Chapter 4

The Internal Assessment

Strategic Management: Concepts & Cases 13th Edition Fred David

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -1

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -2

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, Inc. Publishing as Prentice Hall

Ch 4 -3

Inc.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. Publishing as Prentice Hall Ch 4 -4 .

Publishing as Prentice Hall Ch 4 -5 . Inc.Nature of an Internal Audit Basis for Objectives & Strategies Internal strengths/weaknesses  External opportunities/threats  Clear statement of mission  Copyright © 2011 Pearson Education.

Publishing as Prentice Hall Ch 4 -6 . Inc.Key Internal Forces Distinctive Competencies: Firm’s strengths that cannot be easily matched or imitated by competitors Copyright © 2011 Pearson Education.

Key Internal Forces Distinctive Competencies: Building competitive advantage involves taking advantage of distinctive competencies Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -7 . Inc.

Inc.Internal Audit Process Parallels process of external audit Information       gathered from: Management Marketing Finance/accounting Production/operations Research & development Management information systems Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -8 .

Inc. Publishing as Prentice Hall Ch 4 -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.

Publishing as Prentice Hall Ch 4 -10 . Inc.Copyright © 2011 Pearson Education.

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 Copyright © 2011 Pearson Education. Inc. Publishing as Prentice Hall Ch 4 -11 .

Publishing as Prentice Hall Ch 4 -12 .Internal Audit Financial Ratio Analysis Exemplifies complexity of relationships among functional areas of the business Copyright © 2011 Pearson Education. Inc.

Inc.Resource Based View (RBV) Approach to Competitive Advantage Internal resources are more important than external factors Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -13 .

Inc. 2.Resource Based View (RBV) Three All-Encompassing Categories 1. 3. Physical resources Human resources Organizational resources Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -14 .

Resource Based View (RBV) Empirical Indicators    Rare Hard to imitate Not easily substitutable Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -15 . Inc.

and feel Copyright © 2011 Pearson Education.Integrating Strategy & Culture Organizational Culture Pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integration . . Publishing as Prentice Hall Ch 4 -16 . think. is considered valid and taught to new members as the correct way to perceive. Inc. .

Integrating Strategy & Culture Organizational Culture   Resistant to change May represent:   Strength Weakness Copyright © 2011 Pearson Education. Inc. Publishing as Prentice Hall Ch 4 -17 .

Inc. Publishing as Prentice Hall Ch 4 -18 .Integrating Strategy & Culture Values Legends Beliefs Heroes Cultural Products Rites Symbols Myths Rituals Copyright © 2011 Pearson Education.

Inc.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 Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -19  .

Publishing as Prentice Hall Ch 4 -20 .Management Functions of Management 1. 3. 5. Inc. 4. Planning Organizing Motivating Staffing Controlling Copyright © 2011 Pearson Education. 2.

Publishing as Prentice Hall Stage When Most Important Strategy Formulation Strategy Implementation Strategy Implementation Strategy Implementation Strategy Evaluation Ch 4 -21 . Inc.Management Function Planning Organizing Motivating Staffing Controlling Copyright © 2011 Pearson Education.

Inc.Management Planning    Beginning of management process Bridge between present & future Improves likelihood of attaining desired results Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -22 .

Publishing as Prentice Hall Ch 4 -23 .Management Developing a mission Forecasting future events and trends Planning Establishing objectives Choosing strategies to pursue Copyright © 2011 Pearson Education. Inc.

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. Inc. Publishing as Prentice Hall Ch 4 -24 .

Inc.Management Organizing     Achieves coordinated effort Defines task & authority relationships Determines who does what Determines who reports to whom Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -25 .

Publishing as Prentice Hall Ch 4 -26 .Management  Organizing Breaking down tasks into jobs  Combining jobs to form departments  Delegating authority  Copyright © 2011 Pearson Education. Inc.

Inc.Management Motivating   Influencing to accomplish specific objectives Four components include:     Leadership Group dynamics Communication Organizational change Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -27 .

Publishing as Prentice Hall Ch 4 -28 . Inc.Management Staffing   Personnel management Human resource management Copyright © 2011 Pearson Education.

Publishing as Prentice Hall . Inc.Management Staffing         Recruiting Interviewing Testing Selecting Orienting Training Developing Caring for        Evaluating Rewarding Disciplining Promoting Transferring Demoting Dismissing Ch 4 -29 Copyright © 2011 Pearson Education.

Publishing as Prentice Hall Ch 4 -30 .Management Controlling   Establishing performance standards Ensure actual operations conform to planned operations Taking corrective actions  Copyright © 2011 Pearson Education. Inc.

Publishing as Prentice Hall Ch 4 -31 . Establish performance standards 2. Inc. Measure individual and organizational performance 3.Management Controlling 1. Take corrective action Copyright © 2011 Pearson Education. Compare actual performance to planned performance standards 4.

