1. Chapter 4 The Internal Assessment Great Spirits have always encountered violent opposition from mediocre minds Albert Einstein

2. This chapter focuses on identifying and evaluating a firm’s strengths and weaknesses in the functional areas of business, including management, marketing, finance/accounting. Production/ operations, research & development & management information system

3. Internal strengths/weaknesses External opportunities/threats Clear statement of mission Nature of an Internal Audit Basis for Objectives & Strategies All organizations have strengths & weaknesses in the functional areas of business No enterprise is equally strong or weak in all areas P&G Known for superb marketing

4. Key Internal Forces Different types of organizations – Hospitals, universities, Banks, the functional business areas, of course differ A firms strategy that cannot be easily imitated by competitors are called distinctive competencies Strategies are designed – turning firms weaknesses into strength & maybe into distinctive competencies

5. Internal Audit Information from: Management Marketing Finance/accounting Production/operations Research & Development Management information Systems Parallels process of external audit  Gathering & assimilating info about the firm’s management, marketing, finance, productions/operations, R&D, MISystems operations  opportunity for participants to understand how their jobs, departments & divisions fit into the whole organization  Example: Marketing & manufacturing managers jointly discuss issues related to S/W Performing and internal audit thus is an excellent vehicle or forum for improving the process of communication in the organization

6. Strategic management is a highly interactive process that requires effective coordination among management, marketing, finance/accounting, production/operations, R&D & MIS managers.  Financial ratio analysis exemplifies the complexity of relationships among the functional areas of business. A declining return on investment or profit margin ratio could be the result of ineffective marketing, poor management policies, research and development errors, or a weak management information system.

7. Resource Based View (RBV) Approach to Competitive Advantage Internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage RBV view contend that org performance will be primarily be determined by internal resources that can be grouped into three all- encompassing categories

8. Resource Based View (RBV) 3 All Encompassing Categories 1. Physical resources 2. Human resources 3. Organizational resources Plant & equipment, location, technology, raw materials Machines ……. Employees, training, experience, intelligence, knowledge, skills, abilities Structure, planning processes, information systems, copyrights, databases and so on

9. RBV Managing strategically according to the RBV involves developing and exploiting a firm’s unique resources and capabilities, and continually maintaining & strengthening those resources The theory asserts that it is advantageous for a firm to pursue a strategy that is not currently being implemented by any competing firm

10. Resource Based View (RBV) For a resource to be valuable, it must be…..  Rare (resources that other firms do not possess)  Hard to imitate(is it costly for others to imitate?)  Not easily substitutable ( Porter’s : no viable substitutes, a firm will be able to sustain its CA The more a resource (s) is rare, nonimitable & nonsubtitutable, the stronger a firm’s competitive advantage will be & the longer it will last

11. VIRO (Barney framework) A resource is a strength if it provides a company with a competitive advantage A resource is a weakness if its something corporation does poorly or doesn’t have the capacity to do although its competitors have the capacity  Value= Does it provide competitive advantage  Rareness= Do other competitors possess it?  Imitability = Is it costly for others to imitate  Organization= is the firm organized to exploit the resource? If answer is “YES” Distinctive Competence

12. Integrating Strategy & Culture Set of key values, beliefs, understanding & norms that members of an Organization share Or A pattern of behavior(that has been) developed by an organization as it learns to cope with its problem of external adaptation and internal integration, & that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think and feel Organizational Culture

13. Remarkably resistant to change, culture can represent a major strength or weakness for the firm An org’s culture compares to an individual’s personality in the sense that no two organizations have the same culture and no two individuals have the same personality. Both culture and personality are fairly enduring and can be warm, aggressive, friendly, open, innovative, conservative, liberal, harsh, or likable

14. Cultural Products Values Legends Beliefs HeroesRites SymbolsRituals Myths Integrating Strategy & Culture The challenge of strategic management today is to bring about the changes in organizational culture and individual mind-sets that are needed to support the formulation, implementation and evaluation of strategies

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

16. Planning The only thing certain about the future of any organization is change, and planning is the essential bridge between the present and the future that increases the likelihood of achieving desired results. Process by which an individual or business may turn empty dreams into achievements Planning consists of all those managerial activities related to preparing for the future, specific tasks include forecasting, establishing objectives, devising strategies, developing policies, and setting goals

17. Organizing Means who does what and who reports to whom Well organized enterprises successfully competing against-and in some cases defeating-much stronger but –less organized firms. Well organized firm generally has motivated managers and employees who are committed to seeing Org succeed

18. Organizing The organizing function of management can be viewed as consisting of three sequential activities:  Breaking down tasks into jobs(work specialization  Combing jobs to form departments(departmentalization)  Delegating authority Changes in strategy often requires changes in structure because positions may be created, deleted or merged

19. Delegating authority is an important organizing activity  “You can tell how good a manager is by observing how his or her department functions when he or she isn’t there”  Employees are today are more educated and more capable if participating in organizational decisions making than ever before

20. Motivating The process of influencing people to accomplish specific objectives Four major components  Leadership  Group dynamics  Communication  Organizational Change

