EXTERNAL

FACTORS
Trends and events beyond the control of a single firm

This chapter examines the concepts needed to conduct an

external strategic management audit
 ENVIRONMENTAL
SCANNING OR
INDUSTRY ANALYSIS
An external audit focuses on identifying and evaluating trends and
events beyond the control of a single firm, such as:
an aging society,
consumer fear of traveling, and
stock market volatility.

An external audit reveals key opportunities and threats confronting an

organization so that managers can formulate strategies to take
advantage of the opportunities and avoid or reduce the impact of
threats. Find the reasons
why Starbucks
was a failure in
Process: Gathering, assimilating, and analyzing external information. Australia
EXTERNAL FORCES EFFECTS
External trends and events, such as the global economic
recession, significantly affect products, services, markets,
and organizations worldwide.
Changes in external forces translate into changes in
consumer demand for both industrial and consumer Affects: Means influence in
positive or negative way,
products and services. like increasing income,
reducing cost or improving
External forces affect the types of products developed, the profit levels.
nature of positioning and market segmentation strategies,
the type of services offered, and the choice of businesses to
acquire or sell.
External forces directly affect both suppliers and
distributors.
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 threats that should be
avoided.

The External Factors List

As the term finite suggests, the external audit is not aimed at must be between 10 and 20
developing an exhaustive list of every possible factor that could factors regarding the
complexity of the strategic
influence the business; rather, it is aimed at identifying key variables sector.
that offer actionable responses.

Firms should be able to respond either offensively or defensively to

the factors by formulating strategies that take advantage of external
opportunities or that minimize the impact of potential threats.
KEY EXTERNAL
FORCES can be divided into
five broad categories:

Political, governmental, and

POLITICAL legal forces;

ECONOMIC 1 External Factors can be a mix

of each category for example
socio-economic situations. The
Social, cultural, categories help us to think are
SOCIAL demographic, and natural not a Straitjacket
environment forces
TECHNOLOGICAL

COMPETITIVE Competitive forces

 P
Fiscal policy
Government activity
Conflicts / help Politics
Taxes
MARKET INFLUENCES

GDP
ANALYSIS OF THE

E
Employment rate
Exchange rate Economy Try to find a
Inflation company or
Income Level sector that is
Demographic variables NOT influence

S
Cultural factor by the
Religion Society customer´s
Lifestyle lifestyle.
Education Level

Technological access

T Infrastructure
Research
Technology
PESTEL

Technology trends
Environmental policies The Factors must be

E
Recycling specific for the
Consumption trends Environment strategic group in
Production processes order to be useful for
Natural Risks the strategic planning
Wages

L
Rights
Job security Law
Regulations
Controlled of Advertisement
 EXTERNAL FORCES
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.
The increasing complexity of business today is evidenced by more
countries developing the capacity and will to compete aggressively in
world markets.
Foreign businesses and countries are willing to learn, adapt, innovate,
and invent to compete successfully in the marketplace.

Try to find a company or sector

To create a strategy related that is NOT influence by the
with a new market is needed to increase of use of bycicles in
know the specific forces that Bogota at 30% in the last 5 years.
And 1 sector that is... (Can you see
participate in that market the importance of the specific
factor?)
KEY EXTERNAL
FACTORS SHOULD BE
important to achieving long-term and
01 annual objectives,

02 measurable and quoted,

applicable to all competing firms in the strategic

03 sector,
hierarchical in the sense that some will pertain to the
04 overall company and others will be more narrowly
focused on functional or divisional areas.

A final list of the most important key external factors

should be communicated and distributed widely in
the organization. Both opportunities and threats can
be key external factors.
 Must involve as many managers
and employees as possible
Involvement in the strategic-management process can lead to understanding and
commitment from organizational members.
Individuals appreciate having the opportunity to contribute ideas and to gain a better
understanding of their firms’ industry, competitors, and markets.

