Ch 4 -1 Module 4 The Internal Assessment

Ch 4 -2

Ch 4 -3 “ Great spirits have always encountered violent opposition from mediocre minds.” – Albert Einstein Internal Assessment “ Weak leadership can wreck the soundest strategy.” – Sun Tzu

Ch 4 -4 Internal Audit Identify strengths and weaknesses in  Management  Marketing  Finance and accounting  Production and operations  Research and development  Management information systems

Ch 4 -5 Internal strengths/weaknesses External opportunities/threats Clear statement of mission Nature of an Internal Audit Basis for Objectives & Strategies

Ch 4 -6 Key Internal Forces Distinctive Competencies: Firm’s strengths that cannot be easily matched or imitated by competitors

Ch 4 -7 Key Internal Forces Distinctive Competencies: Building competitive advantage involves taking advantage of distinctive competencies

Ch 4 -8 Internal Audit Process Information gathered from:  Management  Marketing  Finance/accounting  Production/operations  Research & development  Management information systems Parallels process of external audit

Ch 4 -9 Internal Audit Involvement in performing an internal strategic-management audit provides a vehicle for understanding the nature and effect of decisions in other functional business areas of the firm

Ch 4 -10

Ch Internal Audit Managers and employees from all areas provide information A team of managers then selects 10 to 15 key organizational strengths and weaknesses to focus on

Ch Internal Audit Exemplifies complexity of relationships among functional areas of the business Financial Ratio Analysis

Ch Resource Based View (RBV) Approach to Competitive Advantage Internal resources are more important than external factors

Ch Resource Based View (RBV) Three All-Encompassing Categories 1. Physical resources 2. Human resources 3. Organizational resources

Ch Resource Based View (RBV) Empirical Indicators Rare Hard to imitate Not easily substitutable

Ch Integrating Strategy & Culture P attern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integration... is considered valid and taught to new members as the correct way to perceive, think, and feel Organizational Culture

Ch Integrating Strategy & Culture Organizational Culture Resistant to change May represent:  Strength  Weakness

Ch Cultural Products Values Legends Beliefs HeroesRites SymbolsRituals Myths Integrating Strategy & Culture

Ch Integrating Strategy & Culture Organizational Culture Can Inhibit Strategic Management Miss external changes due to strongly held beliefs Natural tendency to “hold the course” even during times of strategic change

Ch Management Functions of Management 1. Planning 2. Organizing 3. Motivating 4. Staffing 5. Controlling

Ch Management Planning Stage When Most Important Function Strategy Formulation Organizing Strategy Implementation Motivating Strategy Implementation Staffing Controlling Strategy Implementation Strategy Evaluation

Ch Management Planning Beginning of management process Bridge between present & future Improves likelihood of attaining desired results

Ch Planning Developing a mission Forecasting future events and trends Establishing objectives Choosing strategies to pursue Management

Ch Planning Synergy  Can develop through planning  Exists when everyone pulls together as a team that knows what it wants to achieve

Ch Management Organizing Achieves coordinated effort Defines task & authority relationships Determines who does what Determines who reports to whom

Ch Management Organizing  Breaking down tasks into jobs  Combining jobs to form departments  Delegating authority

Ch Management Motivating Influencing to accomplish specific objectives Four components include:  Leadership  Group dynamics  Communication  Organizational change

Ch Management Staffing Personnel management Human resource management

Ch Management Staffing Recruiting Interviewing Testing Selecting Orienting Training Developing Caring for Evaluating Rewarding Disciplining Promoting Transferring Demoting Dismissing

Ch Management Controlling Establishing performance standards Ensure actual operations conform to planned operations Taking corrective actions

Ch Management Controlling 1. Establish performance standards 2. Measure individual and organizational performance 3. Compare actual performance to planned performance standards 4. Take corrective action

Ch Management Audit Checklist Does the firm use strategic management concepts? Are objectives/goals measurable? Well communicated? Do managers at all levels plan effectively?

Ch Management Audit Checklist Do managers delegate well? Is the organization’s structure appropriate? Are job descriptions clear? Are job specifications clear? Is employee morale high?

Ch Management Audit Checklist Is employee absenteeism low? Is employee turnover low? Are the reward mechanisms effective? Are the organization’s control mechanisms effective?

Ch Marketing Customer Needs or Wants for Products and Services 1. Defining 2. Anticipating 3. Creating 4. Fulfilling

Ch Marketing Marketing Functions 1. Customer analysis 2. Selling products/services 3. Product & service planning 4. Pricing 5. Distribution 6. Marketing research 7. Opportunity analysis

Ch Customer Analysis Customer surveys Consumer information Market positioning strategies Customer profiles Market segmentation strategies Marketing

Ch Advertising Sales Promotion Publicity Personal Selling Sales force management Customer relations Dealer relations Marketing Selling Products/Services

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Ch Test marketing Brand positioning Devising warranties Packaging Product features/options Product style Quality Deleting old products Providing for customer service Marketing Product/Service Planning

Ch Consumers Governments Suppliers Distributors Competitors Marketing Pricing Major Stakeholders

Ch Warehousing Distribution channels Retail site locations Sales territories Inventory levels Transportation Wholesaling Retailing Marketing Distribution

Ch Gather data Record data Analyze data Marketing Marketing Research

Ch Assessing costs Assessing benefits Assessing risks Marketing Cost/Benefit Analysis

Ch Marketing Audit 1. Are markets segmented effectively? 2. Is the organization positioned well among competitors? 3. Has the firm’s market share been increasing? 4. Are the distribution channels reliable & cost effective? 5. Is the sales force effective?

