Chapter 4

Chapter 4
The Internal Assessment
Strategic Management:
Concepts & Cases
13th Edition
Fred David
Copyright 2009 Pearson Education, Inc.

Publishing as Prentice Hall
Ch 4-1
Internal Assessment
Great
spirits have always encountered

violent opposition from mediocre minds.
Albert Einstein
Weak leadership can wreck the soundest
strategy.
Sun Tzu

Ch 4-2
Nature of an Internal Audit
Functional Areas of Business
Strengths
Weaknesses

Ch 4-3
Key Internal Forces

Functional Business Areas:
Vary by organization
Divisions have differing strengths &
weaknesses

Ch 4-4
Key Internal Forces

Distinctive Competencies:
Firms strengths that cannot be easily
matched or imitated by competitors

Ch 4-5
Key Internal Forces

Building competitive advantage involves
taking advantage of distinctive
competencies

Ch 4-6
Key Internal Forces

Strategies designed to improve on a
firms weaknesses and turn to strengths

Ch 4-7
Internal Audit
Parallels process of external audit
Information from:
Management
Marketing
Finance/accounting
Production/operations
Research & development
Management information systems
Ch 4-8
Internal Audit
Key to Organizational Success
Coordination & understanding among
managers from all functional areas

Ch 4-9
Internal Audit
Functional Relationships
Number and complexity increases
relative to organization size

Ch 4-10
Internal Audit
Financial Ratio Analysis
Exemplifies complexity of relationships
among functional areas of the business

Ch 4-11
Resource Based View (RBV)

Approach to Competitive Advantage
Internal resources are more important

than external factors

Ch 4-12

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

Ch 4-13

Empirical Indicators
Rare
Hard to imitate
Not easily substitutable

Ch 4-14
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 . . . is considered valid
and taught to new members

Ch 4-15

Organizational Culture
Resistant to change
May represent:
Strength
Weakness

Ch 4-16

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

Ch 4-17
U.S. Versus Foreign Cultures
To successfully compete in world markets,

U.S. managers must obtain a better
knowledge of historical, cultural, and religious
forces that motivate and drive people in other
countries.

Ch 4-18

Ch 4-19
Management Audit Checklist

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

Ch 4-20

Do
Do managers
managers delegate
delegate well?
well?
Is
Is the
the organizations
organizations structure
structure
appropriate?
appropriate?
Are
Are job
job descriptions
descriptions clear?
clear?
Are
Are job
job specifications
specifications clear?
clear?
Is
Is employee
employee morale
morale high?
high?

Ch 4-21

Is
Is employee
employee absenteeism
absenteeism low?
low?
Is
Is employee
employee turnover
turnover low?
low?
Are
Are the
the reward
reward mechanisms
mechanisms effective?
effective?
Are
Are the
the organizations
organizations control
control
mechanisms
mechanisms effective?
effective?

Ch 4-22
Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
Ch 4-23
Marketing
Customer surveys
Consumer information
Customer
Analysis
Market positioning
strategies
Customer profiles
Market segmentation
strategies

Ch 4-24
Marketing
Selling
Products/Services

Advertising
Sales
Promotion
Publicity
Sales force management
Customer relations
Dealer relations
Ch 4-25

Ch 4-26
Marketing
Planning
Product/Service

Test marketing
Brand positioning
Devising warrantees
Packaging
Product features/options
Product style
Quality
Ch 4-27
Marketing
Pricing

Forward integration
Discounts
Credit terms
Condition of sale
Markups
Costs
Unit pricing
Ch 4-28
Marketing
Distribution

Warehousing
Channels
Coverage
Retail site locations
Sales territories
Inventory levels
Transportation
Ch 4-29
Marketing
Marketing Research

Data collection
Data input
Data analysis
Support business functions
Ch 4-30
Marketing
Assessing costs
Opportunity
Analysis
Assessing benefits
Assessing risks
Cost/benefit/risk analysis

Ch 4-31
Marketing
Audit Checklist
1. Are markets segmented effectively?
2. Is the organization positioned well among
competitors?
3. Has the firms market share been
increasing?
4. Are the distribution channels reliable &
cost effective?
5. Is the sales force effective?
Ch 4-32
Marketing
Audit Checklist
6. Does the firm conduct market research?
7. Are product quality & customer service
good?
8. Are the firms products/services priced
appropriately?
9. Does the firm have effective promotion,
advertising, and publicity strategies?