Must gather competitive intelligence and information

about economic, social, cultural, demographic,
environmental, political, governmental, legal, and
technological trends
. Individuals can be asked to monitor various sources of information, such as key
magazines, trade journals, and newspapers.
These persons can submit periodic scanning reports to a committee of managers
charged with performing the external audit.
The Internet provides another source for gathering strategic information, as do
corporate, university, and public libraries. (Avoid free press and informal sources).
Suppliers, distributors, salespersons, customers, and competitors represent other
sources of vital information. (You can perform surveys or interviews).
This approach provides a continuous stream of timely strategic information and
involves many individuals in the external-audit process.
 Once information is gathered, it should be
assimilated and evaluated.
A meeting or series of meetings of managers is needed to collectively identify
the most important opportunities and threats facing the firm.
These key external factors should be listed on flip charts or a chalkboard.
A prioritized list of these factors could be obtained by requesting that all
managers rank the factors identified, from 1 for the most important
opportunity/threat to 20 for the least important opportunity/threat.
These key external factors can vary over time and by industry.

Relationships with suppliers or distributors are often a

critical success factor.
Because it can increase or reduce cost
Or can increase or reduce incomes The critical factor is related
The question is: What supplier is “strategical”? with the most important things
in the cost structure. You can
Therefore, What supplier relation is “strategical”, in use the Pareto Law to do so
other words CRITICAL?
POLITICAL,
GOVERNMENTAL,
AND LEGAL
FORCES
POLITICAL, GOVERNMENTAL, AND LEGAL FORCES
Local, state, and federal laws; regulatory agencies; and special-interest groups can have
a major impact on the strategies of small, large, for-profit, and nonprofit organizations.
Many companies have altered or abandoned strategies in the past because of political or
governmental actions

Government regulations or Level of defense African-American relationships

deregulations expenditures Import–export regulations
Changes in tax laws Legislation on equal Government fiscal and monetary
Special tariffs employment policy changes
Political action committees Level of government Political conditions in foreign
Voter participation rates subsidies countries
Number, severity, and Antitrust legislation Special local, state, and federal laws
location of government Sino-American relationships Lobbying activities
protests Russian-American Size of government budgets
Number of patents relationships World oil, currency, and labor markets
Changes in patent laws European-American Location and severity of terrorist
Environmental protection relationships activities
laws Local, state, and national elections
IMPORTANCE
POLITICAL, GOVERNMENTAL, AND
LEGAL FORCES
Federal, state, local, and foreign governments are major
regulators, deregulators, subsidizers, employers, and
customers of organizations.
Political, governmental, and legal factors, therefore, can
represent key opportunities or threats for both small
and large organizations.
For industries and firms that depend heavily on government
contracts or subsidies, political forecasts can be the most
important part of an external audit.
Changes in patent laws, antitrust legislation, tax rates,
and lobbying activities can affect firms significantly.
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
 EXAMPLE
FACTORS
CONSTRUCTION DEREGULATION: Recent deregulation of the construction sector in 2023
in Colombia aimed to simplify business processes and reduce bureaucratic hurdles (La
República, 2023)- The deregulation led to increased investment in real estate development,
benefiting Colombian construction companies.
INCREASE IN CORPORATE TAXES: Colombian government introduced tax reforms in 2024
aimed at increasing corporate tax rates from 30% to 32% (El Tiempo, 2024).
SPECIAL STEEL IMPORT TAX: Colombia imposed special tariffs on imported steel to protect
local industries in 2024 (Portafolio, 2024).
INCREASE VOTER PARTICIPATION: voter participation in Colombian national elections
Try to find a company or sector that
is influence IN A POSITIVE WAY with reached 70% in 2024 (El Espectador, 2024).
the factor “the conflict in the Red Sea INCREASE IN PATENT APPLICATIONS: The Colombian National Institute of Industrial
has escalated, involving key regional
players and affecting shipping lanes Property (SIC) reported a 10% increase in patent applications in 2024 (SIC, 2024).
crucial for global trade URBAN INFRASTRUCTURE PROMOTION: New local regulations in Medellín aimed at
(BBC News, 2024)”.
improving urban infrastructure (Semana, 2024).
INCREASE IN DEFENSE BUDGET: Colombia's defense budget increased by 8% in 2024 (El
POLITICAL, Espectador, 2024).
GOVERNMENTAL ANTIMONOPOLISTICS LAW: new antitrust regulations introduced in Colombia in 2024
aimed at curbing monopolistic practices (El Tiempo, 2024).
AND LEGAL FORCES
FORCES
ECONOMIC FORCES
Have a direct impact on the potential attractiveness of various strategies.
Key Economic Variables to Be Monitored

