Page 117 -

CHAPTER 3 • THE EXTERNAL ASSESSMENT 83
A major responsibility of strategists is to ensure development of an effective external-
audit system. This includes using information technology to devise a competitive intelli-
gence system that works. The external-audit approach described in this chapter can be used
effectively by any size or type of organization. Typically, the external-audit process is
more informal in small firms, but the need to understand key trends and events is no less
important for these firms. The EFE Matrix and Porter’s Five-Forces Model can help strate-
gists evaluate the market and industry, but these tools must be accompanied by good intu-
itive judgment. Multinational firms especially need a systematic and effective external-
audit system because external forces among foreign countries vary so greatly.

Key Terms and Concepts

Chief Information Officer (CIO) (p. 69) Industrial/Organization (I/O) (p. 63)
Chief Technology Officer (CTO) (p. 69) Industry Analysis (p. 60)
Competitive Analysis (p. 73) Information Technology (IT) (p. 69)
Competitive Intelligence (CI) (p. 72) Internet (p. 69)
Competitive Profile Matrix (CPM) (p. 81) Lifecare Facilities (p. 67)
Director of Competitive Analysis (p. 73) Linear Regression (p. 79)
Environmental Scanning (p. 60) Market Commonality (p. 74)
External Audit (p. 61) Porter’s Five-Forces Model (p. 74)
External Factor Evaluation (EFE) Matrix (p. 80) Resource Similarity (p. 74)
External Forces (p. 61)

Issues for Review and Discussion

1. Describe the “process of performing an external audit” in an organization doing strategic
planning for the first time.
2. The global recession forced thousands of firms into bankruptcy. Does this fact alone confirm
that “external factors are more important than internal factors” in strategic planning?
Discuss.
3. Use a series of two-dimensional (two-variable) graphs to illustrate the historical relationship
among the following variables: value of the dollar, oil prices, interest rates, and stock prices.
Give one implication of each graph for strategic planning.
4. Do you feel the advantages of a low value of the dollar offset the disadvantages for (1) a firm
that derives 60 percent of its revenues from foreign countries and (2) a firm that derives 10
percent of its revenues from foreign countries? Justify your opinion.
5. The lingering global recession has greatly slowed the migration of people from (1) region to
region across the United States, from (2) city to suburb worldwide, and from (3) country to
country across the globe. What are the strategic implications of these trends for companies?
6. Governments worldwide are turning to “nationalization of companies” to cope with eco-
nomic recession. Examples in the United States include AIG, GM, and Citigroup. What are
the strategic implications of this trend for firms that compete with these nationalized firms?
7. Governments worldwide are turning to “protectionism” to cope with economic recession,
imposing tariffs and subsidies on foreign goods and restrictions/incentives on their own firms
to keep jobs at home. What are the strategic implications of this trend for international
commerce?
8. Compare and contrast the duties and responsibilities of a CIO with a CTO in a large firm.
9. What are the three basic objectives of a competitive intelligence program?
10. Distinguish between market commonality and resource similarity. Apply these concepts to
two rival firms that you are familiar with.
11. Let’s say you work for McDonald’s and you applied Porter’s Five-Forces Model to study the
fast-food industry. Would information in your analysis provide factors more readily to an
EFE Matrix, a CPM, or to neither matrix? Justify your answer.
12. Explain why it is appropriate for Ratings in an EFE Matrix to be 1, 2, 3, or 4 for any opportu-
nity or threat.