1. Copyright 2005 Prentice Hall1 Bus 411 Day 6

2. Copyright 2005 Prentice Hall Ch 4 -2 Agenda Finish Discussion on External Assessment Begin Discussion on Internal Assessment  Strengths and weaknesses Assignment #2 due next class Assignment #3 will be assigned next class Templates section in WebCT  There are templates for every one of the analytical tools we will use in this class  Will become useful for Case Study portion

3. Copyright 2005 Prentice Hall Ch 4 -3 Competitive Forces Collection & evaluation of data on competitors is essential for successful strategy formulation

4. Copyright 2005 Prentice Hall Ch 4 -4 Competitive Forces Competition on virtually all industries can be described as intense.

5. Copyright 2005 Prentice Hall Ch 4 -5 Competitive Forces Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies Identifying Rival Firms

6. Copyright 2005 Prentice Hall Ch 4 -6 Key Questions Concerning Competitors Their objectives and strategies Their weaknesses Their responses to external variables Their vulnerability to our alternative strategies Their strengths

7. Copyright 2005 Prentice Hall Ch 4 -7 Key Questions Concerning Competitors (cont’d) Entry and exit of firms in the industry Our product/service positioning Key factors for our current position in industry Sales/profit rankings of competitors over time Our vulnerability to strategic counterattack

8. Copyright 2005 Prentice Hall Ch 4 -8 Key Questions Concerning Competitors (cont’d) The threat of substitute products/services Nature of supplier & distributor relationships Should we keep our strategies secret from employees and stakeholders?

9. Copyright 2005 Prentice Hall Ch 4 -9 Competitive Forces Moody’s Manuals Standard Corporation Descriptions Value Line Investment Surveys Dun’s Business Rankings Standard & Poor’s Industry Surveys Industry Week Forbes, Fortune, Business Week Sources of Corporate Information

10. Copyright 2005 Prentice Hall Ch 4 -10 Competitive Forces 1. Market share matters 2. Understand what business you are in 3. Broke or not, fix it 4. Innovate or evaporate 7 Characteristics of most Competitive U.S. Firms:

11. Copyright 2005 Prentice Hall Ch 4 -11 Competitive Forces 5. Acquisition is essential to growth 6. People make a difference 7. No substitute for quality 7 Characteristics of most Competitive U.S. Firms:

12. Copyright 2005 Prentice Hall Ch 4 -12 The Five-Forces Model of Competition Potential development of substitute products Rivalry among competing firms Bargaining power of suppliers Potential entry of new competitors Bargaining power of consumers

13. Copyright 2005 Prentice Hall Ch 4 -13 The Five-Forces Model Most powerful of the five forces Focus on competitive advantage of strategies Rivalry Among Competing Firms

14. Copyright 2005 Prentice Hall Ch 4 -14 The Five-Forces Model Barriers to entry are important Quality, pricing, and marketing can overcome barriers Potential Entry of New Competitors

15. Copyright 2005 Prentice Hall Ch 4 -15 The Five-Forces Model Pressures increase when consumer’s switching costs decrease Firm’s plans for increased capacity & market penetration Potential Development of Substitute Products

16. Copyright 2005 Prentice Hall Ch 4 -16 The Five-Forces Model Large number of suppliers & few substitutes affects intensity of competition Backward integration can gain control or ownership of suppliers Bargaining Power of Suppliers

17. Copyright 2005 Prentice Hall Ch 4 -17 The Five-Forces Model Customers concentrated or buy in volume affects intensity of competition Consumer power is higher where products are standard or undifferentiated Bargaining Power of Consumers

18. Copyright 2005 Prentice Hall Ch 4 -18 The Global Challenge Faced by U.S. Firms -- Gain & maintain exports to other nations Defend domestic markets against imported goods

19. Copyright 2005 Prentice Hall Ch 4 -19 The Global Challenge Simultaneously globally competitive & nationally responsive Multinational Corporations (MNC’s)

20. Copyright 2005 Prentice Hall Ch 4 -20 The Global Challenge Worldwide integration of:  Strategy formulation  Strategy implementation  Strategy evaluation Globalization

21. Copyright 2005 Prentice Hall Ch 4 -21 The Global Challenge  Similar consumption patterns  Global buyers and sellers  E-commerce  Instant transmission of money & information Globalization of Industries

22. Copyright 2005 Prentice Hall Ch 4 -22 Industry Analysis: The External Factor Evaluation (EFE) Matrix CompetitivePoliticalCultural TechnologicalEnvironmentalSocial GovernmentalDemographicEconomic Summarize & Evaluate