Shift to a service economy in the United States Foreign countries’ economic conditions
Availability of credit Import/export factors
Level of disposable income Demand shifts for different categories of goods and
The propensity of people to spend Interest rates services
Income differences by region and consumer groups
Inflation rates
Price fluctuations
Money market rates
Export of labor and capital from the United States
Federal government budget deficits
Monetary policies
Gross domestic product trend Fiscal policies
Consumption patterns Tax rates
Unemployment trends European Economic Community (EEC) policies
Worker productivity levels Organization of Petroleum Exporting Countries (OPEC)
Value of the dollar in world markets policies
Stock market trends Coalitions of Lesser Developed Countries (LDC) policies
GDP
 EXAMPLE
FACTORS
Law 2327 of 2024 introduces key reforms in Colombia's customs administration, including
the digitization of processes and updates to tariff structures. These reforms are designed to
facilitate international trade and enhance efficiency in customs management.
The share of services in the U.S. GDP increased to 80% in 2023, reflecting a significant
structural change in the U.S. economy (IMF, 2023)
High interest rates in Colombia have reduced business credit growth to 4% annually (Banco
de la República, 2024).
The savings rate in the Eurozone has decreased, indicating a higher propensity to spend
(The Economist, 2024).
Find a Colombian company or
sector affected in a NEGATIVE WAY The Federal Reserve of the U.S. increased its interest rates to 5% in 2024 (Federal Reserve,
with the Law 2327 of 2024 2024).
Inflation in Europe reached 6% in 2024 (Portafolio, 2024).
Money market rates in the U.S. averaged 4.5% in 2024 (Bloomberg, 2024).
There is a budget deficit of $1.5 trillion in 2024 in US. (CBO, 2024).
The World Bank projects global GDP growth of 3.5% in 2024 (World Bank, 2024).
Unemployment rate of 7% in the Eurozone in 2024 (OECD, 2024).
ECONOMIC Increase of 2.5% in labor productivity in the U.S. in 2024 (WEF, 2024).
FORCES The value of the dollar appreciated by 5% against other currencies in 2024, making
Colombian flower exports less competitive in the U.S. (Reuters, 2024).
Trends in the dollar’s value have significant and unequal effects on
companies in different industries and in different locations.

OPPORTUNITY
1 EXTERNAL FACTOR
For example, the pharmaceutical, tourism, entertainment, motor can be an
OPPORTUNITY for
vehicle, aerospace, and forest products industries benefit greatly some and a THREAT
When the value of the dollar falls, tourism-oriented firms benefit for some others.
because Americans do not travel abroad

THREAT
Agricultural and petroleum industries are hurt by the dollar’s rise
against the currencies of Mexico, Brazil, Venezuela, and Australia.
Generally, a strong or high dollar makes U.S. goods more expensive in
overseas markets. This worsens the U.S. trade deficit.
SOCIAL,
CULTURAL,
DEMOGRAPHIC,
AND NATURAL
ENVIRONMENT
FORCES
SOCIAL, CULTURAL, DEMOGRAPHIC, AND
NATURAL ENVIRONMENT FORCES
Have a major impact on virtually all products, services, markets, and customers.
Small, large, for-profit, and nonprofit organizations in all industries are being staggered
and challenged by it.

Inner-city environments Racial equality

Average disposable income Social responsibility Use of birth control
Trust in government Population changes by race, Value placed on leisure time
Attitudes toward work age, sex, and level of Attitudes toward

CULTURAL
Buying habits
SOCIAL affluence authority
Ethical concerns Location of retailing, investing
Attitudes toward saving manufacturing, and service retirement
Sex roles businesses leisure time
Regional changes in tastes Attitudes toward business product quality
and preferences Lifestyles customer service
Average level of education Traffic congestion foreign peoples
Government regulation careers
Social programs
SOCIAL, CULTURAL, DEMOGRAPHIC, AND
NATURAL ENVIRONMENT FORCES
Social, cultural, demographic, and environmental trends are shaping the way people live, work, produce, and
consume.
New trends are creating a different type of consumer and, consequently, a need for different products, different
services, and different strategies.

