Strategic Mangement Lecture 4

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Strategic Mangement Lecture 4

  1. 1. Chapter 4The Internal Assessment Strategic Management: Concepts & Cases 13th Edition Global Edition Fred David Copyright © 2011 Pearson Education Ch 4 -1
  2. 2. Copyright © 2011 Pearson Education Ch 4 -2
  3. 3. Internal Assessment “Great spirits have always encountered violent opposition from mediocre minds.” – Albert Einstein “Weak leadership can wreck the soundest strategy.” – Sun Tzu Copyright © 2011 Pearson Education Ch 4 -3
  4. 4. Internal Audit Identify strengths and weaknesses in  Management  Marketing  Finance and accounting  Production and operations  Research and development  Management information systems Copyright © 2011 Pearson Education Ch 4 -4
  5. 5. Nature of an Internal AuditBasis for Objectives & Strategies Internal strengths/weaknesses External opportunities/threats Clear statement of mission Copyright © 2011 Pearson Education Ch 4 -5
  6. 6. Key Internal ForcesDistinctive Competencies: Firm’s strengths that cannot be easily matched or imitated by competitors Copyright © 2011 Pearson Education Ch 4 -6
  7. 7. Key Internal ForcesDistinctive Competencies: Building competitive advantage involves taking advantage of distinctive competencies Copyright © 2011 Pearson Education Ch 4 -7
  8. 8. Internal Audit ProcessParallels process of external auditInformation gathered from:  Management  Marketing  Finance/accounting  Production/operations  Research & development  Management information systems Copyright © 2011 Pearson Education Ch 4 -8
  9. 9. Internal Audit Involvement in performing an internal strategic-management audit provides a vehicle for understanding the nature and effect of decisions in other functional business areas of the firm Copyright © 2011 Pearson Education Ch 4 -9
  10. 10. Copyright © 2011 Pearson Education Ch 4 -10
  11. 11. Internal AuditManagers and employees fromall areas provide informationA team of managers then selects10 to 15 key organizationalstrengths and weaknesses tofocus on Copyright © 2011 Pearson Education Ch 4 -11
  12. 12. Internal Audit Financial Ratio AnalysisExemplifies complexity ofrelationships among functional areasof the business Copyright © 2011 Pearson Education Ch 4 -12
  13. 13. Resource Based View (RBV)Approach to Competitive AdvantageInternal resources are moreimportant than external factors Copyright © 2011 Pearson Education Ch 4 -13
  14. 14. Resource Based View (RBV)Three All-Encompassing Categories1. Physical resources2. Human resources3. Organizational resources Copyright © 2011 Pearson Education Ch 4 -14
  15. 15. Resource Based View (RBV)Empirical Indicators Rare Hard to imitate Not easily substitutable Copyright © 2011 Pearson Education Ch 4 -15
  16. 16. Integrating Strategy & CultureOrganizational 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 Copyright © 2011 Pearson Education Ch 4 -16
  17. 17. Integrating Strategy & CultureOrganizational Culture Resistant to change May represent:  Strength  Weakness Copyright © 2011 Pearson Education Ch 4 -17
  18. 18. Integrating Strategy & Culture Values Legends Beliefs Cultural Heroes Rites Products Symbols Rituals Myths Copyright © 2011 Pearson Education Ch 4 -18
  19. 19. Integrating Strategy & CultureOrganizational Culture Can InhibitStrategic Management Miss external changes due to strongly held beliefs Natural tendency to “hold the course” even during times of strategic change Copyright © 2011 Pearson Education Ch 4 -19
  20. 20. ManagementFunctions of Management1. Planning2. Organizing3. Motivating4. Staffing5. Controlling Copyright © 2011 Pearson Education Ch 4 -20
  21. 21. Management Stage When MostFunction Important Planning Strategy FormulationOrganizing Strategy ImplementationMotivating Strategy Implementation Staffing Strategy ImplementationControlling Strategy Evaluation Copyright © 2011 Pearson Education Ch 4 -21
  22. 22. ManagementPlanning Beginning of management process Bridge between present & future Improves likelihood of attaining desired results Copyright © 2011 Pearson Education Ch 4 -22
  23. 23. Management Developing a mission Forecasting future events and trends Planning Establishing objectives Choosing strategies to pursue Copyright © 2011 Pearson Education Ch 4 -23
  24. 24. Planning Synergy  Can develop through planning  Exists when everyone pulls together as a team that knows what it wants to achieve Copyright © 2011 Pearson Education Ch 4 -24
  25. 25. ManagementOrganizing Achieves coordinated effort Defines task & authority relationships Determines who does what Determines who reports to whom Copyright © 2011 Pearson Education Ch 4 -25
  26. 26. Management Organizing  Breaking down tasks into jobs  Combining jobs to form departments  Delegating authority Copyright © 2011 Pearson Education Ch 4 -26
