Corporate Environmental

Scanning

Internal Corporate External Corporate

Environment Environment

Group 1
 Why do we do Corporate Environmental
Scanning?

… Strategic Financial Management is a

process of change which requires
reassessment of the fundamental
assumptions.
Internal Analysis
Camille Grace O. Aguilo
 Key Internal Forces
• Distinctive competencies
– A firm's strengths that cannot be easily
matched or imitated by competitors
• Building competitive advantages involves
taking advantage of distinctive
competencies.
 The Process of Performing an Internal
Analysis
• The Internal Analysis
– Requires gathering, assimilating, and
prioritizing information about the firm's
management, marketing, finance, accounting,
production/operations, research and
development (R&D), and management
information systems operations
– Provides more opportunity for participants to
understand how their jobs, departments, and
divisions fit into the whole firm
 The Resource-Based View (RBV)

• The Resource-Based View (RBV)

Approach
– contends that internal resources are more
important for a firm than external factors in
achieving and sustaining competitive
advantage
 The Resource-Based View (RBV)

• Proponents of the RBV contend that

organizational performance will primarily
be determined by internal resources that
can be grouped into three all-
encompassing categories:
– physical resources
– human resources
– organizational resources
 The Resource-Based View (RBV)
• For a resource to be valuable, it must be
either (1) rare, (2) hard to imitate, or (3) not
easily substitutable.
• These three characteristics of resources are
called Empirical Indicators
• These enable a firm to implement strategies
that improve its efficiency and effectiveness
and lead to a sustainable competitive
advantage.
 Internal Factors
• Organizational Culture
• Management
• Marketing
• Finance/Accounting
• Production/Operations
• Research and Development
• Management Information System
 Organizational Culture
• Organizational culture is “a pattern of
behavior that has been developed by an
organization as it learns to cope with its
problem of external adaptation and internal
integration and that has worked well enough
to be considered valid and to be taught to new
members as the correct way to perceive,
think, and feel.”
 Cultural Products
• Values • Sagas
• Beliefs • Language
• Rites • Metaphors
• Rituals • Symbols
• Ceremonies • Folktales
• Myths • Heroes and heroines
• Stories
• Legends
Internal Analysis Cont.

Rachel Ann Solteo

 Research and Development Analysis

1. Does the firm have R&D facilities? Are they adequate?

2. If outside R&D firms are used, are they cost-effective?
3. Are the organization's R&D personnel well qualified?
4. Are R&D resources allocated effectively?
5. Are management information and computer systems
adequate?
6. Is communication between R&D and other
organizational units effective?
7. Are present products technologically competitive?
 Management Information Systems

• Management Information System

– Receives raw material from both external and
internal evaluation of an organization.
– Improves the performance of an enterprise by
improving the quality of managerial decisions
– Collects, codes, stores, synthesizes, and
presents information in such a manner that it
answers important operating and strategic
questions
 The Internal Factor Evaluation (IFE)
Matrix
1. List key internal factors as identified in the internal-
audit process.
2. Assign a weight that ranges from 0.0 (not important) to
1.0 (all-important) to each factor.
3. Assign a 1to 4 rating to each factor to indicate whether
that factor represents a strength or weakness.
4. Multiply each factor's weight by its rating to determine
a weighted score for each variable.
5. Sum the weighted scores for each variable to
determine the total weighted score for the organization.
A Sample Internal Factor Evaluation Matrix
for a Retail Computer Store

Copyright ©2017 Pearson Education, Limited 6-27

External Analysis
 External Analysis
• External Analysis
– focuses on identifying and evaluating trends
and events beyond the control of a single firm
– 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
The Nature of an External Audit
• The external audit 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.
 Key External Forces
External forces can be divided into five
broad categories:
1. economic forces
2. social, cultural, demographic, and natural
environment forces
3. political, governmental, and legal forces
4. technological forces
5. competitive forces

Copyright ©2017 Pearson Education, Limited 7-31

Relationships Between Key External
Forces and an Organization

Copyright ©2017 Pearson Education, Limited 7-32

 The Process of Performing an External
Audit
• First, gather competitive intelligence and
information about economic, social,
cultural, demographic, environmental,
political, governmental, legal, and
technological trends.
• Information should be assimilated and
evaluated

• A final list of the most important key

external factors should be communicated
External Analysis Cont.