ENVIRONMENT
DEMOGRAPHIC
Childbearing rates
Number of special-interest Population changes by city,
groups county, state, region, and
Number of marriages country
Pollution control
Number of divorces Population changes by race,
Energy conservation
Number of births age, sex, and level of
Recycling
Number of deaths affluence
Waste management
Immigration and emigration Number of church
Air pollution
rates Number of women and
Water pollution
Social Security programs minority workers
Ozone depletion
Life expectancy rates Number of high school and
Endangered species
Per capita income college graduates by
Number of church members geographic area
THE TREND TOWARD AN OLDER AMERICA: BY 2050, THE
CENSUS BUREAU PROJECTS THAT THE NUMBER OF
AMERICANS AGE 100 AND OLDER WILL INCREASE TO OVER
834,000 FROM JUST UNDER 100,000 CENTENARIANS IN 2025.

OPPORTUNITY
is good news for restaurants, hotels, airlines, cruise lines, tours, resorts,
theme parks, luxury products and services, recreational vehicles, home
builders, furniture producers, computer manufacturers, travel services,
pharmaceutical firms, automakers, and funeral homes.
are especially interested in health care, financial services, travel, crime
prevention, and leisure.
THREAT
It reduce the use of tipers, kids schools, school materials, pediatry, etc.
 EXAMPLE
FACTORS
Women’s participation in the Colombian workforce has increased to 49% in 2024 (Semana,
2024). Increasing female participation requires businesses to adopt more inclusive and
gender-balanced policies. Companies like Cervecería Águila are implementing gender
diversity initiatives to enhance workforce inclusion. It lead to the marketing suppliers to
follow gender policy.
Urban areas in Bogotá and Medellín are experiencing rapid development and gentrification,
leading to changes in local business environments (El Tiempo, 2024). According to the World
Bank, urban areas in Colombia experienced a 2.5% annual increase in population from 2020
to 2024.
Considering that cervecería
Aguila influence multiple sectors Shift towards online shopping, with e-commerce growing by 15% in 2023 (La República,
in Colombian Economy, find a 2024). The rise in e-commerce affects traditional retail stores, prompting businesses to
sector that is affected in a
NEGATIVE way with this new enhance their digital presence. Retailers are investing heavily in online platforms to capture
gender policy. the growing number of digital shoppers.
Logistics companies are investing in
advanced route planning technologies to
You can mix citations but no mitigate the impact of traffic congestion. that
SOCIAL multiple factors & you can
quote companies without
in major cities has worsened, with average
FORCES define the factor just for 1
commute times increasing by 10%
(El Tiempo, 2024).
company.
TECHNOLOGICAL
FORCES
TECHNOLOGICAL FORCES

Technological advancements can dramatically affect organizations’ products, services,

markets, suppliers, distributors, competitors, customers, manufacturing processes,
marketing practices, and competitive position.

3D Printing
Automation and Robotics Biotechnology This are examples of
Artificial Intelligence (AI) subcategories of forces. To
Renewable Energy identify the factor it must be a
Cloud Computing Technologies specific activity that influence
Big Data Analytics the strategic sector.
Wearable Technology
Internet of Things (IoT) Smart Devices
5G Technology Advanced Manufacturing
Blockchain Technologies
Augmented Reality (AR) Digital Payment Systems Technology factors can be
Virtual Reality (VR) traditional process like the
Voice Recognition SOMBRERO VUELTIAO
Quantum Computing Technology technique, it is a cultural
Cybersecurity Innovations Drones science in action.
TECHNOLOGICAL
FORCES EXAMPLE
FACTORS
Not all sectors of the economy are affected equally by technological developments.
An article in the Wall Street Journal detailed how wireless technology will change 10
particular industries.
1. Airlines—Many airlines now offer wireless technology in flight.
2. Automotive—Vehicles are becoming wireless.
3. Banking—Visa sends text message alerts after unusual transactions.
4. Education—Many secondary (and even college) students may use smart phones for math
because research shows this to be greatly helpful.
5. Energy—Smart meters now provide power on demand in your home or business.
6. Health Care—Patients use mobile devices to monitor their own health, such as calories
Considering the impact of consumed.
students use of Open IA in 10
different sector process. 7. Hotels—Days Inn sends daily specials and coupons to hotel guests via text messages.
8. Market Research—Cell phone respondents provide more honest answers, perhaps because
they are away from eavesdropping ears.
i. 9. Politics—President Obama won the election partly by mobilizing
Facebook and MySpace users, revolutionizing political campaigns. Obama
1 technolgy change can announced his vice presidential selection of Joe Biden by a text message.
inffluence different industries ii. 10. Publishing—eBooks are increasingly available.
in different operations. Source: Based on Joe Mullich, “10 Industries That Wireless Will Change,”
Remember to be specific
Wall Street Journal (April 1, 2009): A12.
 Technological forces represent major opportunities and threats
that must be considered in formulating strategies.