Inc.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. Publishing as Prentice Hall Ch 4 -32 .

Publishing as Prentice Hall Ch 4 -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. Inc.

Inc.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. Publishing as Prentice Hall Ch 4 -34 .

Fulfilling Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -35 .Marketing Customer Needs or Wants for Products and Services 1. Creating 4. Defining 2. Inc. Anticipating 3.

Inc. Selling products/services 3. Publishing as Prentice Hall Ch 4 -36 . Opportunity analysis Copyright © 2011 Pearson Education. Distribution 6. Customer analysis 2. Marketing research 7. Pricing 5. Product & service planning 4.Marketing Marketing Functions 1.

Marketing Customer surveys Consumer information Customer Analysis Market positioning strategies Customer profiles Market segmentation strategies Copyright © 2011 Pearson Education. Inc. Publishing as Prentice Hall Ch 4 -37 .

Publishing as Prentice Hall Ch 4 -38 . Inc.Marketing Selling Products/Services Advertising Sales Promotion Publicity Personal Selling Sales force management Customer relations Dealer relations Copyright © 2011 Pearson Education.

Inc.Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -39 .

Inc. Publishing as Prentice Hall Ch 4 -40 .Marketing Test marketing Brand positioning Devising warranties Packaging Product features/options Product style Quality Deleting old products Providing for customer service Product/Service Planning Copyright © 2011 Pearson Education.

Marketing

Pricing Major Stakeholders

Consumers Governments Suppliers Distributors Competitors

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -41

Marketing

Distribution

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

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -42

Marketing

Gather data
Marketing Research

Record data Analyze data

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -43

Publishing as Prentice Hall Ch 4 -44 .Marketing Assessing costs Cost/Benefit Analysis Assessing benefits Assessing risks Copyright © 2011 Pearson Education. Inc.

Are the distribution channels reliable & cost effective? 5.Marketing Audit 1. Inc. Has the firm’s market share been increasing? 4. Is the sales force effective? Copyright © 2011 Pearson Education. Is the organization positioned well among competitors? 3. Publishing as Prentice Hall Ch 4 -45 . Are markets segmented effectively? 2.

advertising. Publishing as Prentice Hall Ch 4 -46 . Does the firm conduct market research? 7. Are product quality & customer service good? 8. Does the firm have effective promotion. Are the firm’s products and services priced appropriately? 9.Marketing Audit 6. Inc. and publicity strategies? Copyright © 2011 Pearson Education.

Is the firm’s Internet presence excellent as compared to rivals? Copyright © 2011 Pearson Education.Marketing Audit 10. and budgeting effective? 11. Inc. Are the marketing. planning. Do the firm’s marketing managers have adequate experience and training? 12. Publishing as Prentice Hall Ch 4 -47 .

Publishing as Prentice Hall Ch 4 -48 . Financing decision 3. Investment decision (Capital budgeting) 2. Inc.Finance/Accounting 1. Dividend decision Copyright © 2011 Pearson Education.

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. Inc. Publishing as Prentice Hall Ch 4 -49 .

Inc. Publishing as Prentice Hall Ch 4 -50 .Basic Financial Ratios Extent of debt financing Ratios Debt-to-total assets Debt-to-equity Long-term debt-to-equity Times-interest-earned Leverage Ratios Copyright © 2011 Pearson Education.

Basic Financial Ratios Effective use of firm’s resources Activity Ratios Ratios Inventory turnover Fixed assets turnover Total assets turnover Accounts receivable turnover Average collection period Copyright © 2011 Pearson Education. Inc. Publishing as Prentice Hall Ch 4 -51 .

Inc.Basic Financial Ratios Effectiveness shown by returns on sales and investment Profitability Ratios Ratios Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA) Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -52 .

Basic Financial Ratios Effectiveness shown by returns on sales & investment Profitability Ratios (cont’d) Ratios Return on stockholders’ equity (ROE) Earnings per share Price-earnings ratio Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -53 . Inc.

Inc. Publishing as Prentice Hall Ch 4 -54 .Basic Financial Ratios Firm’s ability to maintain economic position Growth Ratios Ratios Sales Net Income Earnings per share Dividends per share Copyright © 2011 Pearson Education.

Publishing as Prentice Hall .Growth Ratios Ratio  Sales Net Income Earnings per share Dividends per share  Annual percentage growth in Total sales Profits EPS Dividends per share Ch 4 -55       Copyright © 2011 Pearson Education. Inc.

Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -56 . Inc.

Copyright © 2011 Pearson Education. Inc. Publishing as Prentice Hall Ch 4 -57 .

Publishing as Prentice Hall Ch 4 -58 . Inc.Copyright © 2011 Pearson Education.

