The document outlines key topics from Chapter 4 of a strategic management textbook, including: - The internal audit process examines functional business areas to understand strengths and weaknesses - Culture and strategy must be integrated, as culture can inhibit strategic changes if not aligned - Resource-based view argues that internal resources are more important than external factors for competitive advantage - Financial ratios and other metrics are used to evaluate performance across marketing, production, R&D, and other functions

1. Chapter 4 The Internal Assessment Strategic Management: Concepts & Cases 10 th Edition Fred David PowerPoint Slides by Anthony F. Chelte Western New England College

2. Chapter Outline The Nature of an Internal Audit The Resource-Based View (RBV) Integrating Strategy & Culture

3. Chapter Outline ( cont’d ) Management Marketing Opportunity Analysis

4. Chapter Outline ( cont’d ) Finance/Accounting Production/Operations Research & Development

5. Chapter Outline ( cont’d ) Management Information Systems The Internal Factor Evaluation (IFE) Matrix

6. 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. – Sun Zi

7. -- Strengths -- Weaknesses The Nature of an Internal Audit Functional Areas of Business

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

9. Key Internal Forces Functional Business Areas: Vary by organization Divisions have differing strengths & weaknesses

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

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

12. Key Internal Forces Distinctive Competencies: Strategies designed to improve on a firm’s weaknesses and turn to strengths

13. Internal Audit Information from: Management Marketing Finance/accounting Production/operations Research & Development Management information Systems Parallels process of external audit

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

15. Internal Audit Coordination & understanding among managers from all functional areas Key to Organizational Success

16. Internal Audit Number and complexity increases relative to organization size Functional Relationships

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

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

19. Resource Based View (RBV) 3 All Encompassing Categories Physical resources Human resources Organizational resources

20. Resource Based View (RBV) Empirical Indicators Rare Hard to imitate Not easily substitutable

21. 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

22. Integrating Strategy & Culture Organizational Culture Resistant to change May represent Strength Weakness

23. Cultural Products Values Legends Beliefs Heroes Rites Symbols Rituals Myths Integrating Strategy & Culture

24. 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

25. Management Functions of Management Planning Organizing Motivating Staffing Controlling

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

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

28. Planning Forecasting Establishing objectives Devising strategies Developing policies Setting goals Management

29. Management Organizing Achieves coordinated effort Defines task & authority relationships Departmentalization Delegation of authority

30. Organizing Organizational design Job specialization Job descriptions Job specifications Span of control Unity of command Coordination Job design Job analysis Management

31. Management Motivating Influencing to accomplish specific objectives Communication – major component

32. Motivating Leadership Communication Work groups Job enrichment Job satisfaction Needs fulfillment Organizational change Morale Management

33. Management Staffing Personnel management Human resources management

34. Staffing Wage & salary admin. Employee benefits Interviewing Hiring Discharging Training Management development Affirmative Action EEO Labor relations Management

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

36. Controlling Quality Financial Sales Inventory Expense Analysis of variance Rewards Sanctions Management

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

38. 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?

39. Management Audit Checklist Is employee absenteeism low? Is employee turnover low? Are the reward mechanisms effective? Are the organization’s control mechanisms effective?

40. Marketing Customer Needs/Wants for Products/Services Defining Anticipating Creating Fulfilling

41. Marketing Marketing Functions Customer analysis Selling products/services Product & service planning Pricing Distribution Marketing research Opportunity analysis

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

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

44. Test marketing Brand positioning Devising warrantees Packaging Product features/options Product style Quality Marketing Planning Product/Service

45. Forward integration Discounts Credit terms Condition of sale Markups Costs Unit pricing Marketing Pricing

46. Warehousing Channels Coverage Retail site locations Sales territories Inventory levels Transportation Marketing Distribution

47. Data collection Data input Data analysis Support business functions Marketing Marketing Research

48. Assessing costs Assessing benefits Assessing risks Cost/benefit/risk analysis Marketing Opportunity Analysis

49. Marketing Opportunity Analysis Are markets segmented effectively? Is the organization positioned well among competitors? Has the firm’s market share been increasing? Are the distribution channels reliable & cost effective? Is the sales force effective?