Ch 4-33
Marketing
Audit Checklist
10. Are the marketing, planning, and
budgeting effective?
11. Do the firms marketing managers have
adequate experience and training?

Ch 4-34
Finance/Accounting
Determining financial strengths &

weaknesses key to strategy
formation

Ch 4-35
Finance/Accounting
Finance/Accounting Functions
1. Investment decision (Capital budgeting)

2. Financing decision
3. Dividend decision

Ch 4-36
Basic Financial Ratios

Firms ability to meet its
short-term obligations
Liquidity Ratios
Ratios
Current ratio
(assets / liabilities)
Quick (or acid test) ratio
(assets minus inventory /
liabilities)

Ch 4-37

Extent of debt financing
Ratios
Leverage Ratios

Debt-to-total-assets
Debt-to-equity
Long-term debt-to-equity
Times-interest-earned
(profit / total interest to
be paid)
Ch 4-38

Effective use of firms
resources
Ratios
Activity Ratios

Inventory turnover
(sales / inventory)
Fixed assets turnover
(sales / fixed assets)
Total assets turnover
(sales/ total assest)
Accounts receivable turnover
(annual credit sales / AR)
Average collection period
Ch 4-39

Effectiveness shown by
returns on sales &
investment
Ratios
Profitability Ratios

Gross profit margin

(sales minus cost / sales)
Operating profit margin
(EBIT / sales)
Net profit margin
(net income / sales)
Return on total assets (ROA)
(net income / total assets)
Ch 4-40
Effectiveness shown by
returns on sales &
investment
Profitability Ratios
(contd)
Ratios
Return on stockholders equity
(net income / equity)
Earnings per share
Price-earnings ratio

Ch 4-41
Firms ability to maintain

economic position
Growth Ratios
Ratios
Sales
Net income
Earnings per share
Dividends per share

Ch 4-42
Natural Environment
Perspective
EUTough
Countries
Impose
new laws
start inCurbs
2008
on Use of Chemicals
Use of some 30,000 chemicals need to be documented

Cease using 1,500 of the most dangerous chemicals
EU countries need to cut emissions

Ch 4-43
Finance/Accounting Audit
Does
Does the
the firm
firm have
have sufficient
sufficient working
working
capital?
capital?
Are
Are capital
capital budgeting
budgeting procedures
procedures
effective?
effective?
Are
Are dividend
dividend payout
payout policies
policies reasonable?
reasonable?
Are
Are the
the firms
firms financial
financial managers
managers
experienced
experienced && well
well trained?
trained?

Ch 4-44
Finance/Accounting Audit
Effective
Effective Financial
Financial Analysis
Analysis Requires:
Requires:
1.
1. Analysis
Analysis of
of how
how the
the ratios
ratios have
have
changed
changed over
over time
time
2.
2. How
How the
the ratios
ratios compare
compare to
to industry
industry
norms
norms
3.
3. How
How the
the ratios
ratios compare
compare with
with key
key
competitors
competitors

Ch 4-45
Production/Operations
Production/Operations Functions
Process
Capacity
Inventory
Workforce
Quality

Ch 4-46

Ch 4-47
Global Perspective
Auto Industry Work Week and Hourly Pay Variation
Germany
$44.05
U.S.
$33.95
Canada
$29.17
Japan
$27.38
France
$26.34
S. Korea
$15.82
Mexico
$ 3.50

Ch 4-48
Process

Facility design
Technology selection
Facility layout
Process flow analysis
Facility location
Line balancing
Process control
Ch 4-49
Capacity

Forecasting
Facilities planning
Aggregate planning
Scheduling
Capacity planning
Queuing analysis
Ch 4-50
Inventory

Raw materials
Work in process
Finished goods
Materials handling
Ch 4-51
Workforce

Job design
Work measurement
Job enrichment
Work standards
Motivation techniques
Ch 4-52
Quality

Quality control
Sampling
Testing
Quality assurance
Cost control
Ch 4-53
Production/Operations Audit
Are
Are suppliers
suppliers of
of materials,
materials, parts,
parts, etc.
etc.
reliable
reliable and
and reasonable?
reasonable?
Are
Are facilities,
facilities, equipment,
equipment, and
and machinery
machinery
in
in good
good condition?
condition?
Are
Are inventory-control
inventory-control policies
policies and
and
procedures
procedures effective?
effective?