EFFECTS
Technological advancements 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.

TECHNOLOGICAL FORCES Technological changes 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.

Technological advancements can create new competitive advantages that are

more powerful than existing advantages. No company or industry today is insulated
against emerging technological developments. In high-tech industries, identification
and evaluation of key technological opportunities and threats can be the most
important part of the external strategic-management audit.

Be specific in the technology

forces, say “use of IA” is not
enough to create a unique strategy
or create competitive advantage.
What is the trend in technology
use?
 Organizations that traditionally have limited technology expenditures to

EFFECTS
what they can fund after meeting marketing and financial requirements
urgently need a reversal in thinking.
The pace of technological change is increasing and literally wiping out
businesses every day.
TECHNOLOGICAL FORCES An emerging consensus holds that technology management is one of the
key responsibilities of strategists.
Firms should pursue strategies that take advantage of technological
opportunities to achieve sustainable, competitive advantages in the
marketplace.
In practice, critical decisions about technology too often are
delegated to lower organizational levels or are made without an
understanding of their strategic implications. Many strategists spend
countless hours determining market share, positioning products in
terms of features and price, forecasting sales and market size, and
monitoring distributors; yet too often, technology does not receive
the same respect.
COMPETITIVE
FORCES
 Before we continue with this forces, be
carefu!l,
say that:

INCREASED
COMPETITION
is a factor is to be mediocre like to blame the
other for what I cannot do.

The real factor is what is increasing the power

of competition or the strength of competition
or the number of competitors.

Or do you know a company with no

competition?
 SUPPLY VALUE
CHAIN

Competition in virtually all industries can be described as intense—and sometimes

