David sm13 ppt_04

Copyright © 2011 Pearson
Education, Inc. Ch 4 -1
Chapter 4
The Internal Assessment
Strategic Management:
Concepts & Cases
13th
Edition
Fred David

“Great spirits have always encountered
violent opposition from mediocre minds.”
– Albert Einstein
Internal Assessment
“Weak leadership can wreck the soundest
strategy.”
– Sun Tzu

Internal Audit
 Identify strengths and weaknesses in
 Management
 Marketing
 Finance and accounting
 Production and operations
 Research and development
 Management information systems

 Internal strengths/weaknesses
 External opportunities/threats
 Clear statement of mission
Nature of an Internal Audit
Basis for Objectives & Strategies

Key Internal Forces
Distinctive Competencies:
Firm’s strengths that cannot be
easily matched or imitated by
competitors

Key Internal Forces
Distinctive Competencies:
Building competitive advantage
involves taking advantage of
distinctive competencies

Internal Audit Process
Information gathered from:
Management
Marketing
Finance/accounting
Production/operations
Research & development
Management information systems
Parallels process of external audit

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

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

Internal Audit
Exemplifies complexity of
relationships among functional areas
of the business
Financial Ratio Analysis

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

Three All-Encompassing Categories
1. Physical resources
2. Human resources
3. Organizational resources

Empirical Indicators
 Rare
 Hard to imitate
 Not 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 integration . . . is considered valid
and taught to new members as the correct
way to perceive, think, and feel
Organizational Culture

Organizational Culture
 Resistant to change
 May represent:
 Strength
 Weakness

Cultural
Products
Values
Legends Beliefs
Heroes Rites
Symbols Rituals
Myths

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

Management
Functions of Management
1. Planning
2. Organizing
3. Motivating
4. Staffing
5. Controlling

Management
Planning
Stage When Most
ImportantFunction
Strategy Formulation
Organizing Strategy Implementation
Motivating Strategy Implementation
Staffing
Controlling
Strategy Implementation
Strategy Evaluation

Management
Planning
 Beginning of management process
 Bridge between present & future
 Improves likelihood of attaining desired
results

Planning
Developing a mission
Forecasting future events
and trends
Establishing objectives
Choosing strategies to
pursue
Management

Planning
 Synergy
 Can develop through planning
 Exists when everyone pulls
together as a team that knows
what it wants to achieve

Management
Organizing
 Achieves coordinated effort
 Defines task & authority relationships
 Determines who does what
 Determines who reports to whom

Management
 Organizing
 Breaking down tasks into jobs
 Combining jobs to form
departments
 Delegating authority

Management
Motivating
 Influencing to accomplish specific objectives
 Four components include:
 Leadership
 Group dynamics
 Communication
 Organizational change

Management
Staffing
 Personnel management
 Human resource management

Management
Staffing
 Recruiting
 Interviewing
 Testing
 Selecting
 Orienting
 Training
 Developing
 Caring for
 Evaluating
 Rewarding
 Disciplining
 Promoting
 Transferring
 Demoting
 Dismissing

Management
Controlling
 Establishing performance standards
 Ensure actual operations conform to
planned operations
 Taking corrective actions

Management
Controlling
1. Establish performance standards
2. Measure individual and organizational
performance
3. Compare actual performance to
planned performance standards
4. Take corrective action

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

 Do managers delegate well?
 Is the organization’s structure
appropriate?
 Are job descriptions clear?
 Are job specifications clear?
 Is employee morale high?

 Is employee absenteeism low?
 Is employee turnover low?
 Are the reward mechanisms effective?
 Are the organization’s control
mechanisms effective?

Marketing
Customer Needs or Wants for Products
and Services
1. Defining
2. Anticipating
3. Creating
4. Fulfilling

Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis

Customer
Analysis
Customer surveys
Consumer information
Market positioning
strategies
Customer profiles
Market segmentation
strategies
Marketing

Advertising
Sales Promotion
Publicity
Personal Selling
Sales force management
Customer relations
Dealer relations
Marketing
Selling
Products/Services

Test marketing
Brand positioning
Devising warranties
Packaging
Product features/options
Product style
Quality
Deleting old products
Providing for customer
service
Marketing
Product/Service
Planning

Consumers
Governments
Suppliers
Distributors
Competitors
Marketing
Pricing
Major Stakeholders

Warehousing
Distribution channels
Retail site locations
Sales territories
Inventory levels
Transportation
Wholesaling
Retailing
Marketing
Distribution

Gather data
Record data
Analyze data
Marketing
Marketing Research

Assessing costs
Assessing benefits
Assessing risks
Marketing
Cost/Benefit
Analysis

Marketing Audit
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?

Marketing Audit
6. 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?

Marketing Audit
10.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?

Finance/Accounting
1. Investment decision (Capital
budgeting)
2. Financing decision
3. Dividend decision

Firm’s ability to meet its
short-term obligations
Ratios
Current ratio
Quick (or acid test) ratio
Basic Financial Ratios
Liquidity Ratios

Extent of debt financing
Ratios
Debt-to-total assets
Debt-to-equity
Long-term debt-to-equity
Times-interest-earned
Leverage Ratios

Effective use of firm’s
resources
Ratios
Inventory turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Activity 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

Effectiveness shown by
returns on sales &
investment
Ratios
Return on stockholders’
equity (ROE)
Earnings per share
Price-earnings ratio
Profitability Ratios
(cont’d)

Firm’s ability to
maintain economic
position
Ratios
Sales
Net Income
Earnings per share
Dividends per share
Growth Ratios

Ratio
 Sales
 Net Income
 Earnings per share
 Dividends per share
Annual percentage
growth in
 Total sales
 Profits
 EPS
 Dividends per share
Growth Ratios

Finance/Accounting Audit
1. 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?

Finance/Accounting Audit
6. 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?

Production/Operations
Production/Operations Functions
 Process
 Capacity
 Inventory
 Workforce
 Quality

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?
•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?

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?

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

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

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?

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

Management Information Systems
Purpose
 Improve performance of an
enterprise by improving the quality
of managerial decisions

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?

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?

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

Value Chain Analysis
 Core competencies
 Distinctive competencies
 Benchmarking

Transforming Value Chain Activities into Sustained
Competitive Advantage
Value
Chain
Activities
Are
Identified
and
Assessed
Value
Chain
Activities
Are
Identified
and
Assessed
Core
Competencies
Arise in Some
Activities
Core
Competencies
Arise in Some
Activities
Some Core
Competencies
Evolve into
Distinctive
Competencies
Some Core
Competencies
Evolve into
Distinctive
Competencies
Some
Distinctive
Competencies
Yield
Sustained
Competitive
Advantages
Some
Distinctive
Competencies
Yield
Sustained
Competitive
Advantages

Internal Factor Evaluation (IFE) Matrix
1. List key internal factors
2. Assign a weight ranging from 0.0 to 1.0
3. Assign a 1 to 4 rating to each factor
4. Multiply the weight times the rating
5. Sum the weighted scores

All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.

David sm13 ppt_04

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