50. Marketing Opportunity Analysis Does the firm conduct market research? Are product quality & customer service good? Are the firm’s products/services priced appropriately? Does the firm have effective promotion, advertising, & publicity strategies?

51. Marketing Opportunity Analysis Are the marketing planning & budgeting effective? Do the firm’s marketing managers have adequate experience and training?

52. Finance/Accounting Determining financial strengths & weaknesses key to strategy formation

53. Finance/Accounting Finance/Accounting Functions Investment decision (Capital budgeting) Financing decision Dividend decision

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

55. 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

56. 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

57. 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

58. 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)

59. Firm’s ability to maintain economic position Ratios Sales Net income Earnings per share Dividends per share Basic Financial Ratios Growth Ratios

60. 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?

61. 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?

62. Production/Operations Production/Operations Functions Process Capacity Inventory Workforce Quality

63. Facility design Technology selection Facility layout Process flow analysis Facility location Line balancing Process control Production/Operations Process

64. Forecasting Facilities planning Aggregate planning Scheduling Capacity planning Queuing analysis Production/Operations Capacity

65. Raw materials Work in process Finished goods Materials handling Production/Operations Inventory

66. Job design Work measurement Job enrichment Work standards Motivation techniques Production/Operations Workforce

67. Quality control Sampling Testing Quality assurance Cost Control Production/Operations Quality

68. 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?

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

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

71. 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

72. 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?

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

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

75. Information Systems CIO/CTO Security User-friendly E-commerce Management Information Systems

76. 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?

77. 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?

78. 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?

79. 0.15 3 0.05 5. As a direct seller, Gateway holds high brand recognition 0.40 4 0.10 4. Consumer Reports (Sept 2002) recommended Gateway 500X as #1 0.15 3 0.05 3. Well-known brand name 0.15 3 0.05 2. Continuous decline in operating costs and cost of goods sold 0.40 4 0.05 1. Several new senior executive with world-class skills and leadership experience Strengths Wtd Score Rating Weight Key Internal Factors IFE– Gateway Computers (2003)

80. 0.15 3 0.05 9. Gateway retails stores excellent 0.20 4 0.05 8. Economies of scale, the 6 th largest PC maker I the world 0.20 4 0.05 7. Good relationship with its suppliers. 0.30 3 0.10 6. Gateway is diversifying into non-PC products Strengths (cont’d) Wtd Score Rating Weight Key Internal Factors IFE– Gateway Computers (2003)

81. 0.05 2 0.025 4. No niche market 0.10 1 0.025 3. Low return on assets ratio 0.05 1 0.10 2. Almost no budget for R&D vs. Dell’s 18% of revenue 0.15 3 0.05 1. High operating expense (22% of revenue vs. 10% for Dell) Weaknesses Wtd Score Rating Weight Key Internal Factors IFE– Gateway Computers (2003)

82. 2.85 1.00 TOTAL 0.20 2 0.10 7. Weak performance in overseas market 0.10 2 0.05 6. Limited number Gateway stores 0.20 2 0.10 5. Shortage of cash due to successive losses Weaknesses (cont’d) Wtd Score Rating Weight Key Internal Factors IFE– Gateway Computers (2003)

83. Key Terms & Concepts For Review (Chapter 4) Activity Ratios Cost/Benefit Analysis Capital Budgeting Cultural Products Communication Distinctive Competencies Controlling Distribution

84. Key Terms & Concepts For Review (Chapter 4) Dividend Decision Functions of Finance/Accounting Empirical Indicators Functions of Management Financial Ratio Analysis Functions of Marketing Financing Decision Functions of Production/ Operations

85. Key Terms & Concepts For Review (Chapter 4) Growth Ratios Investment Decision Human Resource Management Leverage Ratios Internal Audit Liquidity Ratios Internal Factor Evaluation (IFE) Matrix Management Information Systems

86. Key Terms & Concepts For Review (Chapter 4) Motivating Personnel Management Opportunity Analysis Planning Organizational Culture Pricing Organizing Product & Service Planning

87. Key Terms & Concepts For Review (Chapter 4) Production/Operations Functions Selling Profitability Ratios Staffing Research & Development Synergy Resource Based View (RBV) Test Marketing

88. Key Terms & Concepts For Review (Chapter 4) Value Chain Analysis (VCA)