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62 PART 2 • STRATEGY FORMULATION

FIGURE 3-2
Relationships Between Key External Forces and an Organization

Competitors
Suppliers
Distributors
Creditors
Economic forces
Customers
Employees
Social, cultural, demographic, and Communities
environment natural forces
Managers AN ORGANIZATION’S
Stockholders OPPORTUNITIES AND
Political, legal, and governmental forces
Labor unions THREATS
Governments
Technological forces
Trade associations
Special interest groups
Competitive forces
Products
Services
Markets
Natural environment

global economic recession, significantly affect products, services, markets, and organizations
worldwide. The U.S. unemployment rate climbed to over 9 percent in July 2009 as more than
2.5 million jobs were lost in the United States in 2008—the most since 1945 when the coun-
try downsized from the war effort. The rate is expected to rise to 10.1 percent. All sectors
witness rising unemployment rates, except for education, health-care services, and govern-
ment employment. Many Americans are resorting to minimum wage jobs to make ends meet.
Changes in external forces translate into changes in consumer demand for both indus-
trial and consumer products and services. External forces affect the types of products
developed, the 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. 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 coun-
tries are willing to learn, adapt, innovate, and invent to compete successfully in the market-
place. There are more competitive new technologies in Europe and Asia today than ever before.

The Process of Performing an External Audit
The process of performing an external audit must involve as many managers and employ-
ees as possible. As emphasized in earlier chapters, 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.
To perform an external audit, a company first 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. This approach provides a continuous stream of timely
strategic information and involves many individuals in the external-audit process. The
Internet provides another source for gathering strategic information, as do corporate,
university, and public libraries. Suppliers, distributors, salespersons, customers, and com-
petitors represent other sources of vital information.