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Chapter 4 The Internal Assessment

Strategic Management: Concepts & Cases10th EditionFred David PowerPoint Slides byAnthony F. ChelteWestern New England College

Copyright 2005 Prentice Hall

Chapter OutlineThe Nature of an Internal AuditThe Resource-Based View (RBV)Integrating Strategy & Culture


Chapter Outline (contd)ManagementMarketingOpportunity Analysis


Chapter Outline (contd)Finance/AccountingProduction/OperationsResearch & Development


Chapter Outline (contd)Management Information SystemsThe Internal Factor Evaluation (IFE) Matrix


The biggest levers youve got to change a company are strategy, structure, and culture. If I could pick two, Id pick strategy and culture. Wayne Leonard, CEO, EntergyInternal Assessment Weak leadership can wreck the soundest strategy. Sun Zi


-- Strengths

-- Weaknesses The Nature of an Internal AuditFunctional Areas of Business


Internal strengths/weaknessesExternal opportunities/threatsClear statement of missionNature of an Internal AuditBasis for Objectives & Strategies


Key Internal ForcesFunctional Business Areas:Vary by organizationDivisions have differing strengths & weaknesses


Key Internal ForcesDistinctive Competencies:Firms strengths that cannot be easily matched or imitated by competitors


Key Internal ForcesDistinctive Competencies:Building competitive advantage involves taking advantage of distinctive competencies


Key Internal ForcesDistinctive Competencies:Strategies designed to improve on a firms weaknesses and turn to strengths


Internal AuditInformation from:ManagementMarketingFinance/accountingProduction/operationsResearch & DevelopmentManagement information SystemsParallels process of external audit


Internal AuditInvolvement in performing an internal strategic-management audit provides vehicle for understanding nature and effect of decisions in other functional business areas of the firm


Internal AuditCoordination & understanding among managers from all functional areasKey to Organizational Success


Internal AuditNumber and complexity increases relative to organization sizeFunctional Relationships


Internal AuditExemplifies complexity of relationships among functional areas of the businessFinancial Ratio Analysis


Resource Based View (RBV)Approach to Competitive AdvantageInternal resources are more important than external factors


Resource Based View (RBV)3 All Encompassing CategoriesPhysical resourcesHuman resourcesOrganizational resources


Resource Based View (RBV)Empirical IndicatorsRareHard to imitateNot easily substitutable


Integrating Strategy & Culture Pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integrationis considered valid and taught to new membersOrganizational Culture


Integrating Strategy & CultureOrganizational CultureResistant to changeMay representStrengthWeakness


CulturalProductsValuesLegendsBeliefsHeroesRitesSymbolsRitualsMythsIntegrating Strategy & Culture


Integrating Strategy & CultureOrganizational Culture Can Inhibit Strategic ManagementMiss external changes due to strongly held beliefsNatural tendency to hold the course even during times of strategic change


ManagementFunctions of ManagementPlanningOrganizingMotivatingStaffingControlling


ManagementPlanningStage When Most ImportantFunctionStrategy FormulationOrganizingStrategy ImplementationMotivatingStrategy ImplementationStaffingControllingStrategy ImplementationStrategy Evaluation


ManagementPlanningBeginning of management processBridge between present & futureImproves likelihood of attaining desired results


PlanningForecasting

Establishing objectives

Devising strategies

Developing policies

Setting goalsManagement


ManagementOrganizingAchieves coordinated effortDefines task & authority relationshipsDepartmentalizationDelegation of authority


OrganizingOrganizational designJob specializationJob descriptionsJob specificationsSpan of controlUnity of commandCoordinationJob designJob analysisManagement


ManagementMotivatingInfluencing to accomplish specific objectivesCommunication major component


MotivatingLeadershipCommunicationWork groupsJob enrichmentJob satisfactionNeeds fulfillmentOrganizational changeMoraleManagement


ManagementStaffingPersonnel managementHuman resources management


StaffingWage & salary admin.Employee benefitsInterviewingHiringDischargingTrainingManagement developmentAffirmative ActionEEOLabor relationsManagement


ManagementControllingEstablishing performance standardsEnsure actual operations conform to planned operationsTaking corrective actions


ControllingQualityFinancialSalesInventoryExpenseAnalysis of varianceRewardsSanctionsManagement


Management Audit ChecklistDoes the firm use strategic management concepts?Are objectives/goals measurable? Well communicated?Do managers at all levels plan effectively?


Management Audit ChecklistDo managers delegate well?Is the organizations structure appropriate?Are job descriptions clear?Are job specifications clear?Is employee morale high?


Management Audit ChecklistIs employee absenteeism low?Is employee turnover low?Are the reward mechanisms effective?Are the organizations control mechanisms effective?


MarketingCustomer Needs/Wants for Products/ServicesDefiningAnticipatingCreatingFulfilling


MarketingMarketing FunctionsCustomer analysisSelling products/servicesProduct & service planningPricingDistributionMarketing researchOpportunity analysis


Customer AnalysisCustomer surveys Consumer information Market positioning strategies Customer profiles Market segmentation strategiesMarketing


AdvertisingSalesPromotionPublicitySales force managementCustomer relationsDealer relationsMarketing

Selling Products/Services


Test marketingBrand positioningDevising warranteesPackagingProduct features/optionsProduct styleQualityMarketing

Planning Product/Service


Forward integrationDiscountsCredit termsCondition of saleMarkupsCostsUnit pricingMarketing

Pricing


WarehousingChannelsCoverageRetail site locationsSales territoriesInventory levelsTransportationMarketing

Distribution


Data collectionData inputData analysisSupport business functionsMarketing

Marketing Research


Assessing costs

Assessing benefits

Assessing risks

Cost/benefit/risk analysisMarketing

Opportunity Analysis


MarketingOpportunity AnalysisAre markets segmented effectively?Is the organization positioned well among competitors?Has the firms market share been increasing?Are the distribution channels reliable & cost effective?Is the sales force effective?