23. Copyright 2005 Prentice Hall Ch 4 -23 5 Steps (Page 101-103) 1.List key external factors 10-20 Opportunities then threats Assign weights from 0.0 to 1.0 based on importance Sum of all weights across all factors = 1 Assign a rating from 1 to 4 for all factors where 4 = the firm’s response is superior 3 = the firm’s response is above avg 2 = the firm’s response is average 1 = the firm’s response is poor 1.Multiply the rating by the weight 2.Sum the weighted scores

24. Copyright 2005 Prentice Hall Ch 4 -24 EFE – Gateway Computers (2003) Key External Factors WeightRating Wtd Score Opportunities 1. Global PC market expected to grow 20% in 2004 0.1030.30 2. Cost of PC component parts expected to decrease 10% - 2004 0.1030.30 3. Internet use growing rapidly0.0520.10 4. China entered WTO; lowered taxes for importing PC’s 0.101 5. The average income for PC worker has declined from $40K/yr to $30k/yr 0.0530.15

25. Copyright 2005 Prentice Hall Ch 4 -25 EFE – Gateway Computers (2003) (cont’d) Key External Factors WeightRating Wtd Score Opportunities (cont’d) 6. Modernization of business firms and government agencies 0.0520.10 7. U.S. (& world) economies recovering0.0530.15 8. 30% of Chinese population can afford a PC; only 10% of homes have a PC 0.051 Threats 0.101 1. Intense rivalry in industry0.1010.05

26. Copyright 2005 Prentice Hall Ch 4 -26 EFE – Gateway Computers (2003) (cont’d) Key External Factors WeightRating Wtd Score Threats (cont’d) 2. Severe price cutting in PC industry0.1020.20 3. Different countries have different reg’s and infrastructure for PC’s 0.051 4. Palm & PDA becoming substitutes0.0530.15 5. Demand exceeds supply of experienced PC workers 0.0540.20 6. Birth rate in U.S. declining annually0.0530.15

27. Copyright 2005 Prentice Hall Ch 4 -27 EFE – Gateway Computers (2003) (cont’d) Key External Factors WeightRating Wtd Score Threats (cont’d) 7. U.s. consumers and businesses delaying purchase of PC’s 0.0520.10 8. PC firms diversifying into consumer electronics 0.0530.15 Total1.002.40

28. Copyright 2005 Prentice Hall Ch 4 -28 Total weighted score of 4.0 Organization response is outstanding to threats and weaknesses Industry Analysis EFE Total weighted score of 1.0 Firm’s strategies not capitalizing on opportunities or avoiding threats

29. Copyright 2005 Prentice Hall Ch 4 -29 Industry Analysis EFE Understanding the factors used in the EFE Matrix is more important than the actual weights and ratings assigned. Important --

30. Copyright 2005 Prentice Hall Ch 4 -30 Industry Analysis: Competitive Profile Matrix (CPM) Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions

31. Copyright 2005 Prentice Hall Ch 4 -31 Steps to a CPM Identify Critical Success Factors (CSF)  Broad issues  Internal and external (5 of each is a good mix) Assign a weight to each CSF  Must add up to 1 Assign a rating for your firm and each of your competitors  4 = major strength  3 = minor strength  2 = minor weakness  1 – major weakness Multiply weight by rating Sum the weighted ratings and compare

32. Copyright 2005 Prentice Hall Ch 4 -32 GatewayAppleDell CSF’s WtRatingWt’d Score RatingWt’d Score RatingWt’d Score Market share0.1530.4520.3040.60 Inventory sys0.0820.162 40.32 Fin position0.1020.2030.303 Prod. Quality0.0830.2440.3230.24 Cons. Loyalty0.0230.063 40.08 Sales Distr0.1030.3020.2030.30 Global Exp.0.1530.4520.3040.60 Org. Structure0.0530.153 3

33. Copyright 2005 Prentice Hall Ch 4 -33 GatewayAppleDell CSF’s (cont’d) WtRatingWt’d Score RatingWt’d Score RatingWt’d Score Prod. Capacity0.0430.123 3 E-commerce0.1030.303 3 Customer Serv0.1030.3020.2040.40 Price competitive 0.0240.0810.0230.06 Mgt. experience0.0120.0240.0420.02 Total1.002.832.473.49

34. Copyright 2005 Prentice Hall Ch 4 -34 Industry Analysis CPM Just because one firm receives a 3.2 rating and another receives a 2.8 rating, it does not follow that the first firm is 20 percent better than the second. Important --

