Strategic Audit as Taught in CIM Diploma

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1 Strategic Audit as Taught in CIM Diploma A CIM Diploma student conducting the strategic audit for the Strategic Marketing module examination first needs to briefly explain the following: Definition of a strategic audit Steps to be taken to conduct a strategic audit Key benefits of a strategic audit Remember that the strategic audit is a key section of a strategic plan. The need for this audit is for the company decision makers to understand the market in which the company operates. Internal Environment Micro Environment Macro Environment Brief description of the company Next, the student needs to include details about the following: Company size Industry/industries operating in Current financial performance Key happenings in the company Future plans of the company The reason for a strategic audit Strategic Audit as Taught in CIM Diploma Page 1

2 External environment Give a brief explanation of the company s external environment Macro environment Give a brief explanation of the macro environment PESTEL Analysis Give a brief explanation of the PESTEL Model and why it is useful for the strategic audit Type of Factor Explanation Political Factors 1. Economic Factors 1. Social Factors 1. Technological Factors 1. Environmental/ Ecological Factors 1. Legal Factors 1. Strategic Audit as Taught in CIM Diploma Page 2

3 Guidance on how to conduct a PESTEL Analysis: When conducting the PESTEL analysis, factors relevant to the entire industry should be identified instead of focussing solely on the impact on the specific company. For example, under political factors, the effects of changes to the tax policy on the entire industry should be considered instead of discussing how the company s activities alone may be disrupted. During a strategic audit, a broad volume of information regarding the company will be revealed. However, only the information that is most relevant to the company needs to be included in the SWOT analysis. So when selecting the points through the PESTEL model for the SWOT analysis, give a brief, but accurate, justification for your choices. For example: The recession poses a severe threat to company sales, as the product offered is a premium product. Hence this factor should be taken into consideration when creating the strategic plan. Political Factors: These factors determine how a government may influence the economy or a certain industry. For instance, a government may impose a new tax or duty which causes entire revenue-generating structures of an organisation to change. Political factors include tax policies, fiscal policy, and trade tariffs that a government may levy around the fiscal year, and they may affect the business environment (economic environment) to a great extent. Economic Factors: These factors are determinants of an economy s performance that directly impact a company and have resonating, long-term effects. For example, a rise in the inflation rate of any economy will affect the way that companies price their products and services. Adding to that, it will affect the purchasing power of a consumer and change demand/supply models for that economy. Economic factors include inflation rate, interest rates, foreign exchange rates, and economic growth patterns. Strategic Audit as Taught in CIM Diploma Page 3

4 Social Factors: These factors show the social environment of the market and gauge determinants like cultural trends, demographics, and population analytics. An example of this can be buying trends for Western countries like the US, where there is higher demand during the holiday season. Legal Factors: These include internal and external factors. There are certain laws that affect the business environment in a certain country, while there are certain policies that companies maintain for themselves. Legal analysis takes into account both of these angles and then charts strategies in light of these considerations. Technological Factors: These factors pertain to innovations in technology that may affect the operations of the industry and the market, either favourably or unfavourably. This includes automation, research and development, and the level of technological awareness that a market possesses. Environmental Factors: These are the factors that influence or are determined by the surrounding environment. This aspect of the PESTEL Model is crucial for certain industries, for example tourism and agriculture. Factors in a business environmental analysis include, but are not limited to: weather, geographical location, global changes in climate, and environmental offsets. Micro environment Give a brief explanation of the micro environment Porter s Five Forces Analysis Give a brief explanation of Porter s five forces model and why it is useful for the strategic audit Strategic Audit as Taught in CIM Diploma Page 4

5 Threat of New Entry Supplier Power Competitive Rivalry Buyer Power Threat of Substitution Guidance on how to conduct a PESTEL Analysis: Threat of New Entry: High/Low increases or reduces the chances of a new competitor entering the industry. For example: Time and cost of entry The greater the cost and time investment to operate in the industry, the slighter the chances of a new competitor entering the industry. Specialist knowledge Economies of scale Technology protection Buyer Power: High/Low enhances buyer power or minimises it. For example: Number of customers The greater the number of customers, the more powerful the consumer voice is. Differences between competitors Ability to substitute Cost of changing Strategic Audit as Taught in CIM Diploma Page 5