MarketingOpportunity AnalysisDoes the firm conduct market research?Are product quality & customer service good?Are the firms products/services priced appropriately?Does the firm have effective promotion, advertising, & publicity strategies?


MarketingOpportunity AnalysisAre the marketing planning & budgeting effective?Do the firms marketing managers have adequate experience and training?


Finance/AccountingDetermining financial strengths & weaknesses key to strategy formation


Finance/AccountingFinance/Accounting FunctionsInvestment decision (Capital budgeting)Financing decisionDividend decision


Firms ability to meet its short-term obligations

Ratios

Current ratioQuick (or acid test) ratioBasic Financial Ratios

Liquidity Ratios


Extent of debt financing

Ratios

Debt-to-total assetsDebt-to-equityLong-term debt-to-equityTimes-interest earnedBasic Financial Ratios

Leverage Ratios


Effective use of firms resources

Ratios

Inventory-turnoverFixed assets turnoverTotal assets turnoverAccounts receivable turnoverAverage collection periodBasic Financial Ratios

Activity Ratios


Effectiveness shown by returns on sales & investment

Ratios

Gross profit marginOperating profit marginNet profit marginReturn on total assets (ROA)Basic Financial Ratios

Profitability Ratios


Effectiveness shown by returns on sales & investment

Ratios

Return on stockholders equity (ROE)Earnings per sharePrice-earnings ratioBasic Financial Ratios

Profitability Ratios (contd)


Firms ability to maintain economic position

Ratios

SalesNet incomeEarnings per shareDividends per shareBasic Financial Ratios

Growth Ratios


Finance/Accounting AuditWhere 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?


Finance/Accounting AuditDoes the firm have sufficient working capital?Are capital budgeting procedures effective?Are dividend payout policies reasonable?Are the firms financial managers experienced & well trained?


Production/OperationsProduction/Operations FunctionsProcessCapacityInventoryWorkforceQuality


Facility designTechnology selectionFacility layoutProcess flow analysisFacility locationLine balancingProcess controlProduction/Operations

Process


ForecastingFacilities planningAggregate planningSchedulingCapacity planningQueuing analysisProduction/Operations

Capacity


Raw materialsWork in processFinished goodsMaterials handlingProduction/Operations

Inventory


Job designWork measurementJob enrichmentWork standardsMotivation techniquesProduction/Operations

Workforce


Quality controlSamplingTestingQuality assuranceCost ControlProduction/Operations

Quality


Production/Operations AuditAre suppliers of materials, parts, etc. reliable and reasonable?Are facilities, equipment & machinery in good condition?Are inventory-control policies and procedures effective?


Production/Operations AuditAre quality-control policies & procedures effective?Are facilities, resources, and markets strategically located?Does the firm have technological competencies?


Research & DevelopmentResearch & Development FunctionsDevelopment of new products before competitorsImproving product qualityImproving manufacturing processes to reduce costs


Financing as many projects as possible use percent-of-sales method Budgeting relative to competitors How many successful new products are neededResearch & Development

R&D Budgets


Research & Development AuditAre 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?


Research & Development AuditAre MIS and computer systems adequate?Is communication between R&D & other organizational units effective?Are present products technologically competitive?


Management Information SystemsPurposeImprove performance of an enterprise by improving the quality of managerial decisions.


Information SystemsCIO/CTOSecurityUser-friendlyE-commerce Management Information Systems


Management Information Systems AuditDo 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?


Management Information Systems AuditDo managers from all functional areas contribute input to the information system?Are there effective passwords for entry into the firms information system?Are strategists of the firm familiar with the information systems of rival firms?


Management Information Systems AuditIs 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 firms system being improved?


Key Terms & ConceptsFor Review (Chapter 4)Activity RatiosCost/Benefit AnalysisCapital BudgetingCultural ProductsCommunicationDistinctive CompetenciesControllingDistribution


Key Terms & ConceptsFor Review (Chapter 4)Dividend DecisionFunctions of Finance/AccountingEmpirical IndicatorsFunctions of ManagementFinancial Ratio AnalysisFunctions of MarketingFinancing DecisionFunctions of Production/ Operations


Key Terms & ConceptsFor Review (Chapter 4)Growth RatiosInvestment DecisionHuman Resource ManagementLeverage RatiosInternal AuditLiquidity RatiosInternal Factor Evaluation (IFE) MatrixManagement Information Systems


Key Terms & ConceptsFor Review (Chapter 4)MotivatingPersonnel ManagementOpportunity AnalysisPlanningOrganizational CulturePricingOrganizingProduct & ServicePlanning


Key Terms & ConceptsFor Review (Chapter 4)Production/Operations FunctionsSellingProfitability RatiosStaffingResearch & DevelopmentSynergyResource Based View (RBV)Test Marketing


Key Terms & ConceptsFor Review (Chapter 4)Value Chain Analysis (VCA)


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