  27. 27. Management Motivating Influencing to accomplish specific objectives Four components include:  Leadership  Group dynamics  Communication  Organizational change Copyright © 2011 Pearson Education Ch 4 -27
  28. 28. ManagementStaffing Personnel management Human resource management Copyright © 2011 Pearson Education Ch 4 -28
  29. 29. ManagementStaffing Recruiting  Evaluating Interviewing  Rewarding Testing  Disciplining Selecting  Promoting Orienting  Transferring Training  Demoting Developing  Dismissing Caring for Copyright © 2011 Pearson Education Ch 4 -29
  30. 30. ManagementControlling Establishing performance standards Ensure actual operations conform to planned operations Taking corrective actions Copyright © 2011 Pearson Education Ch 4 -30
  31. 31. ManagementControlling1. Establish performance standards2. Measure individual and organizational performance3. Compare actual performance to planned performance standards4. Take corrective action Copyright © 2011 Pearson Education Ch 4 -31
  32. 32. Management Audit Checklist Does the firm use strategic management concepts? Are objectives/goals measurable? Well communicated? Do managers at all levels plan effectively? Copyright © 2011 Pearson Education Ch 4 -32
  33. 33. 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? Copyright © 2011 Pearson Education Ch 4 -33
  34. 34. Management Audit Checklist Is employee absenteeism low? Is employee turnover low? Are the reward mechanisms effective? Are the organization’s control mechanisms effective? Copyright © 2011 Pearson Education Ch 4 -34
  35. 35. MarketingCustomer Needs or Wants for Productsand Services1. Defining2. Anticipating3. Creating4. Fulfilling Copyright © 2011 Pearson Education Ch 4 -35
  36. 36. MarketingMarketing Functions1. Customer analysis2. Selling products/services3. Product & service planning4. Pricing5. Distribution6. Marketing research7. Opportunity analysis Copyright © 2011 Pearson Education Ch 4 -36
  37. 37. Marketing Customer surveys Consumer information Market positioning Customer strategies Analysis Customer profiles Market segmentation strategies Copyright © 2011 Pearson Education Ch 4 -37
  38. 38. Marketing Advertising Sales Promotion Publicity SellingProducts/Services Personal Selling Sales force management Customer relations Dealer relations Copyright © 2011 Pearson Education Ch 4 -38
  39. 39. Copyright © 2011 Pearson Education Ch 4 -39
  40. 40. Marketing Test marketing Brand positioning Devising warranties Packaging Product/Service Product features/options Planning Product style Quality Deleting old products Providing for customer service Copyright © 2011 Pearson Education Ch 4 -40
  41. 41. Marketing Consumers Governments Pricing SuppliersMajor Stakeholders Distributors Competitors Copyright © 2011 Pearson Education Ch 4 -41
  42. 42. Marketing Warehousing Distribution channels Retail site locations Distribution Sales territories Inventory levels Transportation Wholesaling Retailing Copyright © 2011 Pearson Education Ch 4 -42
  43. 43. Marketing Gather dataMarketing Research Record data Analyze data Copyright © 2011 Pearson Education Ch 4 -43
  44. 44. Marketing Assessing costs Cost/Benefit Assessing benefits Analysis Assessing risks Copyright © 2011 Pearson Education Ch 4 -44
  45. 45. Marketing Audit1. 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? Copyright © 2011 Pearson Education Ch 4 -45
  46. 46. Marketing Audit6. Does the firm conduct market research?7. Are product quality & customer service good?8. Are the firm’s products and services priced appropriately?9. Does the firm have effective promotion, advertising, and publicity strategies? Copyright © 2011 Pearson Education Ch 4 -46
  47. 47. Marketing Audit10. Are the marketing, planning, and budgeting effective?11. Do the firm’s marketing managers have adequate experience and training?12. Is the firm’s Internet presence excellent as compared to rivals? Copyright © 2011 Pearson Education Ch 4 -47
  48. 48. Finance/Accounting1. Investment decision (Capital budgeting)2. Financing decision3. Dividend decision Copyright © 2011 Pearson Education Ch 4 -48
  49. 49. Basic Financial Ratios Firm’s ability to meet its short-term obligations Liquidity Ratios Ratios Current ratio Quick (or acid test) ratio Copyright © 2011 Pearson Education Ch 4 -49
  50. 50. Basic Financial Ratios Extent of debt financing Ratios Leverage Ratios Debt-to-total assets Debt-to-equity Long-term debt-to-equity Times-interest-earned Copyright © 2011 Pearson Education Ch 4 -50
  51. 51. Basic Financial Ratios Effective use of firm’s resources Ratios Activity Ratios Inventory turnover Fixed assets turnover Total assets turnover Accounts receivable turnover Average collection period Copyright © 2011 Pearson Education Ch 4 -51