35. Copyright 2005 Prentice Hall Ch 4 -35 Assignment two Prepare a EFE and CPM for Krispy Kreme Doughnuts  Bus 411 assignment two.doc Bus 411 assignment two.doc Due in one week Excel templates for both the EFE and CPM are available in WebCT

36. Copyright 2005 Prentice Hall Ch 4 -36 Chapter 4 The Internal Assessment Strategic Management: Concepts & Cases 10 th Edition Fred David PowerPoint Slides by Anthony F. Chelte Western New England College

37. Copyright 2005 Prentice Hall Ch 4 -37 Chapter Outline The Nature of an Internal Audit The Resource-Based View (RBV) Integrating Strategy & Culture

38. Copyright 2005 Prentice Hall Ch 4 -38 Chapter Outline ( cont’d ) Management Marketing Opportunity Analysis

39. Copyright 2005 Prentice Hall Ch 4 -39 Chapter Outline ( cont’d ) Finance/Accounting Production/Operations Research & Development

40. Copyright 2005 Prentice Hall Ch 4 -40 Chapter Outline ( cont’d ) Management Information Systems The Internal Factor Evaluation (IFE) Matrix

41. Copyright 2005 Prentice Hall Ch 4 -41 The biggest levers you’ve got to change a company are strategy, structure, and culture. If I could pick two, I’d pick strategy and culture. – Wayne Leonard, CEO, Entergy Internal Assessment Weak leadership can wreck the soundest strategy; forceful execution of even a poor plan can often bring victory. Sun Tzu

42. Copyright 2005 Prentice Hall Ch 4 -42 The Nature of an Internal Audit -- Strengths -- Weaknesses Functional Areas of Business

43. Copyright 2005 Prentice Hall Ch 4 -43 Internal strengths/weaknesses External opportunities/threats Clear statement of mission Nature of an Internal Audit Basis for Objectives & Strategies

44. Copyright 2005 Prentice Hall Ch 4 -44 Key Internal Forces Functional Business Areas:  Vary by organization  Divisions have differing strengths & weaknesses

45. Copyright 2005 Prentice Hall Ch 4 -45 Key Internal Forces Distinctive Competencies:  Firm’s strengths that cannot be easily matched or imitated by competitors

46. Copyright 2005 Prentice Hall Ch 4 -46 Key Internal Forces Distinctive Competencies:  Building competitive advantage involves taking advantage of distinctive competencies

47. Copyright 2005 Prentice Hall Ch 4 -47 Key Internal Forces Distinctive Competencies:  Strategies designed to improve on a firm’s weaknesses and turn to strengths

48. Copyright 2005 Prentice Hall Ch 4 -48 Internal Audit Information from: Management Marketing Finance/accounting Production/operations Research & Development Management information Systems Parallels process of external audit

49. Copyright 2005 Prentice Hall Ch 4 -49 Internal Audit Involvement in performing an internal strategic-management audit provides vehicle for understanding the nature and effect of decisions in other functional business areas of the firm

50. Copyright 2005 Prentice Hall Ch 4 -50 Internal Audit Coordination & understanding among managers from all functional areas Key to Organizational Success

51. Copyright 2005 Prentice Hall Ch 4 -51 Internal Audit Number and complexity increases relative to organization size Functional Relationships

52. Copyright 2005 Prentice Hall Ch 4 -52 Internal Audit Exemplifies complexity of relationships among functional areas of the business Financial Ratio Analysis

53. Copyright 2005 Prentice Hall Ch 4 -53 Resource Based View (RBV) Approach to Competitive Advantage Internal resources are more important than external factors

54. Copyright 2005 Prentice Hall Ch 4 -54 Resource Based View (RBV) 3 All Encompassing Categories 1. Physical resources Materials, plant and equipment Tangibles 2. Human resources Talent 3. Organizational resources Structure, planning, intellectual property

55. Copyright 2005 Prentice Hall Ch 4 -55 Resource Based View (RBV) Empirical Indicators  Rare  Hard to imitate  Not easily substitutable

56. Copyright 2005 Prentice Hall Ch 4 -56 Integrating Strategy & 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 Organizational Culture

57. Copyright 2005 Prentice Hall Ch 4 -57 Integrating Strategy & Culture Organizational Culture  Resistant to change  May represent  Strength  Weakness

