Deck 5: Understanding the Clients Industry and Business: Strategic Analysis

Question 1

Explain the buffer or interface between the company's internal environment and the external environment?

Answer 1

Serving as a buffer or interface between the internal environment and the external environment is the company's strategic management activities. Strategic management comprises the activities of senior management related to developing, communicating, and revising the goals and plans of the organization. In general, strategic management reflects the decisions that an organization makes regarding how it will interact with the external environment, for example, monitoring competitors, negotiating with suppliers, targeting customers, and searching for market opportunities. In effect, strategic management reflects the overall guidance and control of the organization. Also, the efforts to foster desired behavior of personnel, monitor key performance measurements, and control interactions with the external environment, are part of strategic management.

Question 2

Construct a business model for DaimlerChrysler.

Answer 2

The business model for DaimlerChrysler includes the following:
(1) External Agents: economy, regulators, financial analysts, capital markets, technology, customer preferences, mass transportation, foreign governments, gas prices
(2) Strategic Partners: licensed dealerships
(3) Resources and Suppliers: employees, parts and component suppliers, technology suppliers, shareholders
(4) Internal Processes: strategic management, procurement, research and development, assembly, distribution, sales
(5) Resource Processes: division management (for Chrysler, Jeep, Mercedes, etc.) supply chain management, dealership management, union management, quality management, financial management, information management, human resources management, property management, pension fund management
(6) Markets: automotive and mass transit transportation
(7) Products: automobiles, trucks, SUVs, crossover vehicles
(8) Customers: dealerships, corporate fleet buyers, consumers in the US, and around the world
(9) Competitors: General Motors, Ford, Toyota, Honda, Nissan

Question 3

Describe the organizational business model the auditor may use to further evaluate the business risks that the company faces.

Answer 3

To further evaluate the business risks that the company faces, the auditor identifies and describes the key external links between the company and other companies, individuals, entities, and organizations. There are six basic components: Markets, customers, and products; competitors, resources and suppliers; internal processes; external agents; and strategic partners.
i) External agents are influences outside an organization that have a direct impact on its ability to succeed even though they do not have direct economic links or dealings with the organization. Examples include the government, lifestyle trends and other seasonal factors, local communities and media, and the environment.
ii) Strategic partners represent external entities with which the company has a formal relationship in order to advance joint objectives, such as members of the supply chain, competitors that band together for industry lobbying, and strategic marketing partners.
iii) Competitors are external organizations that are targeting a similar set of markets, customers, and products.
iv) Resources and suppliers are needed to advance organizational objectives. Obvious resources include tangible assets labor, capital, and technology, which are all important to an organization and each is obtained from a different set of suppliers.
v) Markets, Customers, and Products: Organizations sell specific products (or services) targeted to specific customers. Markets are the discernible economic segments in which an organization chooses to compete. The number of markets, products (or services), and customers making up the different business lines of an organization are a key source of complexity in a business model.
vi) Internal Processes are those business processes that perform important tasks and activities to achieve corporate objectives and minimize strategic risks. The auditor will consider three types of internal processes: strategic management, primary processes, and support processes.

Question 4

Why should the auditor perform strategic analysis?

Question 5

Describe the five types of issues the auditor should consider as possibly arising from any given business risk.

Question 6

Every organization has an internal environment that interfaces with the external environment that is outside of its control. Describe the internal environment and the external environment, generally.

Question 7

How has Internet technology affected the external environment for many companies?

Question 8

Why is the business model a useful tool for the auditor?

Question 9

Describe the top-down approach to understanding a client's business.

Question 10

Describe the impact of strategic positioning on the financial statements and the audit.

Question 11

What is the purpose of the auditor's evaluation of the risks associated with an organization's strategic choices?

Question 12

Describe the four basic positioning strategies for any company.

Question 13

Why should the auditor be concerned with the client's strategy?

Question 14

Describe the auditor's examination of the client's internal environment using process risk analysis.

Question 15

Why is acquiring knowledge of current conditions of the client and its industry important for the auditor?

Question 16

Conduct a strategic analysis using macroeconomic forces (PEST factors) and industry forces (Porter's Five Forces) for General Motors.

Question 17

Identify five potential indicators of external threats to a business organization for each of Porter's Five Forces: suppliers, customers, competitors, and substitutes/new entrants.

Question 18

Identify at least five indications of weak strategic management that the auditor should look for.

Question 19

What is a residual risk and why should the auditor perform residual risk analysis?

Question 20

Identify five potential indicators of external threats to a business organization for each of the PEST macro-environmental factors: political, economic, social, and technological pressures.