Chapter 4

The Internal Assessment

Strategic
Management:
Concepts & Cases
11th Edition
Fred David

Copyright 2007 Prentice Hall

Ch 4 -1

How frequently should we verify

strategies?

Copyright 2007 Prentice Hall

Ch 4 -2

Nature of an Internal Audit

Basis for Objectives & Strategies

Internal strengths/weaknesses
External opportunities/threats
Clear statement of mission

Copyright 2007 Prentice Hall

Ch 4 -3

Internal Audit
Parallels process of external audit

Information from:
Management
Marketing
Finance/accounting
Production/operations
Research & Development
Management Information Systems

Copyright 2007 Prentice Hall

Ch 4 -4

Resource Based View (RBV)

Approach to Competitive Advantage

Internal resources are more important

than external factors

Copyright 2007 Prentice Hall

Ch 4 -5

Resource Based View (RBV)

Three All Encompassing Categories

1. Physical resources
2. Human resources
3. Organizational resources

Copyright 2007 Prentice Hall

Ch 4 -6

Resource Based View (RBV)

Empirical Indicators

Rare
Hard to imitate
Not easily substitutable

Copyright 2007 Prentice Hall

Ch 4 -7

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 integrationis considered valid
and taught to new members

Copyright 2007 Prentice Hall

Ch 4 -8

Integrating Strategy & Culture

Values
Beliefs

Legends

Heroes

Symbols

Copyright 2007 Prentice Hall

Cultural
Products

Myths

Rites

Rituals

Ch 4 -9

Copyright 2007 Prentice Hall

Ch 4 -10

Management
Function

Stage When Most

Important

Planning

Strategy Formulation

Organizing

Strategy Implementation

Motivating

Strategy Implementation

Staffing

Strategy Implementation

Controlling

Strategy Evaluation

Copyright 2007 Prentice Hall

Ch 4 -11

Marketing
Customer Needs/Wants for Products/Services

1. Defining
2. Anticipating
3. Creating
4. Fulfilling

Copyright 2007 Prentice Hall

Ch 4 -12

Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
Copyright 2007 Prentice Hall

Ch 4 -13

Finance/Accounting
Finance/Accounting Functions

1. Investment decision (Capital budgeting)

2. Financing decision
3. Dividend decision
4. Financial analysis Key financial ratios

Copyright 2007 Prentice Hall

Ch 4 -14

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

Copyright 2007 Prentice Hall

Ch 4 -15

Research & Development

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

Copyright 2007 Prentice Hall

Ch 4 -16

Management Information
Systems

Information Systems
CIO/CTO
Security
User-friendly
E-commerce

Copyright 2007 Prentice Hall

Ch 4 -17

Copyright 2007 Prentice Hall

Ch 4 -18

Copyright 2007 Prentice Hall

Ch 4 -19

Managerial Questions
Checklist

Does the firm use strategic-management concepts?

Are company objectives and goals measurable and well
communicated?
Do managers at all hierarchical levels plan effectively?
Do managers delegate authority well?
Is the organizations structure appropriate?
Are job descriptions and specifications clear?
Is employee morale high?
Are employee turnover and absenteeism low?
Are organizational reward and control mechanisms effective?

Copyright 2007 Prentice Hall

Ch 4 -20

Marketing Audit Checklist

Are markets segmented effectively?

Is the organization positioned well among competitors?
Has the firms market share been increasing?
Are present channels of distribution reliable and cost-effective?
Does the firm have an effective sales organization?
Does the firm conduct market research?
Are product quality and customer service good?
Are the firms products and services priced appropriately?
Does the firm have an effective promotion, advertising, and
publicity strategy?
Are marketing planning and budgeting effective?
Do the firms marketing managers have adequate experience
and training?

Copyright 2007 Prentice Hall

Ch 4 -21

Accounting Audit Checklist

Where is the firm financially strong and 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?
Are dividend payout policies reasonable?
Does the firm have good relations with its investors
and stockholders?
Are the firms financial managers experienced and
well trained?

Copyright 2007 Prentice Hall

Ch 4 -22

Accounting Ratios
Liquidity ratios measure a firms ability to meet maturing short-term
obligations.

Current ratio
Quick (acid-test) ratio

Leverage ratios measure the extent to which a firm has been financed
by debt.

Debt-to-total-assets ratio
Debt-to-equity ratio
Long-term debt-to-equity ratio
Times-interest-earned (coverage) ratio
Activity ratios measure how effectively a firm is using its resources.

Inventory turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Profitability ratios measure managements overall effectiveness as
shown by returns generated on sales and investment.

Gross profit margin

Operating profit margin
Net profit margin
Return on total assets
Return on stockholders equity
Earnings per share
Price-earnings ratio
Growth ratios measure the firms ability to maintain its economic position
in the growth of the economy and industry.

Sales
Net income
Earnings per share
Dividends per share

Copyright 2007 Prentice Hall

How has each ratio

changed over time?
2. How does each ratio
compare to industry
norms?
3. How does each ratio
compare with key
competitors?
BNI

Ch 4 -23

Production/Operations Audit
Checklist

Are suppliers of raw materials, parts, and

subassemblies reliable and reasonable?
Are facilities, equipment, machinery, and offices in
good condition?
Are inventory-control policies and procedures
effective?
Are quality-control policies and procedures
effective?
Are facilities, resources, and markets strategically
located?
Does the firm have technological competencies?

Copyright 2007 Prentice Hall

Ch 4 -24

R&D Audit Checklist of

Questions

Does the firm have R&D facilities? Are they

adequate?
If outside R&D firms are used, are they cost
effective?
Are the organizations R&D personnel well qualified?
Are R&D resources allocated effectively?
Are management information and computer systems
adequate?
Is communication between R&D and other
organizational units effective?
Are present products technologically competitive?

Copyright 2007 Prentice Hall

Ch 4 -25

Information Systems Audit

Checklist
Do all managers in the firm use the information system to make

decisions?
Is there a chief information officer or director of information systems
position in the firm?
Are data in the information system updated regularly?
Do managers from all functional areas of the firm contribute input to
the information system?
Are there effective passwords for entry into the firms information
system?
Are strategists of the firm familiar with the information systems of rival
firms?
Is the information system user friendly?
Do all users of the information system understand the competitive
advantages that information can provide firms?
Are computer training workshops provided for users of the information
system?
Is the firms information system continually being improved in content
and user-friendliness?

Copyright 2007 Prentice Hall

Ch 4 -26