58. Copyright 2005 Prentice Hall Ch 4 -58 Cultural Products Values Legends Beliefs HeroesRites SymbolsRituals Myths Integrating Strategy & Culture

59. Copyright 2005 Prentice Hall Ch 4 -59 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

60. Copyright 2005 Prentice Hall Ch 4 -60 Management Functions of Management 1. Planning 2. Organizing 3. Motivating 4. Staffing 5. Controlling

61. Copyright 2005 Prentice Hall Ch 4 -61 Management Planning Stage When Most Important Function Strategy Formulation Organizing Strategy Implementation Motivating Strategy Implementation Staffing Controlling Strategy Implementation Strategy Evaluation

62. Copyright 2005 Prentice Hall Ch 4 -62 Management Planning  Beginning of management process  Bridge between present & future  Improves likelihood of attaining desired results

63. Copyright 2005 Prentice Hall Ch 4 -63 Planning Forecasting Establishing objectives Devising strategies Developing policies Setting goals Management

64. Copyright 2005 Prentice Hall Ch 4 -64 Management Organizing  Achieves coordinated effort  Defines task & authority relationships  Departmentalization  Delegation of authority

65. Copyright 2005 Prentice Hall Ch 4 -65 Organizing Organizational design Job specialization Job descriptions Job specifications Span of control Unity of command Coordination Job design Job analysis Management

66. Copyright 2005 Prentice Hall Ch 4 -66 Management Motivating  Influencing to accomplish specific objectives  Communication – major component

67. Copyright 2005 Prentice Hall Ch 4 -67 Motivating Leadership Communication Work groups Job enrichment Job satisfaction Needs fulfillment Organizational change Morale Management

68. Copyright 2005 Prentice Hall Ch 4 -68 Management Staffing  Personnel management  Human resources management

69. Copyright 2005 Prentice Hall Ch 4 -69 Staffing Wage & salary admin. Employee benefits Interviewing Hiring Discharging Training Management development Affirmative Action EEO Labor relations Management

70. Copyright 2005 Prentice Hall Ch 4 -70 Management Controlling  Establishing performance standards  Ensure actual operations conform to planned operations  Taking corrective actions

71. Copyright 2005 Prentice Hall Ch 4 -71 Controlling Quality Financial Sales Inventory Expense Analysis of variance Rewards Sanctions Management

72. Copyright 2005 Prentice Hall Ch 4 -72 Management Audit Checklist Does the firm use strategic management concepts? Are objectives/goals measurable? Well communicated? Do managers at all levels plan effectively? Does the firm use strategic management concepts? Are objectives/goals measurable? Well communicated? Do managers at all levels plan effectively?

73. Copyright 2005 Prentice Hall Ch 4 -73 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? Do managers delegate well? Is the organization’s structure appropriate? Are job descriptions clear? Are job specifications clear? Is employee morale high?

74. Copyright 2005 Prentice Hall Ch 4 -74 Management Audit Checklist Is employee absenteeism low? Is employee turnover low? Are the reward mechanisms effective? Are the organization’s control mechanisms effective? Is employee absenteeism low? Is employee turnover low? Are the reward mechanisms effective? Are the organization’s control mechanisms effective?

75. Copyright 2005 Prentice Hall Ch 4 -75 Marketing Customer Needs/Wants for Products/Services 1. Defining 2. Anticipating 3. Creating 4. Fulfilling

76. Copyright 2005 Prentice Hall Ch 4 -76 Marketing Marketing Functions 1. Customer analysis 2. Selling products/services 3. Product & service planning 4. Pricing 5. Distribution 6. Marketing research 7. Opportunity analysis

77. Copyright 2005 Prentice Hall Ch 4 -77 Customer Analysis Customer surveys Consumer information Market positioning strategies Customer profiles Market segmentation strategies Marketing

78. Copyright 2005 Prentice Hall Ch 4 -78 Advertising Sales Promotion Publicity Sales force management Customer relations Dealer relations Marketing Selling Products/Services

79. Copyright 2005 Prentice Hall Ch 4 -79 Test marketing Brand positioning Devising warrantees Packaging Product features/options Product style Quality Marketing Planning Product/Service

80. Copyright 2005 Prentice Hall Ch 4 -80 Forward integration Discounts Credit terms Condition of sale Markups Costs Unit pricing Marketing Pricing

81. Copyright 2005 Prentice Hall Ch 4 -81 Warehousing Channels Coverage Retail site locations Sales territories Inventory levels Transportation Marketing Distribution

82. Copyright 2005 Prentice Hall Ch 4 -82 Data collection Data input Data analysis Support business functions Marketing Marketing Research

83. Copyright 2005 Prentice Hall Ch 4 -83 Assessing costs Assessing benefits Assessing risks Cost/benefit/risk analysis Marketing Opportunity Analysis

84. Copyright 2005 Prentice Hall Ch 4 -84 Marketing Opportunity Analysis 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?