as cutthroat. Its supply value chains often are similar, for example:
Pharmacies are located generally across the street from a hospital next to
each other and battle each other every day on price and customer service.
Most automobile dealerships also are located close to each other.
The fashion stores usually are in the same malls
COMPETITIVE ANALYSIS:
PORTER’S FIVE-FORCES MODEL
 COMPETITIVE FORCES
COMPETITIVE ANALYSIS - PORTER´S 5 FORCES MODEL: Is a widely used approach for
developing strategies in many industries.
The intensity of competition among firms varies widely across industries. The collective
impact of competitive forces is so brutal in some industries that the market is clearly
“unattractive” from a profit-making standpoint. Rivalry among existing firms is severe, new
rivals can enter the industry with relative ease, and both suppliers and customers can
exercise considerable bargaining leverage.
The following three steps for using Porter’s
Five-Forces Model can indicate whether 3D Printing
competition in a given industry is such that the
Biotechnology
firm can make an acceptable profit:
1. Identify key aspects or elements of each Renewable Energy
competitive force that impact the firm. Technologies
2. Evaluate how strong and important each element Wearable Technology
is for the firm. Smart Devices
3. Decide whether the collective strength of the
elements is worth the firm entering or staying in
the industry
COMPETITIVE FORCES
Rivalry among competing firms is usually the most powerful of
the five competitive forces.
The strategies pursued by one firm can be
Conditions That Cause High successful only to the extent that they provide
competitive advantage over the strategies
Rivalry Among Competing Firms pursued by rival firms.
1. High number of competing firms Changes in strategy by one firm may be met
2. Similar size of firms competing with retaliatory countermoves, such as
3. Similar capability of firms competing lowering prices, enhancing quality, adding
features, providing services, extending
4. Falling demand for the industry’s products warranties, and increasing advertising.
5. Falling product/service prices in the industry
Also, the intensity of rivalry among competing
6. When consumers can switch brands easily
firms tends to increase as:
7. When barriers to leaving the market are high When the products being sold are commodities (not easily
8. When barriers to entering the market are low differentiated such as gasoline);
9. When fixed costs are high among firms competing When rival firms are diverse in strategies, origins, and culture.
10. When the product is perishable As rivalry among competing firms intensifies,
11. When rivals have excess capacity industry profits decline,
12. When consumer demand is falling in some cases to the point where an industry becomes inherently
unattractive.
13. When rivals have excess inventory
When rival firms sense weakness, typically they will intensify both
14. When rivals sell similar products/services marketing and production efforts to capitalize on the
15. When mergers are common in the industry “opportunity.
COMPETITIVE FORCES
Whenever new firms can easily Despite numerous barriers to entry, new firms sometimes enter
enter a particular industry, the industries with higher-quality products, lower prices, and substantial
intensity of competitiveness marketing resources. The strategist’s job, therefore, is to identify
among firms increases. potential new firms entering the market, to monitor the new rival
Barriers to entry, can include: firms’ strategies, to counterattack as needed, and to capitalize on
a. the need to gain economies of existing strengths and opportunities.
scale quickly,
b. the need to gain technology and When the threat of new firms entering the market is strong,
specialized know-how, incumbent firms generally fortify their positions and take actions to
c. the lack of experience, deter new entrants, such as lowering prices, extending warranties,
d. strong customer loyalty, adding features, or offering financing specials.
e. strong brand preferences,
f. large capital requirements,
g. lack of adequate
h. distribution channels, CAUTION:
i. government regulatory policies, The most common answer
strategy is price reduction by
j. tariffs, promotions (MARKET
k. lack of access to raw materials, PENETRATION) but it decrease
l. possession of patents, our company profit, eventually
the perdurability in the market!
m. undesirable locations,
n. counterattack by entrenched
firms, and
o. potential saturation of the
market.
COMPETITIVE FORCES
In many industries, firms are in close competition The magnitude of competitive pressure derived
with producers of substitute products in other from development of substitute products is
industries. Examples are: generally evidenced by rivals’ plans for
Plastic container producers competing with glass, expanding production capacity, as well as by
paperboard, and aluminum can producers, and their sales and profit growth numbers.
Acetaminophen manufacturers competing with other Competitive pressures arising from substitute
manufacturers of pain and headache remedies. products increase as the relative price of
The presence of substitute products puts a ceiling on substitute products declines and as consumers’
the price that can be charged before consumers will switching costs decrease.
switch to the substitute product. The competitive strength of substitute products
Price ceilings equate to profit ceilings and more is best measured by the inroads into the market
intense competition among rivals. share those products obtain, as well as those
Producers of eyeglasses and contact lenses, for firms’ plans for increased capacity and market
example, face increasing competitive pressures from penetration.
laser eye surgery.
Producers of sugar face similar pressures from
artificial sweeteners.
Newspapers and magazines face substitute-product Find 2
competitive pressures from the Internet and 24-hour substitutes to
cable television. Nail Polish
 COMPETITIVE FORCES
Firms generally can negotiate more favorable terms
The bargaining power of suppliers affects the with suppliers when backward integration is a
intensity of competition in an industry, commonly used strategy among rival firms in an
especially: industry.
when there is a large number of suppliers, However, in many industries it is more economical to
when there are only a few good substitute raw use outside suppliers of component parts than to self-
materials, or manufacture the items.
when the cost of switching raw materials is In more and more industries, sellers are forging
especially costly. strategic partnerships with select suppliers in efforts
to:
It is often in the best interest of both suppliers (1)Reduce inventory and logistics costs (e.g., through just-
and producers to assist each other with in-time deliveries);
reasonable prices, improved quality, (2)Speed the availability of next-generation components;
development of new services, just-in-time (3) enhance the quality of the parts and components
deliveries, and reduced inventory costs, thus being supplied and reduce defect rates; and
enhancing long-term profitability for all (4) squeeze out important cost savings for both
concerned. themselves and their suppliers.
Firms may pursue a backward integration
strategy to gain control or ownership of
suppliers. This strategy is especially effective Find 1 product/service that you
when suppliers are unreliable, too costly, or can produce by your own to
not capable of meeting a firm’s needs on a reduce your monthly
consistent basis. expenditure.
COMPETITIVE FORCES