Alice Avenido
 The Industrial Organization
(I/O) View
• The Industrial Organization (I/O) approach
to competitive advantage advocates that
external (industry) factors are more
important than internal factors in a firm for
gaining and sustaining competitive
advantage.
 Economic Forces
• Shift to service economy • Income differences by region and
• Availability of credit consumer group
• Level of disposable income • Price fluctuations
• Propensity of people to spend • Foreign countries’ economic
• Interest rates conditions
• Inflation rates • Monetary and Fiscal policy
• GDP trends • Stock market trends
• Consumption patterns • Tax rate variation by country and
• Unemployment trends state
• Value of the dollar • European Economic Community
(EEC) policies
• Import/Export factors
• Organization of Petroleum
• Demand shifts for different goods
Exporting Countries (OPEC) policies
and services
 Social, Cultural, Demographic, and
Natural Environmental Forces
• Population changes by race, age, • Attitudes toward retirement
and geographic area • Energy conservation
• Regional changes in tastes and • Attitudes toward product quality
preferences
• Attitudes toward customer
• Number of marriages
service
• Number of divorces
• Pollution control
• Number of births
• Attitudes toward foreign peoples
• Number of deaths
• Immigration and emigration rates • Energy conservation
• Social Security programs • Social programs
• Life expectancy rates • Number of churches
• Per capita income • Number of church members
• Social media pervasiveness • Social responsibility issues
 Political, Governmental, and
Legal Forces
• 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.
 Political, Government, and
Legal Variables

• Environmental • USA vs. other country

relationships
regulations • Political conditions in
• Number of patents foreign countries
• Changes in patent laws • Global price of oil
changes
• Equal employment laws • Local, state, and federal
• Level of defense laws
expenditures • Import–export regulations
• Tariffs
• Unionization trends • Local, state, and national
• Antitrust legislation elections
 Technological Forces
New technologies such as:
• the Internet of Things
• 3D printing
• the cloud
• mobile devices
• biotech
• analytics
• autotech
• robotics and
• artificial intelligence
are fueling innovation in many industries, and impacting strategic-
planning decisions.
 Technological Forces
• Many firms now have a Chief Information
Officer (CIO) and a Chief Technology
Officer (CTO) who work together to
ensure that information needed to
formulate, implement, and evaluate
strategies is available where and when it is
needed
 Competitive Forces
• An important part of an external audit is
identifying rival firms and determining their
strengths, weaknesses, capabilities,
opportunities, threats, objectives, and
strategies
 Competitive Intelligence Programs

• Competitive intelligence (CI)

– a systematic and ethical process for gathering
and analyzing information about the
competition's activities and general business
trends to further a business's own goals
 Competitive Intelligence Programs
The three basic objectives of a CI program are:

1. To provide a general understanding of an industry

and its competitors

2. To identify areas in which competitors are vulnerable

and to assess the impact strategic actions would
have on competitors

3. To identify potential moves that a competitor might make

that would endanger a firm's position in the market
The Five-Forces Model of Competition

Copyright ©2017 Pearson Education, Limited 7-46

Sources of External Information
• Unpublished sources include customer
surveys, market research, speeches at
professional and shareholders' meetings,
television programs, interviews, and
conversations with stakeholders.
• Published sources of strategic information
include periodicals, journals, reports,
government documents, abstracts, books,
directories, newspapers, and manuals.
 Industry Analysis: The External Factor
Evaluation (EFE) Matrix
Summarize and evaluate these factors:
• Economic Political
• Social Governmental
• Cultural Legal
• Demographic Technological
Competitive
• Environmental
 EFE Matrix Steps
1. List 20 key external factors
2. Weight from 0.0 to 1.0
3. Rate the effectiveness of current
strategies from 1-4
4. Multiply weight and rating
5. Sum weighted scores.
EFE Matrix for a Local Ten-Theater
Cinema Complex

Copyright ©2017 Pearson Education, Limited 7-50

 Industry Analysis: Competitive Profile
Matrix (CPM)
• Identifies firm's major competitors and
their strengths & weaknesses in relation to
a sample firm's strategic positions

• Critical success factors include internal

and external issues
 Reference
David, F. & David, R. (2017). Strategic Financial
Management. 12th edition. Pearson Education
Ltd.