85. Copyright 2005 Prentice Hall Ch 4 -85 Marketing Opportunity Analysis 6. Does the firm conduct market research? 7. Are product quality & customer service good? 8. Are the firm’s products/services priced appropriately? 9. Does the firm have effective promotion, advertising, & publicity strategies?

86. Copyright 2005 Prentice Hall Ch 4 -86 Marketing Opportunity Analysis 10. Are the marketing planning & budgeting effective? 11. Do the firm’s marketing managers have adequate experience and training?

87. Copyright 2005 Prentice Hall Ch 4 -87 Finance/Accounting  Determining financial strengths & weaknesses key to strategy formation

88. Copyright 2005 Prentice Hall Ch 4 -88 Finance/Accounting Finance/Accounting Functions 1. Investment decision (Capital budgeting) 2. Financing decision 3. Dividend decision

89. Copyright 2005 Prentice Hall Ch 4 -89 Financial ratios Objective indicators Two uses  Trending over time  Comparison to industry norms Industry norms are available through UMFK electronic resources  Business and Company Resource Center  http://www.umfk.maine.edu/infoserv/library/indxdb /alphalist.asp?Loc=fk http://www.umfk.maine.edu/infoserv/library/indxdb /alphalist.asp?Loc=fk

90. Copyright 2005 Prentice Hall Ch 4 -90 Firm’s ability to meet its short-term obligations Ratios Current ratio Quick (or acid test) ratio Basic Financial Ratios Liquidity Ratios

91. Copyright 2005 Prentice Hall Ch 4 -91 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

92. Copyright 2005 Prentice Hall Ch 4 -92 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

93. Copyright 2005 Prentice Hall Ch 4 -93 Effectiveness shown by returns on sales & investment Ratios Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA) Basic Financial Ratios Profitability Ratios

94. Copyright 2005 Prentice Hall Ch 4 -94 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)

95. Copyright 2005 Prentice Hall Ch 4 -95 Firm’s ability to maintain economic position Ratios Sales Net income Earnings per share Dividends per share Basic Financial Ratios Growth Ratios

96. Copyright 2005 Prentice Hall Ch 4 -96 Finance/Accounting Audit Where is the firm strong/weak indicated by financial ratio analysis? Can the firm raise short-term capital as needed? Can the firm raise long-term capital as needed through debt and/or equity? Where is the firm strong/weak indicated by financial ratio analysis? Can the firm raise short-term capital as needed? Can the firm raise long-term capital as needed through debt and/or equity?

97. Copyright 2005 Prentice Hall Ch 4 -97 Finance/Accounting Audit Does the firm have sufficient working capital? Are capital budgeting procedures effective? Are dividend payout policies reasonable? Are the firm’s financial managers experienced & well trained? Does the firm have sufficient working capital? Are capital budgeting procedures effective? Are dividend payout policies reasonable? Are the firm’s financial managers experienced & well trained?

98. Copyright 2005 Prentice Hall Ch 4 -98 Production/Operations Production/Operations Functions  Process  Capacity  Inventory  Workforce  Quality

99. Copyright 2005 Prentice Hall Ch 4 -99 Facility design Technology selection Facility layout Process flow analysis Facility location Line balancing Process control Production/Operations Process

100. Copyright 2005 Prentice Hall Ch 4 -100 Forecasting Facilities planning Aggregate planning Scheduling Capacity planning Queuing analysis Production/Operations Capacity

101. Copyright 2005 Prentice Hall Ch 4 -101 Raw materials Work in process Finished goods Materials handling Production/Operations Inventory

102. Copyright 2005 Prentice Hall Ch 4 -102 Job design Work measurement Job enrichment Work standards Motivation techniques Production/Operations Workforce

103. Copyright 2005 Prentice Hall Ch 4 -103 Quality control Sampling Testing Quality assurance Cost Control Production/Operations Quality

104. Copyright 2005 Prentice Hall Ch 4 -104 Production/Operations Audit Are suppliers of materials, parts, etc. reliable and reasonable? Are facilities, equipment & machinery in good condition? Are inventory-control policies and procedures effective? Are suppliers of materials, parts, etc. reliable and reasonable? Are facilities, equipment & machinery in good condition? Are inventory-control policies and procedures effective?

