Chapter 4

The Internal Assessment

Strategic Management:
Concepts and Cases. 9th edition
Fred R. David

PowerPoint Slides by
Anthony F. Chelte
Western New England College
Ch 4-1
Fred R. David
Prentice Hall
 Chapter Outline

• The Nature of an Internal Audit

• Integrating Strategy and Culture

• Management

Ch 4-2
Fred R. David
Prentice Hall
 Chapter Outline

• Marketing

• Finance/Accounting

• Production/Operations

Ch 4-3
Fred R. David
Prentice Hall
 Chapter Outline

• Research and Development

• Management Information Systems

• The Internal Factor Evaluation

Matrix (IFE)
Ch 4-4
Fred R. David
Prentice Hall
 The Internal Assessment

Great spirits have always encountered

violent opposition from mediocre minds.

-- Albert Einstein

Ch 4-5
Fred R. David
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 Nature of an Internal Audit

All organizations –

• Strengths
• Weaknesses

Ch 4-6
Fred R. David
Prentice Hall
 Key Internal Forces
Distinctive Competencies

• A firm’s strengths that cannot be easily

matched or imitated by competitors

• Building competitive advantage involves

taking advantage of distinctive competencies

• Strategies designed in part to improve on a

firm’s weaknesses and turn to strengths
Ch 4-7
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Prentice Hall
 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.

Ch 4-8
Fred R. David
Prentice Hall
 Internal Audit

Key to organizational success:

– Coordination and understanding among

managers from all functional areas

Ch 4-9
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 Internal Audit

Functional relationships:

– Number and complexity increases relative

to organization size

Ch 4-10
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 Internal Audit

Financial Ratio Analysis:

– Exemplifies complexity of relationships

among functional areas of the business

Ch 4-11
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Prentice Hall
 Integrating Strategy and Culture

Organizational 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

Ch 4-12
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Prentice Hall
 Integrating Strategy and Culture

Organizational Culture --

• Resistant to change

• May represent a strength or weakness

of the firm

Ch 4-13
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Prentice Hall
Integrating Strategy and Culture
Cultural products

Values stories
beliefs legends
rites sagas
rituals language
ceremonies symbols
myths heroes

Ch 4-14
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 Integrating Strategy and Culture
Culture can inhibit strategic management:

– Miss changes in external environment

because they are blinded by strongly held
beliefs

– When a culture has been effective in the

past, natural tendency to stick with it in
future, even during times of major strategic
change
Ch 4-15
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Prentice Hall
 Functions of Management

Five basic activities –

– Planning
– Organizing
– Motivating
– Staffing
– Controlling

Ch 4-16
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 Functions of Management
Stage When Most
Function Important

Planning Strategy Formulation

Organizing Strategy Implementation

Motivating Strategy Implementation

Staffing Strategy Implementation

Controlling Strategy Evaluation

Ch 4-17
Fred R. David
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 Planning

Forecasting

Establishing objectives
Planning Devising strategies

Developing policies

Setting goals

Ch 4-18
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 Functions of Management

Organizing

– Achieve coordinated effort

– Defining task and authority relationships
– Departmentalization
– Delegation of authority

Ch 4-19
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 Organizing

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

Ch 4-20
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 Functions of Management

Motivating

– Influencing people to accomplish specific

objectives
– Communication is a major component

Ch 4-21
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 Motivating

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

Ch 4-22
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 Functions of Management

Staffing

– Personnel management
– Human resources management

Ch 4-23
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 Staffing

Management Wage & salary admin

Employee benefits
Interviewing
Hiring
Firing
Training
Staffing Management development
Safety
Affirmative action
EEO
Labor relations
Career development
Discipline procedures

Ch 4-24
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 Functions of Management

Controlling

– Ensure actual operations conform to

planned operations

Ch 4-25
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 Controlling

Management
Quality control
Financial control
Sales control
Inventory control
Controlling
Expense control
Analysis of variances
Rewards
Sanctions

Ch 4-26
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 Basic Financial Ratios
• Extent of debt
financing

Ratios

Debt-to-total-assets
Leverage ratios
Debt-to-equity

Long-term debt-to-equity

Times-interest earned
Ch 4-27
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 Basic Financial Ratios
• Effective use of firm’s
resources

Ratios

Inventory-turnover
Activity ratios
Fixed assets turnover

Total assets turnover

Accounts receivable turnover

Average collection period

Ch 4-28
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 Basic Financial Ratios
• Effectiveness shown
by returns on sales
and investment

Ratios

Profitability ratios Gross profit margin

Operating profit margin

Net profit margin

Return on total assets (ROA)

Ch 4-29
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 Basic Financial Ratios
• Effectiveness shown
by returns on sales
and investment

Ratios
Profitability ratios
(continued) Return on stockholders’ equity
(ROE)

Earnings per share

Price-earnings ratio

Ch 4-30
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 Basic Financial Ratios
• Firm’s ability to
maintain economic
position

Ratios

Growth ratios Sales

Net income

Earnings per share

Dividends per share

Ch 4-31
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 Finance/Accounting Audit

• 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?

Ch 4-32
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