Business Strategies

Performing an External Analysis

Written by Clayton Reeves for Gaebler Ventures

Performing an external analysis is important to the long term competitiveness of your firm. Being cognizant of your environment is advisable for an individual as well as a company. This article discusses the steps necessary to perform a quality external audit.

In this article, we take a look at the process of performing an external audit.

The external audit process must be holistic in scope and include all levels of management.

People appreciate the opportunity to contribute to strategic management and may have certain insights that can help your small business excel.

First, gather all of the competitive intelligence about the most important external factors for a business. Those factors include economic, social, cultural, demographic, environmental, political, governmental, legal, regulatory, technological and general competitive.

Researchers should monitor all the key sources of this information. This can include trade journals, newspapers, magazines and peer reviewed articles. This approach provides a continuously updated information stream to your firm. It keeps up with the changing times while also allowing for a big picture view.

Remember that the external factors you are looking at must have certain attributes. First, they must be important to the long term purpose of the firm. They must be measurable so that they can be accurately recorded. Subjectivity in measurement can create bias. Also, they should apply to all the competing firms as a whole. More specific external forces should be more weakly associated with the firm as a whole.

After making sure these attributes are present and assimilating this information, it should be evaluated in such a way that conclusions can be drawn.

There are several ways to do this. List the factors and observations on a big board with your entire management team in place. Then start an intelligent discussion about the forces that are listed on the wall. Everyone from supplier, distributer and consumer should have a different opinion about the impact of all of the external forces. Make sure that there is a consumer ombudsman for the consumers to have representation.

After discussion, have the management team rank the external forces and the importance to the company as a whole. This should give a good view of how the company views these opportunities and risks. Hopefully, some conclusions can be drawn and directives planned based on this external audit.

The key to this entire process is to tie the external forces to the intrinsic forces of your company. In order to do that, you must also be sure to perform an internal audit.

The combination of the two business audits forms a powerful foundation for defining effective business strategies and implementing meaningful change.

When he's not playing racquetball or studying for a class, Clayton Reeves enjoys writing articles about entrepreneurship. He is currently an MBA student at the University of Missouri with a concentration in Economics and Finance.

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