieve
annual objectives.

Important Note: When identifying and prioritizing key external factors in strategic planning, make sure the factors selected are
(1) specific which means it can be quantified to the extent possible and by quantifying various aspects, you can provide a
detailed and data-driven analysis
(2) Action able- it must be meaningful in terms of having strategic implications
(3) It must be stated as external trends, events, or facts rather than as strategies the firm could pursue.

THE STEPS/PROCESS OF PERFORMING AN EXTERNAL AUDIT in which many managers and employees must also be involved in
order to lead the understanding and commitment from organizational members.

1. Gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political,
governmental, legal, and technological trends. - The firm must have awareness of this trends or events in order to address those
changes. Individuals can also be asked to monitor various sources of information and submit periodic scanning reports to the
person(s) who coordinate the external audit. Through this approach, it provides a continuous stream of timely strategic
information and involves many individuals in the external-audit process.

2. To assimilated and evaluate those pieces of information - it involves series of meetings of managers to collectively identify
the most important opportunities and threats facing the firm. To assess and analyze how it would affect the entire organization

3. Have a prioritized list of factors that should be communicated - It can be obtained by requesting that all managers individually
rank the factors identified, from 1 (for the most important opportunity/ threat) to 20 (for the least important
opportunity/threat) or simply place a checkmark by their most important “top 10 factors.” Prioritization is absolutely essential in
strategic planning because no organization can do everything that would benefit the firm and tough choices among good choices
have to be made.

THE INDUSTRIAL ORGANIZATION I/0 VIEW

Industrial organization is a field in economics and for its perspective of strategic planning, it advocates that external (industry)
factors are more important than internal factors for gaining and sustaining competitive advantage. This is because industry
environment such as economies of scale, barriers to market entry, product differentiation, and level of competitiveness has a
dominant influence on strategies and it most likely to determine the firms’ strategic conduct, and actions to deploy which then
results in competitive advantage.
For industrial organization,internal environment is only a minor factor in determining the firms strategies. It is because resources
and capabilities of a firm do not have a big impact on the firms’ strategic direction compared to external factors.
The internal environment is only a minor factor in determining strategies. Resources and capabilities do not have a big impact on
the firms’ strategic direction compared to external factors.
However, an effective integration and understanding of both external and internal factors is a key to securing and keeping a
firm’s competitive advantage.
5 KEY EXTERNAL FORCES which includes
(1) economic forces - This economic factors has a direct impact on the potential attractiveness of various strategies of the
business organization, it occurs when there are changes in interest rates, inflation, exchange rates, economic growth,
import/export factors, recessions, high underemployment, and many more in which a firm must acknowledge and monitor for
them to adopt and adjust to this changes.

(2) social, cultural, demographic, and natural environment forces - this includes events such as changes in consumer
preferences, social values, lifestyle changes, environmental awareness, and influence of cultural norms , brand reputation,
marketing strategies, product development, and corporate social responsibility initiatives. It has an impact on the strategic
decisions about what products or services to offer, who are your markets and customers. It shape the way people live, work,
produce, and consume. New trends creates different type of consumer and, consequently, a need for different products, new
services, and updated strategies.

(3) political, governmental, and legal forces - occurs when there are changes in regulations, compliance requirements,
government policies, tariffs, and industry standards. Federal, state, local, and foreign governments are major regulators,
deregulators, subsidizers, employers, and customers of the organizations. Thus,they can represent major opportunities or
threats for both small and large organizations in which firms must consider its possible impact on the formulation and
implementation of competitive strategies and comply with such laws and regulations and ensure to have ethical business
practices.

(4) technological forces - refers to the rapid advancements in technology, such as artificial intelligence, automation, and
digitalization that a business must consider in order to remain competitive, improve efficiency, enhance customer experiences,
and have better strategic planning decisions.
In connection with there forces some organizations are now establishing two new positions in their firms which is the
Chief information officer (CIO) and Chief technology officer (CTO) -they are responsible for developing, maintaining, and
updating a company’s information database and work together to ensure that information needed to formulate, implement, and
evaluate strategies is available where and when it is needed.
CIO is more a manager, managing the firm’s relationship with stakeholders; CTO is more a technician, focusing on technical
issues such as data acquisition, data processing, decision-support systems, and software and hardware acquisition.

Technological advancements:
They represent major opportunities and threats that must be considered in formulating strategies.
They can dramatically affect organizations’ products, services, markets, suppliers, distributors, competitors, customers,
manufacturing processes, marketing practices, and competitive position.
They can create new markets, result in a proliferation of new and improved products, change the relative competitive cost
positions in an industry, and render existing products and services obsolete.
They can reduce or eliminate cost barriers between businesses, create shorter production runs, create shortages in technical
skills, and result in changing values and expectations of employees, managers, and customers.
They can create new competitive advantages that are more powerful than existing advantages.

(5) competitive forces - occurs when there is an Intense market competition from existing competitors, new entrants, substitute
products or service exist in the market, and this can challenge organizations to differentiate themselves, innovate, improve
product quality, enhance customer value propositions, and maintain market share. Identifying rival firms and determining their
strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies is essential for successful strategy
formulation.

Seven characteristics describe the most competitive companies:

Strive to continually increase market share.
Use the vision/mission as a guide for all decisions.
Realize that the adage “If it’s not broke, don’t fix it” has been replaced by “Whether it’s broke or not, fix it;” in other words,
continually strive to improve everything about the firm.
Continually adapt, innovate, improve—especially when the firm is successful.
Strive to grow through acquisition whenever possible.
Hire and retain the best employees and managers possible.
Strive to stay cost-competitive on a global basis.

Competitive intelligence (CI) - is 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 more information and knowledge a
firm can obtain about its competitors, the more likely the firm can formulate and implement effective strategies. Major
competitors’ weaknesses can represent external opportunities; major competitors’ strengths may represent key threats. This
includes reverse engineer rival firms’ products, use of surveys and interviews of customers, suppliers, and distributors, and
searching online database.

Three basic objectives of a CI program are:

to provide a general understanding of an industry and its competitors
to identify areas in which competitors are vulnerable and to assess the impact strategic actions would have on competitors
to identify potential moves that a competitor might make that would endanger a firm’s position in the market.