1. Chapter 4 The Internal Assessment
Strategic Management: Concepts & Cases
13th Edition
Fred David
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3. Internal Assessment – Sun Tzu
“Great spirits have always encountered violent opposition from mediocre minds.” – Albert Einstein
“Weak leadership can wreck the soundest strategy.”
– Sun Tzu
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4. Identify strengths and weaknesses in
Internal Audit
Identify strengths and weaknesses in
Management
Marketing
Finance and accounting
Production and operations
Research and development
Management information systems
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5. Internal strengths/weaknesses External opportunities/threats
Nature of an Internal Audit
Basis for Objectives & Strategies
Internal strengths/weaknesses
External opportunities/threats
Clear statement of mission
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6. Key Internal Forces
Distinctive Competencies:
Firm’s strengths that cannot be easily matched or imitated by competitors
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7. Key Internal Forces
Distinctive Competencies:
Building competitive advantage involves taking advantage of distinctive competencies
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8. Information gathered from:
Internal Audit Process
Parallels process of external audit
Information gathered from:
Management
Marketing
Finance/accounting
Production/operations
Research & development
Management information systems
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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
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11. Managers and employees from all areas provide information
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
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12. Internal Audit
Financial Ratio Analysis
Exemplifies complexity of relationships among functional areas of the business
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13. Internal resources are more important than external factors
Resource Based View (RBV)
Approach to Competitive Advantage
Internal resources are more important than external factors
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14. Resource Based View (RBV)
Three All-Encompassing Categories
Physical resources
Human resources
Organizational resources
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15. Not easily substitutable
Resource Based View (RBV)
Empirical Indicators
Rare
Hard to imitate
Not easily substitutable
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16. Integrating Strategy & Culture
Organizational Culture
Pattern 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
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17. Integrating Strategy & Culture
Organizational Culture
Resistant to change
May represent:
Strength
Weakness
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18. Integrating Strategy & Culture
Values
Beliefs
Legends
Heroes
Rites
Cultural
Products
Symbols
Rituals
Myths
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19. 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
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20. Management Functions of Management Planning Organizing Motivating
Staffing
Controlling
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21. Stage When Most Important
Management
Stage When Most Important
Function
Planning
Strategy Formulation
Organizing
Strategy Implementation
Motivating
Strategy Implementation
Staffing
Strategy Implementation
Controlling
Strategy Evaluation
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22. Management Planning Beginning of management process
Bridge between present & future
Improves likelihood of attaining desired results
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23. Management Developing a mission Forecasting future events and trends
Establishing objectives
Choosing strategies to pursue
Planning
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24. Planning Synergy Can develop through planning
Exists when everyone pulls together as a team that knows what it wants to achieve
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25. Management Organizing Achieves coordinated effort
Defines task & authority relationships
Determines who does what
Determines who reports to whom
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26. Management Organizing Breaking down tasks into jobs
Combining jobs to form departments
Delegating authority
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27. Management Motivating Influencing to accomplish specific objectives
Four components include:
Leadership
Group dynamics
Communication
Organizational change
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28. Human resource management
Staffing
Personnel management
Human resource management
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29. Management Staffing Recruiting Interviewing Testing Selecting
Orienting
Training
Developing
Caring for
Evaluating
Rewarding
Disciplining
Promoting
Transferring
Demoting
Dismissing
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30. Management Controlling Establishing performance standards
Ensure actual operations conform to planned operations
Taking corrective actions
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31. Management Controlling Establish performance standards
Measure individual and organizational performance
Compare actual performance to planned performance standards
Take corrective action
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32. Management Audit Checklist
Does the firm use strategic management concepts?
Are objectives/goals measurable? Well communicated?
Do managers at all levels plan effectively?
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33. 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?
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34. Management Audit Checklist
Is employee absenteeism low?
Is employee turnover low?
Are the reward mechanisms effective?
Are the organization’s control mechanisms effective?