Ch Marketing Audit 6. Does the firm conduct market research? 7. Are product quality & customer service good? 8. Are the firm’s products and services priced appropriately? 9. Does the firm have effective promotion, advertising, and publicity strategies?

Ch Marketing Audit 10. Are the marketing, planning, and budgeting effective? 11. Do the firm’s marketing managers have adequate experience and training? 12. Is the firm’s Internet presence excellent as compared to rivals?

Ch Finance/Accounting 1. Investment decision (Capital budgeting) 2. Financing decision 3. Dividend decision

Ch Firm’s ability to meet its short-term obligations Ratios Current ratio Quick (or acid test) ratio Basic Financial Ratios Liquidity Ratios

Ch Extent of debt financing Ratios Debt-to-total assets Debt-to-equity Long-term debt-to-equity Times-interest-earned Basic Financial Ratios Leverage Ratios

Ch Effective use of firm’s resources Ratios Inventory turnover Fixed assets turnover Total assets turnover Accounts receivable turnover Average collection period Basic Financial Ratios Activity Ratios

Ch Effectiveness shown by returns on sales and investment Ratios Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA) Basic Financial Ratios Profitability Ratios

Ch Effectiveness shown by returns on sales & investment Ratios Return on stockholders’ equity (ROE) Earnings per share Price-earnings ratio Basic Financial Ratios Profitability Ratios (cont’d)

Ch Firm’s ability to maintain economic position Ratios Sales Net Income Earnings per share Dividends per share Basic Financial Ratios Growth Ratios

Ch Ratio Sales Net Income Earnings per share Dividends per share Annual percentage growth in Total sales Profits EPS Dividends per share Growth Ratios

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Ch 4 -57

Ch 4 -58

Ch 4 -59

Ch Finance/Accounting Audit 1. Where is the firm financially strong/weak as indicated by financial ratio analysis? 2. Can the firm raise needed short-term capital? 3. Can the firm raise needed long-term capital through debt and/or equity? 4. Does the firm have sufficient working capital? 5. Are capital budgeting procedures effective?

Ch Finance/Accounting Audit 6. Are dividend payout policies reasonable? 7. Does the firm have good relations with its investors and stockholders? 8. Are the firm’s financial managers experienced and well trained? 9. Is the firm’s debt situation excellent?

Ch Production/Operations Production/Operations Functions Process Capacity Inventory Workforce Quality

Ch 4 -63

Ch Production/Operations Audit Are suppliers of materials, parts, etc. reliable and reasonable? Are facilities, equipment, machinery, and offices in good condition? Are inventory-control policies and procedures effective? Are suppliers of materials, parts, etc. reliable and reasonable? Are facilities, equipment, machinery, and offices in good condition? Are inventory-control policies and procedures effective?

Ch Production/Operations Audit Are quality-control policies & procedures effective? Are facilities, resources, and markets strategically located? Does the firm have technological competencies? Are quality-control policies & procedures effective? Are facilities, resources, and markets strategically located? Does the firm have technological competencies?

Ch Research & Development Research & Development Functions Development of new products before competitors Improving product quality Improving manufacturing processes to reduce costs These functions can be done internally or externally

Ch Financing as many projects as possible Use percent-of-sales method Budgeting relative to competitors How many successful new products are needed Research & Development R&D Budgets

Ch Research & Development Audit Are the R&D facilities adequate? If R&D is outsourced, is it cost-effective? Are the R&D personnel well qualified? Are R&D resources allocated effectively? Are the R&D facilities adequate? If R&D is outsourced, is it cost-effective? Are the R&D personnel well qualified? Are R&D resources allocated effectively?

Ch Research & Development Audit Are MIS and computer systems adequate? Is communication between R&D and other organizational units effective? Are present products technologically competitive? Are MIS and computer systems adequate? Is communication between R&D and other organizational units effective? Are present products technologically competitive?

Ch Management Information Systems Purpose Improve performance of an enterprise by improving the quality of managerial decisions

Ch Management Information Systems Audit Do all managers use the information system to make decisions? Is there a CIO or Director of Information Systems position in the firm? Are data updated regularly? Do managers from all functional areas contribute input to the information system? Are there effective passwords for entry into the firm’s information system?

Ch Management Information Systems Audit Are strategists of the firm familiar with the information systems of rival firms? Is the information system user-friendly? Do all users understand the competitive advantages that information can provide? Are computer training workshops provided for users? Is the firm’s system being improved?

Ch Value Chain Analysis The process whereby a firm determines the costs associated with:  Purchasing raw materials  Manufacturing products  Marketing products And compares them to the value chain of rival firms

Ch Value Chain Analysis Core competencies Distinctive competencies Benchmarking

Ch Transforming Value Chain Activities into Sustained Competitive Advantage Value Chain Activities Are Identified and Assessed Core Competencies Arise in Some Activities Some Core Competencies Evolve into Distinctive Competencies Some Distinctive Competencie s Yield Sustained Competitive Advantages

Ch Internal Factor Evaluation (IFE) Matrix 1. List key internal factors 2. Assign a weight ranging from 0.0 to Assign a 1 to 4 rating to each factor 4. Multiply the weight times the rating 5. Sum the weighted scores