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CHAPTER 3 • THE EXTERNAL ASSESSMENT 61

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. As the term finite suggests, the external
audit is not aimed at developing an exhaustive list of every possible factor that could
influence the business; rather, it is aimed at identifying key variables 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. Figure 3-1 illustrates how the external audit fits into the
strategic-management process.
Key External Forces
External forces can be divided into five broad categories: (1) economic forces; (2) social, cul-
tural, demographic, and natural environment forces; (3) political, governmental, and legal
forces; (4) technological forces; and (5) competitive forces. Relationships among these
forces and an organization are depicted in Figure 3-2. External trends and events, such as the

FIGURE 3-1
A Comprehensive Strategic-Management Model

Chapter 10: Business Ethics/Social Responsibility/Environmental Sustainability Issues

Perform
External Audit
Chapter 3

Implement
Generate, Implement Strategies—
Develop Vision Establish Evaluate, Strategies— Measure
and Mission Long-Term Marketing, and Evaluate
and Select Management Finance,
Statements Objectives Strategies Issues Performance
Chapter 2 Chapter 5 Accounting, R&D, Chapter 9
Chapter 6 Chapter 7 and MIS Issues
Chapter 8

Perform
Internal Audit
Chapter 4

Chapter 11: Global/International Issues

Strategy Strategy Strategy
Formulation Implementation Evaluation
Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40.