105. Copyright 2005 Prentice Hall Ch 4 -105 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?

106. Copyright 2005 Prentice Hall Ch 4 -106 Research & Development Research & Development Functions  Development of new products before competitors  Improving product quality  Improving manufacturing processes to reduce costs

107. Copyright 2005 Prentice Hall Ch 4 -107 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

108. Copyright 2005 Prentice Hall Ch 4 -108 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?

109. Copyright 2005 Prentice Hall Ch 4 -109 Research & Development Audit Are MIS and computer systems adequate? Is communication between R&D & other organizational units effective? Are present products technologically competitive? Are MIS and computer systems adequate? Is communication between R&D & other organizational units effective? Are present products technologically competitive?

110. Copyright 2005 Prentice Hall Ch 4 -110 Management Information Systems Purpose  Improve performance of an enterprise by improving the quality of managerial decisions.

111. Copyright 2005 Prentice Hall Ch 4 -111 Management Information Systems Information Systems CIO/CTO Security User-friendly E-commerce

112. Copyright 2005 Prentice Hall Ch 4 -112 Management Information Systems Audit Do managers use the information system to make decisions? Is there a CIO or Director of information systems position in the firm? Is data updated regularly? Do managers use the information system to make decisions? Is there a CIO or Director of information systems position in the firm? Is data updated regularly?

113. Copyright 2005 Prentice Hall Ch 4 -113 Management Information Systems Audit Do managers from all functional areas 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? Do managers from all functional areas 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?

114. Copyright 2005 Prentice Hall Ch 4 -114 Management Information Systems Audit 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? 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?

115. Copyright 2005 Prentice Hall Ch 4 -115 The IFE Matrix A summary step in conducting an internal strategic- management audit is to construct an IFE Matrix. This strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among these areas. Intuitive judgments are required in developing an IFE Matrix, so the appearance of a scientific approach should not be interpreted to mean this is an all-powerful technique.

116. Copyright 2005 Prentice Hall Ch 4 -116 5 Steps to an IFE 1.List key internal factors as identified in the internal-audit process. Use a total from ten to twenty internal factors including both strengths and weaknesses. 2.Assign a weight ranging from 0 (not important) to 1.0 (very important). The weight indicates the relative importance of the factor to being successful in the firm’s industry. The sum of all the weights must equal 1.0. 3.Assign a 1-4 rating to each factor to indicate whether that factor represents a major weakness (1), minor weakness (2), minor strength (3), or major strength (4). 4.Multiply each factor’s weight by its rating to determine a weighted score for each variable. 5.Sum the weighted scores for each variable to determine the total weighted score for the organization. Total weighted scores of below 2.5 indicate an internally weak organization.

117. Copyright 2005 Prentice Hall Ch 4 -117 IFE– Gateway Computers (2003) Key Internal Factors WeightRating Wtd Score Strengths 1. Several new senior executive with world- class skills and leadership experience 0.0540.40 2. Continuous decline in operating costs and cost of goods sold 0.0530.15 3. Well-known brand name0.0530.15 4. Consumer Reports (Sept 2002) recommended Gateway 500X as #1 0.1040.40 5. As a direct seller, Gateway holds high brand recognition 0.0530.15

118. Copyright 2005 Prentice Hall Ch 4 -118 IFE– Gateway Computers (2003) Key Internal Factors WeightRating Wtd Score Strengths (cont’d) 6. Gateway is diversifying into non-PC products 0.1030.30 7. Good relationship with its suppliers.0.0540.20 8. Economies of scale, the 6 th largest PC maker I the world 0.0540.20 9. Gateway retails stores excellent0.0530.15

119. Copyright 2005 Prentice Hall Ch 4 -119 IFE– Gateway Computers (2003) Key Internal Factors WeightRating Wtd Score Weaknesses 1. High operating expense (22% of revenue vs. 10% for Dell) 0.0530.15 2. Almost no budget for R&D vs. Dell’s 18% of revenue 0.1010.05 3. Low return on assets ratio0.02510.10 4. No niche market0.02520.05

120. Copyright 2005 Prentice Hall Ch 4 -120 IFE– Gateway Computers (2003) Key Internal Factors WeightRating Wtd Score Weaknesses (cont’d) 5. Shortage of cash due to successive losses 0.1020.20 6. Limited number Gateway stores0.0520.10 7. Weak performance in overseas market0.1020.20 TOTAL1.002.85