When customers are concentrated or large or buy in volume,

their bargaining power represents a major force affecting the
intensity of competition in an industry. Consumers gain increasing
Rival firms may offer extended warranties or special services bargaining power under the
to gain customer loyalty whenever the bargaining power of following circumstances:
consumers is substantial.
Bargaining power of consumers also is higher when the 1. If they can inexpensively
products being purchased are standard or undifferentiated. switch to competing brands
When this is the case, consumers often can negotiate or substitutes
selling price, warranty coverage, and accessory packages 2. If they are particularly
to a greater extent. important to the seller
The bargaining power of consumers can be the most 3. If sellers are struggling in
important force affecting competitive advantage. the face of falling consumer
demand
4. If they are informed
about sellers’ products,
Find 1 product/service that you prices, and costs
can produce by your own to
reduce your monthly 5. If they have discretion in
expenditure. whether and when they
purchase the product
RELATIONSHIPS BETWEEN KEY EXTERNAL
FORCES AND AN ORGANIZATION
Competitors
Suppliers
Distributors
Political, legal, and Creditors
Customers
governmental forces
Economic forces
Employees AN ORGANIZATION’S
Communities
Social, cultural,
Managers OPPORTUNITIES AND
demographic, and Stockholders THREATS
environment natural Labor unions
forces Governments
Technological forces Trade associations
Competitive forces Special interest groups
Products Services
Markets
Natural environment
Source: Fred David (2021)
 RESEARCH TOOLS
A wealth of strategic information is available
Unpublished sources include customer to organizations from both published and
surveys, market research, speeches at
unpublished sources.
professional and shareholders’ meetings,
television programs, interviews, and Our university is subscribe to EMIS Industry
conversations with stakeholders. Surveys. These documents are exceptionally up-
to-date and give valuable information about
many different industries. Each report is
Published sources of strategic information
authored by the chamber of commerce and
include periodicals, journals, reports, includes the following sections:
government documents, abstracts, books, 1. Current Environment
directories, newspapers, and BANKS SECTORS 2. Industry Trends
3. How the Industry Operates
STUDIES. (www.sec.gov) 4. Key Industry Ratios and Statistics
5. How to Analyze a Company
6. Glossary of Industry Terms
Laws are published in the government 7. Additional Industry Information
ministeries official websites in a link 8. References
named “NORMATIVIDAD” and in municipalities 9. Comparative Company Financial Analysis

web sites.
External
Audit in the
strategic-
Management
Model
Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40
 LET´S
RECAP
USE FORMAL SPECIFIC LIST THINK OUTSIDE
INFORMATION BETWEEN 10 - 20 THE BOX
government data, data bases Analyze the data and identify Base your ideas in the official data
such EMIS, magazines, stratistics, specific trends with high and dont use the traditional and
surveys, experts interviews, etc importance in the sector profit generic expressions that apply to
any business
 CHAPTER
OBJECTIVES
After studying this chapter, you should be able to do the
following:
1. Discuss 10 major external forces that affect organizations:
Political, Economic, Social, Technological, Environmental,
Legal, Cultural, Demographic, governmental, and
competitive.
2. Describe key resources of external information, including
the university data base.
3. Discuss important forecasting tools used in strategic Source: Emis (Febrary 2024)

management.
4. Discuss the importance of monitoring external trends and Request in CRAI a
events training in
searching strategies
and request EMIS
assistance, as soon
as possible
THANK YOU
REFERENCES:
1. David, Fred. (2011). Chapter 3 External Assesment.13th Edition.“Strategic Management
CONCEPTS AND CASES” (.pp. 58-85). Prentice Hall.
2. Coyne, Kevin, and John Horn. “Predicting Your Competitor’s Reaction.” Harvard Business
Review (April 2009): 90–110
3. Evan Perez, “Computer Spies Breach Fighter-Jet Project,” Wall Street Journal (April 21,
2009): A1.
4. Hillman, Amy J., and Gerald D. Keim. “Political Environments and Business Strategy:
Implications for Managers.” Business Horizons 51, no. 1 (January–February 2008): 47.
5. Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and
Competitors (New York: Free Press, 1980): 24–27.
6. Porter, Michael E. “The Five Competitive Forces That Shape Strategy.” Harvard Business
Review (January 2008): 78.
7. S&P Industry Surveys, 2005.
8. York Freund, “Critical Success Factors,” Planning Review 16, no. 4 (July–August 1988): 20.