Inc. Publishing as Prentice Hall Ch 4 -59 .Copyright © 2011 Pearson Education.

3. 2. 4.Finance/Accounting Audit 1. Publishing as Prentice Hall Ch 4 -60 . 5. Where is the firm financially strong/weak as indicated by financial ratio analysis? Can the firm raise needed short-term capital? Can the firm raise needed long-term capital through debt and/or equity? Does the firm have sufficient working capital? Are capital budgeting procedures effective? Copyright © 2011 Pearson Education. Inc.

8. Inc.Finance/Accounting Audit 6. Publishing as Prentice Hall Ch 4 -61 . 7. 9. Are dividend payout policies reasonable? Does the firm have good relations with its investors and stockholders? Are the firm’s financial managers experienced and well trained? Is the firm’s debt situation excellent? Copyright © 2011 Pearson Education.

Inc. Publishing as Prentice Hall Ch 4 -62 .Production/Operations Production/Operations Functions      Process Capacity Inventory Workforce Quality Copyright © 2011 Pearson Education.

Copyright © 2011 Pearson Education. Inc. Publishing as Prentice Hall Ch 4 -63 .

parts. Inc. machinery. equipment. facilities. etc. reliable reliable and and reasonable? reasonable? •• Are Are facilities. and and offices offices in in good good condition? condition? •• Are Are inventory-control inventory-control policies policies and and procedures procedures effective? effective? Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -64 . materials. machinery.Production/Operations Audit •• Are Are suppliers suppliers of of materials. etc. parts. equipment.

Production/Operations Audit •• Are Are quality-control quality-control policies policies & & procedures procedures effective? effective? •• Are Are facilities. and and markets markets strategically strategically located? located? •• Does Does the the firm firm have have technological technological competencies? competencies? Copyright © 2011 Pearson Education. resources. resources. Publishing as Prentice Hall Ch 4 -65 . Inc. facilities.

Publishing as Prentice Hall Ch 4 -66    . Inc.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 Copyright © 2011 Pearson Education.

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. Publishing as Prentice Hall Ch 4 -67 . Inc.

Inc. Publishing as Prentice Hall Ch 4 -68 . outsourced. is is it it cost-effective? cost-effective? •• Are Are the the R&D R&D personnel personnel well well qualified? qualified? •• Are Are R&D R&D resources resources allocated allocated effectively? effectively? Copyright © 2011 Pearson Education.Research & Development Audit •• Are Are the the R&D R&D facilities facilities adequate? adequate? •• If If R&D R&D is is outsourced.

Publishing as Prentice Hall Ch 4 -69 . Inc.Research & Development Audit •• Are Are MIS MIS and and computer computer systems systems adequate? adequate? •• Is Is communication communication between between R&D R&D and and other other organizational organizational units units effective? effective? •• Are Are present present products products technologically technologically competitive? competitive? Copyright © 2011 Pearson Education.

Inc.Management Information Systems Purpose  Improve performance of an enterprise by improving the quality of managerial decisions Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -70 .

Management Information Systems 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? Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -71 . Inc.

Management Information Systems 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? Copyright © 2011 Pearson Education. Inc. Publishing as Prentice Hall Ch 4 -72 .

Inc.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. Publishing as Prentice Hall Ch 4 -73 .

Inc.Value Chain Analysis  Core competencies Distinctive competencies Benchmarking Copyright © 2011 Pearson Education. Publishing as Prentice Hall   Ch 4 -74 .

Transforming Value Chain Activities into Sustained Competitive Advantage Value Value Chain Chain Activities Activities Are Are Identified Identified and and Assessed Assessed Core Core Competencies Competencies Arise Arisein inSome Some Activities Activities Some SomeCore Core Competencies Competencies Evolve Evolveinto into Distinctive Distinctive Competencies Competencies Some Some Distinctive Distinctive Competencies Competencies Yield Yield Sustained Sustained Competitive Competitive Advantages Advantages Copyright © 2011 Pearson Education. Inc. Publishing as Prentice Hall Ch 4 -75 .

0 3. Sum the weighted scores Copyright © 2011 Pearson Education. Publishing as Prentice Hall Ch 4 -76 . Assign a weight ranging from 0.Internal Factor Evaluation (IFE) Matrix 1. Multiply the weight times the rating 5.0 to 1. Assign a 1 to 4 rating to each factor 4. Inc. List key internal factors 2.

No part of this publication may be reproduced. Copyright © 2011 Pearson Education. in any form or by any means. electronic. Inc. photocopying. Printed in the United States of America. without the prior written permission of the publisher. or otherwise.All rights reserved. Publishing as Prentice Hall Ch 4 -77 . recording. mechanical. stored in a retrieval system. or transmitted.

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