21. Motivating continues……. Leadership includes developing a vision of the firm’s future and inspiring people to work hard to achieve that vision  Effective leaders traits Knowledge of the business Cognitive ability Self – Confidence Honesty Integrity & drive Group dynamics & Communication plays an important role in formulating and implementing strategies

22. Staffing Includes activities such as recruiting, interviewing, testing, selecting, orienting, training, developing, evaluating and rewarding, promoting…… as well as managing union relations Strategists are becoming increasingly aware of how important HR are to effective strategic management. They provide leadership for organizations that are restructuring or they allow employees to work at home

23. Controlling All those activities undertaken to ensure that actual operations conform to planned operations Measuring individual performance is often conducted ineffectively or not at all in Orgs  Evaluations can create confrontations that most managers prefer to avoid  No single approach to measuring performance is without limitation Graphic rating scale/BARs/Critical incident method

24. Management Audit checklist of Questions Does the firm use SM 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 Org structure appropriate? Are job descriptions and Job specifications clear? Are employees turnover and absenteeism low?

25. Marketing Process of 1. Defining 2. Anticipating 3. Creating 4. Fulfilling Customer Needs/Wants for Products/Services

26. Marketing Marketing Functions 1. Customer analysis 2. Selling products/services 3. Product & service planning 4. Pricing 5. Distribution 6. Marketing research 7. Opportunity analysis Understanding these functions helps strategists identify and evaluate marketing strengths and weaknesses Read Book

27. Marketing Audit checklist of Questions Are markets segmented effectively? Is the organization positioned well among competitors? Has the firm’s market share been increasing? Does the firm conduct market research?

28. Finance/Accounting Finance/Accounting Functions comprise three decisions: 1. Investment decision (Capital budgeting) 2. Financing decision 3. Dividend decision Financial condition is often considered the single best measure of a firm’s competitive position and overall attractiveness to investors

29. Investment decisions/ Capital budgeting  Is the allocation and reallocation of capital and resources to projects, assets, and divisions of an organization Financing decisions:  Determines the best capital structure for the firm and includes examining various methods by which the firm can raise capital(debt to equity/ debt to total assets ratio) Dividend decisions:  Amount of funds that are retained in a firm compared to the amount paid out to stockholders

30. Types of financial Ratios Computed from an organization’s income statement and balance sheet Comparing ratios over time and to industry averages is more likely to result in meaningful statistics that can be used to identify and evaluate strengths and weaknesses  How has each ratio changed over time?  How does each ratio compared to industry norms?  How does each ratio compare with key competitors?

31. Checklist Where is the firm financially strong and weak as indicated by financial ratio analyses? Can the firm raise needed short-term capital? Can the firm raise needed long-term capital through debt or equity ? Are the firm’s financial managers experienced and well trained?

32. Production/Operations Production/Operations Functions  Process  Capacity  Inventory  Workforce  Quality All those activities that transforms input into goods and services A manufacturing operation transforms or converts inputs such as raw materials, labor, capital, machines and facilities into finished goods and services Most automakers require a 30-day notice to build vehicles, but Toyota Motor fills a buyer’s new car order in just 5 days Toyota’s 360 suppliers are linked to the company via virtual assemble line

33. Checklist Are supplies of raw materials, parts and subassemblies reliable and reasonable? Are facilities, equipment, machinery and offices in good condition? Does the firm have technological competencies?

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

35. Management Information Systems Information Systems CIO/CTO Security User-friendly E-commerce  Information ties all business functions together and provides the basis for all managerial decisions.  MIS receives raw material from both the external and internal evaluation of an Org  It gathers data about marketing, finance, production and personnel matters internally and social/demographic/environme ntal /economic factors externally

36. Value Chain Analysis Process whereby a firm determines the costs associated with the organizational activities from purchasing raw materials to manufacturing products to marketing those products Thus value chain analysis can be critically important for a firm in monitoring whether it prices and costs are competitive The combine costs of all the various activities in a company’s value chain define the firm’s cost of doing business

37. Value chains differ immensely across industries and firms  HP- programming, peripherals, software, hardware, and laptops  Motel- food, housekeeping, check-in and check out operations, website, reservations system all firms should use competence into a distinctive competence- A core competence is a value-chain activity that a firm performs especially well  Core competence- distinctive competence

38. © Copyright 2004 McGraw-Hill. All rights reserved. 6–38 Stages in a Vertical Value Chain

39. Benchmarking Analytical tool used to determine whether a firm’s value chain activities are competitive compared to rivals and thus conducive to winning in the marketplace Enables a firm to take action to improve its competitiveness by identifying(and improving upon) value chain activities where rival firms have comparative advantages in cost, service, reputation or operation  Hardest part – gaining access to value chain activities with associated costs…. FIND OUT

40. The internal Factor Evaluation Matrix Strategy formulation tool which evaluates the major strengths and weaknesses in the functional areas of business, and it also provides a basis for identifying and evaluating relationships among those areas.

41. 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

42. 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

43. 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

44. 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

45. Total weighted scores well below 2.5 characterize organizations that are weak internally, whereas scores significantly above 2.5 indicate a strong internal position