1. Chapter 4 The Internal Assessment
Strategic Management: Concepts & Cases
13th Edition
Fred David
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Publishing as Prentice Hall

2. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

3. 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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4. 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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5. Key Internal Forces
Distinctive Competencies:
Firm’s strengths that cannot be easily matched or imitated by competitors
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6. Key Internal Forces
Distinctive Competencies:
Building competitive advantage involves taking advantage of distinctive competencies
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7. 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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8. 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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9. Internal Audit
Financial Ratio Analysis
Exemplifies complexity of relationships among functional areas of the business
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10. 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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11. Integrating Strategy & Culture
Organizational Culture
Resistant to change
May represent:
Strength
Weakness
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12. Integrating Strategy & Culture
Values
Beliefs
Legends
Heroes
Rites
Cultural
Products
Symbols
Rituals
Myths
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13. 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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14. Marketing Marketing Functions Customer analysis
Selling products/services
Product & service planning
Pricing
Distribution
Marketing research
Opportunity analysis
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15. Marketing Customer surveys Consumer information
Market positioning strategies
Customer profiles
Market segmentation strategies
Customer
Analysis
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16. Investment decision (Capital budgeting) Financing decision
Finance/Accounting
Investment decision (Capital budgeting)
Financing decision
Dividend decision
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17. 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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18. 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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19. 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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20. 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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21. 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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22. 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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23. 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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24. 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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25. Production/Operations
Production/Operations Functions
Process
Capacity
Inventory
Workforce
Quality
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26. 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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27. 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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28. 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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29. 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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30. 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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31. Management Information Systems
Purpose
Improve performance of an enterprise by improving the quality of managerial decisions
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32. 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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33. 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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34. 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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