  52. 52. Basic Financial Ratios Effectiveness shown by returns on sales and investmentProfitability Ratios Ratios Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA) Copyright © 2011 Pearson Education Ch 4 -52
  53. 53. Basic Financial Ratios Effectiveness shown by returns on sales & investmentProfitability Ratios Ratios (cont’d) Return on stockholders’ equity (ROE) Earnings per share Price-earnings ratio Copyright © 2011 Pearson Education Ch 4 -53
  54. 54. Basic Financial Ratios Firm’s ability to maintain economic position Ratios Growth Ratios Sales Net Income Earnings per share Dividends per share Copyright © 2011 Pearson Education Ch 4 -54
  55. 55. Growth Ratios Ratio Annual percentage growth in Sales  Total sales Net Income  Profits Earnings per share  EPS Dividends per share  Dividends per share Copyright © 2011 Pearson Education Ch 4 -55
  56. 56. Copyright © 2011 Pearson Education Ch 4 -56
  57. 57. Copyright © 2011 Pearson Education Ch 4 -57
  58. 58. Copyright © 2011 Pearson Education Ch 4 -58
  59. 59. Copyright © 2011 Pearson Education Ch 4 -59
  60. 60. Finance/Accounting Audit1. Where is the firm financially strong/weak as indicated by financial ratio analysis?2. Can the firm raise needed short-term capital?3. Can the firm raise needed long-term capital through debt and/or equity?4. Does the firm have sufficient working capital?5. Are capital budgeting procedures effective? Copyright © 2011 Pearson Education Ch 4 -60
  61. 61. Finance/Accounting Audit6. Are dividend payout policies reasonable?7. Does the firm have good relations with its investors and stockholders?8. Are the firm’s financial managers experienced and well trained?9. Is the firm’s debt situation excellent? Copyright © 2011 Pearson Education Ch 4 -61
  62. 62. Production/OperationsProduction/Operations Functions Process Capacity Inventory Workforce Quality Copyright © 2011 Pearson Education Ch 4 -62
  63. 63. Copyright © 2011 Pearson Education Ch 4 -63
  64. 64. 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? Copyright © 2011 Pearson Education Ch 4 -64
  65. 65. Production/Operations Audit •Are quality-control policies & procedures effective? •Are facilities, resources, and markets strategically located? •Does the firm have technological competencies? Copyright © 2011 Pearson Education Ch 4 -65
  66. 66. Research & DevelopmentResearch & 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 Copyright © 2011 Pearson Education Ch 4 -66
  67. 67. Research & Development Financing as many projects as possible Use percent-of-sales method R&D Budgets Budgeting relative to competitors How many successful new products are needed Copyright © 2011 Pearson Education Ch 4 -67
  68. 68. 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? Copyright © 2011 Pearson Education Ch 4 -68
  69. 69. Research & Development Audit •Are MIS and computer systems adequate? •Is communication between R&D and other organizational units effective? •Are present products technologically competitive? Copyright © 2011 Pearson Education Ch 4 -69
  70. 70. Management Information SystemsPurpose  Improve performance of an enterprise by improving the quality of managerial decisions Copyright © 2011 Pearson Education Ch 4 -70
  71. 71. Management Information SystemsAudit 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? Copyright © 2011 Pearson Education Ch 4 -71
  72. 72. Management Information SystemsAudit 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? Copyright © 2011 Pearson Education Ch 4 -72
  73. 73. Value Chain Analysis The process whereby a firm determines the costs associated with:  Purchasing raw materials  Manufacturing products  Marketing products And compares them to the value chain of rival firms Copyright © 2011 Pearson Education Ch 4 -73
  74. 74. Value Chain Analysis Core competencies Distinctive competencies Benchmarking Copyright © 2011 Pearson Education Ch 4 -74
  75. 75. Transforming Value Chain Activities into SustainedCompetitive Advantage Value Some Chain Some Core Distinctive CoreActivities Competencies Competencie Competencies Are Evolve into s Yield Arise in SomeIdentified Distinctive Sustained Activities and Competencies CompetitiveAssessed Advantages Copyright © 2011 Pearson Education Ch 4 -75
  76. 76. Internal Factor Evaluation (IFE) Matrix1. List key internal factors2. Assign a weight ranging from 0.0 to 1.03. Assign a 1 to 4 rating to each factor4. Multiply the weight times the rating5. Sum the weighted scores Copyright © 2011 Pearson Education Ch 4 -76
  77. 77. GROUP EXERCISE Learning Exercise 4A p160 Copyright © 2011 Pearson Education Ch 4 -77
  78. 78. FOR NEXT WEEK• Readings 7 & 8 Strategic Management Supplement for Southern Africa• Assurance of Learning exercise 4B – Group exercise• Read Business Report, www.busrep.co.za• Read CNBC, www.cnbc.com Copyright © 2011 Pearson Education Ch 3 -78

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