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35. Marketing Customer Needs or Wants for Products and Services Defining
Anticipating
Creating
Fulfilling
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36. Marketing Marketing Functions Customer analysis
Selling products/services
Product & service planning
Pricing
Distribution
Marketing research
Opportunity analysis
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37. Marketing Customer surveys Consumer information
Market positioning strategies
Customer profiles
Market segmentation strategies
Customer
Analysis
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38. Selling Products/Services
Marketing
Advertising
Sales Promotion
Publicity
Personal Selling
Sales force management
Customer relations
Dealer relations
Selling Products/Services
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40. Product/Service Planning
Marketing
Test marketing
Brand positioning
Devising warranties
Packaging
Product features/options
Product style
Quality
Deleting old products
Providing for customer service
Product/Service Planning
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41. Marketing Consumers Governments Suppliers Distributors Competitors
Pricing
Major Stakeholders
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42. Marketing Warehousing Distribution channels Retail site locations
Sales territories
Inventory levels
Transportation
Wholesaling
Retailing
Distribution
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43. Marketing Gather data Record data Analyze data Marketing Research
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44. Cost/Benefit Analysis
Marketing
Assessing costs
Assessing benefits
Assessing risks
Cost/Benefit Analysis
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45. Marketing Audit Are markets segmented effectively?
Is the organization positioned well among competitors?
Has the firm’s market share been increasing?
Are the distribution channels reliable & cost effective?
Is the sales force effective?
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46. Marketing Audit Does the firm conduct market research?
Are product quality & customer service good?
Are the firm’s products and services priced appropriately?
Does the firm have effective promotion, advertising, and publicity strategies?
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47. Marketing Audit Are the marketing, planning, and budgeting effective?
Do the firm’s marketing managers have adequate experience and training?
Is the firm’s Internet presence excellent as compared to rivals?
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48. Investment decision (Capital budgeting) Financing decision
Finance/Accounting
Investment decision (Capital budgeting)
Financing decision
Dividend decision
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49. Basic Financial Ratios
Firm’s ability to meet its short-term obligations
Ratios
Current ratio
Quick (or acid test) ratio
Liquidity Ratios
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50. Basic Financial Ratios
Extent of debt financing
Ratios
Debt-to-total assets
Debt-to-equity
Long-term debt-to-equity
Times-interest-earned
Leverage Ratios
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51. Basic Financial Ratios
Effective use of firm’s resources
Ratios
Inventory turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Activity Ratios
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52. Effectiveness shown by returns on sales and investment
Basic Financial Ratios
Effectiveness shown by returns on sales and investment
Ratios
Gross profit margin
Operating profit margin
Net profit margin
Return on total assets (ROA)
Profitability Ratios
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53. Basic Financial Ratios
Effectiveness shown by returns on sales & investment
Ratios
Return on stockholders’ equity (ROE)
Earnings per share
Price-earnings ratio
Profitability Ratios (cont’d)
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54. Firm’s ability to maintain economic position
Basic Financial Ratios
Firm’s ability to maintain economic position
Ratios
Sales
Net Income
Earnings per share
Dividends per share
Growth Ratios
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55. Growth Ratios Ratio Sales Net Income Earnings per share
Dividends per share
Annual percentage growth in
Total sales
Profits
EPS
Dividends per share
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Figure 4-3 page 109
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Breakeven point = quantity of units that a firm must sell in order for total revenues to equal total costs
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60. Finance/Accounting Audit
Where is the firm financially strong/weak as indicated by financial ratio analysis?
Can the firm raise needed short-term capital?
Can the firm raise needed long-term capital through debt and/or equity?
Does the firm have sufficient working capital?
Are capital budgeting procedures effective?
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61. Finance/Accounting Audit
Are dividend payout policies reasonable?
Does the firm have good relations with its investors and stockholders?
Are the firm’s financial managers experienced and well trained?
Is the firm’s debt situation excellent?
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62. Production/Operations
Production/Operations Functions
Process
Capacity
Inventory
Workforce
Quality
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64. 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?
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65. Production/Operations Audit
Are quality-control policies & procedures effective?
Are facilities, resources, and markets strategically located?
Does the firm have technological competencies?
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66. 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
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67. Research & Development
Financing as many projects as possible
Use percent-of-sales method
Budgeting relative to competitors How many successful new products are needed
R&D Budgets
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68. 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?
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69. Research & Development Audit
Are MIS and computer systems adequate?
Is communication between R&D and other organizational units effective?
Are present products technologically competitive?
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70. Management Information Systems
Purpose
Improve performance of an enterprise by improving the quality of managerial decisions
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71. 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?
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72. 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?
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73. 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
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74. Value Chain Analysis Core competencies Distinctive competencies
Benchmarking
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75. 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 Competencies Yield Sustained Competitive Advantages
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76. Internal Factor Evaluation (IFE) Matrix
List key internal factors
Assign a weight ranging from 0.0 to 1.0
Assign a 1 to 4 rating to each factor
Multiply the weight times the rating
Sum the weighted scores
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77. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
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