Ch 4-54
Production/Operations Audit
Are
Are quality-control
quality-control policies
policies && procedures
procedures
effective?
effective?
Are
Are facilities,
facilities, resources,
resources, and
and markets
markets
strategically
strategically located?
located?
Does
Does the
the firm
firm have
have technological
technological
competencies?
competencies?

Ch 4-55
Research & Development

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

Ch 4-56
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

Ch 4-57
Research & Development Audit

Are
Are the
the R&D
R&D facilities
facilities adequate?
adequate?
IfIf R&D
R&D is
is outsourced,
outsourced, is
is itit 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?

Ch 4-58
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?

Ch 4-59
Management Information
Systems
Purpose
Improve performance of an enterprise by
improving the quality of managerial
decisions

Ch 4-60
Systems
Information Systems
CIO/CTO
Security
User-friendly
E-commerce

Ch 4-61
Systems Audit
Do
Do managers
managers use
use the
the information
information system
system
to
to make
make decisions?
decisions?
Is
Is there
there aa CIO
CIO or
or Director
Director of
of Information
Information
Systems
Systems position
position in
in the
the firm?
firm?
Is
Is data
data updated
updated regularly?
regularly?

Ch 4-62
Systems Audit
Do
Do managers
managers from
from all
all functional
functional areas
areas
contribute
contribute input
input to
to the
the information
information system?
system?
Are
Are there
there effective
effective passwords
passwords for
for entry
entry
into
into the
the firms
firms information
information system?
system?
Are
Are strategists
strategists of
of the
the firm
firm familiar
familiar with
with the
the
information
information systems
systems of
of rival
rival firms?
firms?

Ch 4-63
Systems Audit
Is
Is the
the information
information system
system user-friendly?
user-friendly?
Do
Do all
all users
users understand
understand the
the competitive
competitive
advantages
advantages that
that information
information can
can provide?
provide?
Are
Are computer
computer training
training workshops
workshops provided
provided
for
for users?
users?
Is
Is the
the firms
firms system
system being
being improved?
improved?

Ch 4-64

Ch 4-65

Ch 4-66

Chapter 4 - July 2015

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 4 - July 2015

Uploaded by

Copyright:

Available Formats

The Internal Assessment

Copyright 2009 Pearson Education, Inc.

spirits have always encountered

Weak leadership can wreck the soundest

Copyright 2009 Pearson Education, Inc.

Nature of an Internal Audit

Functional Areas of Business

Copyright 2009 Pearson Education, Inc.

Key Internal Forces

Copyright 2009 Pearson Education, Inc.

Key Internal Forces

Copyright 2009 Pearson Education, Inc.

Key Internal Forces

Copyright 2009 Pearson Education, Inc.

Key Internal Forces

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Resource Based View (RBV)

Internal resources are more important

Copyright 2009 Pearson Education, Inc.

Resource Based View (RBV)

Copyright 2009 Pearson Education, Inc.

Resource Based View (RBV)

Copyright 2009 Pearson Education, Inc.

Integrating Strategy & Culture

Pattern of behavior developed by an

Copyright 2009 Pearson Education, Inc.

Integrating Strategy & Culture

Copyright 2009 Pearson Education, Inc.

Integrating Strategy & Culture

Miss external changes due to strongly

Copyright 2009 Pearson Education, Inc.

U.S. Versus Foreign Cultures

To successfully compete in world markets,

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Management Audit Checklist

Copyright 2009 Pearson Education, Inc.

Management Audit Checklist

Copyright 2009 Pearson Education, Inc.

Management Audit Checklist

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Copyright 2009 Pearson Education, Inc.

Determining financial strengths &

Copyright 2009 Pearson Education, Inc.

1. Investment decision (Capital budgeting)

Copyright 2009 Pearson Education, Inc.

Basic Financial Ratios

Copyright 2009 Pearson Education, Inc.

Basic Financial Ratios

Copyright 2009 Pearson Education, Inc.

Basic Financial Ratios