Step 2 - Perform External Audit

Step 2 in strategic planning is to perform an external audit. This activity involves identifying and evaluating opportunities and threats facing the firm in six key focus areas:

1. Economic Conditions

2. Social, Cultural, Demographic Trends

3. Political, Legal, Governmental Factors

4. Technological Changes

5. Natural Environment Issues

6. Competitors

External opportunities and threats in these areas may include economic turmoil in Asia, declining value of the dollar, rising interest rates, demographic shift in population to the Southwest, passage of a new law, introduction of a new product by a competitor, merger of two competitors, or even flooding due to El Nino. Any factors beyond control of a single company yet that significantly affect consumption of the firm's products/services should be considered in the external audit.

An external audit is important in developing a strategic plan because changes in these focus areas, especially competitors, translate into changes in consumer demand for the firm's products and services. This is important information for the firm. Also, strategies must take advantage of opportunities and must avoid the impact of threats. The nature of opportunities and threats change rapidly because the world rapidly changes, customers rapidly change, and competitors rapidly change. This all means that demand for the firm's products/services can rapidly change, so an organization must continually monitor external trends and events in order to pursue effective strategies. Performing an external audit is vital for staying abreast of changing conditions that affect the company.

In performing an external audit, gather information in all six focus areas, especially information about competitors. Determine facts, trends, statistics, and projections that affect consumption of the firms products/services. Excellent sources of information include the Internet, investment reports, trade publications, chambers of commerce, government documents, magazines, newspapers, constituencies, and any other sources available. Develop a complete list of all external factors. Be specific in stating factors Categorize these factors into opportunities and threats. Then reduce the list to a set of the most important factors. Twenty is a recommended number. Strategies will be formulated based on the most important factors, not your exhaustive list.

External Audit Worksheets

In the space provided below, list up to sixteen external opportunities and up to sixteen external threats that face your organization. Focus upon the six focus areas listed above.

Be as specific as possible in stating each factor. Then in the left margin, rank all factors you listed in terms of importance to the firm in formulating strategies. Let 1 be the most important, 2 next most important, ... to 20, the 20th most important. Threats can receive a high ranking if a particular factor is important for the organization to consider.

External Opportunities

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External Threats

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