1. Chapter 4 The Internal Assessment
Strategic Management: Concepts & Cases
11th Edition
Fred David

2. “Notable Quotes”
"Like a product or service, the planning process itself must be managed and shaped, if it is to serve executives as a vehicle for strategic decision-making.“ —Robert Lenz
"Great spirits have always encountered violent opposition from mediocre minds.“ —Albert Einstein
"Weak leadership can wreck the soundest strategy.“ —Sun Tzu

3. Nature of an Internal Audit
Basis for Objectives & Strategies
Internal strengths/weaknesses
External opportunities/threats
Clear statement of mission

4. Competitive Advantage
Weaknesses ⇒ Strengths ⇒ Distinctive Competencies ⇒ Competitive Advantage
A firm’s strengths that cannot be easily matched or imitated by competitors are called distinctive competencies.

5. Internal Audit Information from: Parallels process of external audit
Management
Marketing
Finance/accounting
Production/operations
Research & Development
Management Information Systems

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

7. Resource Based View (RBV)
Three All Encompassing Categories
Physical resources
Human resources
Organizational resources

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

9. 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

10. Integrating Strategy & Culture
Values
Beliefs
Legends
Heroes
Rites
Cultural
Products
Symbols
Rituals
Myths

12. 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

13. Marketing Customer Needs/Wants for Products/Services Defining
Anticipating
Creating
Fulfilling

14. Marketing Marketing Functions Customer analysis
Selling products/services
Product & service planning
Pricing
Distribution
Marketing research
Opportunity analysis

15. Finance/Accounting Finance/Accounting Functions
Investment decision (Capital budgeting)
Financing decision
Dividend decision
Financial analysis – Key financial ratios

16. Production/Operations
Production/Operations Functions
Process
Capacity
Inventory
Workforce
Quality

17. Research & Development
Research & Development Functions
Development of new products before competitors
Improving product quality
Improving manufacturing processes to reduce costs

18. Management Information Systems
CIO/CTO
Security
User-friendly
E-commerce

21. Managerial Questions Checklist
Does the firm use strategic-management concepts?
Are company objectives and goals measurable and well communicated?
Do managers at all hierarchical levels plan effectively?
Do managers delegate authority well?
Is the organization’s structure appropriate?
Are job descriptions and specifications clear?
Is employee morale high?
Are employee turnover and absenteeism low?
Are organizational reward and control mechanisms effective?

22. Marketing Audit Checklist
Are markets segmented effectively?
Is the organization positioned well among competitors?
Has the firm’s market share been increasing?
Are present channels of distribution reliable and cost-effective?
Does the firm have an effective sales organization?
Does the firm conduct market research?
Are product quality and customer service good?
Are the firm’s products and services priced appropriately?
Does the firm have an effective promotion, advertising, and publicity strategy?
Are marketing planning and budgeting effective?
Do the firm’s marketing managers have adequate experience and training?

23. Accounting Audit Checklist
Where is the firm financially strong and 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?
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?

24. Accounting Ratios How has each ratio changed over time?
Liquidity ratios measure a firm’s ability to meet maturing short-term obligations.
Current ratio
Quick (acid-test) ratio
Leverage ratios measure the extent to which a firm has been financed by debt.
Debt-to-total-assets ratio
Debt-to-equity ratio
Long-term debt-to-equity ratio
Times-interest-earned (coverage) ratio
Activity ratios measure how effectively a firm is using its resources.
Inventory turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Profitability ratios measure management’s overall effectiveness as shown by returns generated on sales and investment.
Gross profit margin
Operating profit margin
Net profit margin
Return on total assets
Return on stockholders’ equity
Earnings per share
Price-earnings ratio
Growth ratios measure the firm’s ability to maintain its economic position in the growth of the economy and industry.
Sales
Net income
Dividends per share
How has each ratio changed over time?
2. How does each ratio compare to industry norms?
3. How does each ratio compare with key competitors?
BNI

25. Production/Operations Audit Checklist
Are suppliers of raw materials, parts, and subassemblies reliable and reasonable?
Are facilities, equipment, machinery, and offices in good condition?
Are inventory-control policies and procedures effective?
Are quality-control policies and procedures effective?
Are facilities, resources, and markets strategically located?
Does the firm have technological competencies?

26. R&D Audit Checklist of Questions
Does the firm have R&D facilities? Are they adequate?
If outside R&D firms are used, are they cost effective?
Are the organization’s R&D personnel well qualified?
Are R&D resources allocated effectively?
Are management information and computer systems adequate?
Is communication between R&D and other organizational units effective?
Are present products technologically competitive?

27. Information Systems Audit Checklist
Do all managers in the firm use the information system to make decisions?
Is there a chief information officer or director of information systems position in the firm?
Are data in the information system updated regularly?
Do managers from all functional areas of the firm contribute input to the information system?
Are there effective passwords for entry into the firm’s information system?
Are strategists of the firm familiar with the information systems of rival firms?
Is the information system user friendly?
Do all users of the information system understand the competitive advantages that information can provide firms?
Are computer training workshops provided for users of the information system?
Is the firm’s information system continually being improved in content and user-friendliness?