6 Buyer Power: High/Low enhances buyer power or minimises it. For example: Number of customers The greater the number of customers, the more powerful the consumer voice is. Size of each order Differences between competitors Price sensitivity Ability to substitute Cost of changing Threat of Substitution: High/Low enhances the threat of substitution or minimises it. For example: Substitute performance If the substitute product/service s performance in the industry is weak, the threat of substitution is low as not many customers seem to prefer the substitute. Cost of switching Buyer propensity to substitute Supplier Power: High/Low enhances supplier power or minimises it. For example: Number of suppliers If the number of suppliers within an industry is high, the company can easily switch suppliers based on who offers the lowest cost. Therefore, supplier power will be lower if the number of suppliers is higher. Size of suppliers Uniqueness of service Your ability to substitute Cost of changing Competitive Rivalry: High/Low enhances competitive rivalry or minimises it. For example: Strategic Audit as Taught in CIM Diploma Page 6

7 Number of competitors The higher the number of competitors in an industry, the greater the competitive rivalry there will be in that industry. Quality differences Other differences Switching costs Customer loyalty In conclusion, give a brief yet accurate justification of which factors are the most vital, and therefore should be included in the SWOT analysis. Internal environment Give a brief explanation of the micro environment McKinsey s 7s model Give a brief explanation of the McKinsey 7S model and why it is useful for the strategic audit Strategic Audit as Taught in CIM Diploma Page 7

8 Strategy: Give a brief description of how the organisation competes in the marketplace. Cover the following points: What is the company s strategy? How does it intend to achieve its objectives? How does it deal with competitive pressure? How are changes in customer demands dealt with? How is strategy adjusted for environmental issues? Structure: Give a brief description of the company hierarchy and the division of tasks. Cover the following points: How is the company/team divided? What is the hierarchy? How do the various departments coordinate activities? How do the team members organise and align themselves? Are decision making and controlling centralised or decentralised? Is this as it should be, given the team or company s work? Where are the lines of communication, both explicit and implicit? Systems: Give a brief description of the daily activities and procedures that staff members engage in: What are the main systems on which the organisation is run? Consider financial and HR systems as well as communications and document storage Where are the controls and how are they monitored and evaluated? Which internal rules and processes do the team use to keep on track? Shared values: Give a brief description of the company s core values that are evidenced in the corporate culture and general work ethic: What are the core values? What is the corporate/team culture? How strong are these values? What are the fundamental values that the company/team was built on? Strategic Audit as Taught in CIM Diploma Page 8

9 Style: Give a brief description of the style of leadership adopted in the company: How participative is the management/leadership style? How effective is that leadership? Do employees/team members tend to be competitive or cooperative? Are there real teams functioning within the organisation, or are they just nominal groups? Staff: Give a brief description of the company employees and their general capabilities. Cover the following points: Which positions or specialisations are represented within the team? Which positions need to be filled? Are there gaps in required competencies? Skills: Give a brief description of the actual skills and competencies of the employees working for the company. Cover the following points: What are the strongest skills represented within the company/team? Are there any skills gaps? What is the company/team known for doing well? Do the current employees/team members have the ability to do the job? How are skills monitored and assessed? SWOT Analysis Give a brief explanation on the SWOT analysis and why it is useful for the strategic audit. Fill in the SWOT diagram below with key information uncovered through the PESTEL analysis, Porters five forces analysis and the McKinsey s 7S analysis. Strategic Audit as Taught in CIM Diploma Page 9

10 Positive Factors Negative Factors Strengths Weaknesses Internal environment Opportunities Threats External Environment Conclusion: Give a conclusive description of the company standing, and suggest points for improvement. Also a CIM Diploma student needs to rationalise the need for a company change such as an increase in revenue generation or service usage etc. References used to create the template: LSM, Strategic Marketing Assessment Handbook. London: LS Business Publishing. Mind Tools, The McKinsey 7-S Framework. [Online] Available at: [Accessed 20 May 2015] Strategic Audit as Taught in CIM Diploma Page 10

Appendix LMO6: How schools might fit the 7S model

Appendix LMO6: How schools might fit the 7S model The McKinsey 7S model in education Strategy: the plan devised to maintain and build competitive advantage over the competition Structure: the way the organisation