ch 4 -1 module 4 the internal assessment. ch 4 -2

Ch 4 -1

Module 4 The Internal Assessment

Ch 4 -2

Ch 4 -3

“Great spirits have always encountered violent opposition from mediocre minds.” – Albert Einstein

Internal Assessment

“Weak leadership can wreck the soundest strategy.” – Sun Tzu

Ch 4 -4

Internal Audit

Identify strengths and weaknesses in Management Marketing Finance and accounting Production and operations Research and development Management information systems

Ch 4 -5

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

Nature of an Internal Audit

Basis for Objectives & Strategies

Ch 4 -6

Key Internal Forces

Distinctive Competencies:

Firm’s strengths that cannot be easily matched or imitated by competitors

Ch 4 -7

Key Internal Forces

Distinctive Competencies:

Building competitive advantage involves taking advantage of distinctive competencies

Ch 4 -8

Internal Audit Process

Information gathered from:Management

Marketing

Finance/accounting

Production/operations

Research & development

Management information systems

Parallels process of external audit

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

Ch 4 -10

Ch 4 -11

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

Ch 4 -12

Internal Audit

Exemplifies complexity of relationships among functional areas of the business

Financial Ratio Analysis

Ch 4 -13

Resource Based View (RBV)

Approach to Competitive Advantage

Internal resources are more important than external factors

Ch 4 -14

Resource Based View (RBV)

Three All-Encompassing Categories

1. Physical resources

2. Human resources

3. Organizational resources

Ch 4 -15

Resource Based View (RBV)

Empirical Indicators

Rare

Hard to imitate

Not easily substitutable

Ch 4 -16

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 as the correct way to perceive, think, and feel

Organizational Culture

Ch 4 -17

Integrating Strategy & Culture

Organizational Culture

Resistant to change

May represent:

Strength

Weakness

Ch 4 -18

CulturalProducts

Values

Legends Beliefs

Heroes Rites

Symbols RitualsMyths

Integrating Strategy & Culture

Ch 4 -19

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

Ch 4 -20

Management

Functions of Management

1. Planning

2. Organizing

3. Motivating

4. Staffing

5. Controlling

Ch 4 -21

Management

Planning

Stage When Most ImportantFunction

Strategy Formulation

Organizing Strategy Implementation

Motivating Strategy Implementation

Staffing

Controlling

Strategy Implementation

Strategy Evaluation

Ch 4 -22

Management

Planning

Beginning of management process

Bridge between present & future

Improves likelihood of attaining desired results

Ch 4 -23

Planning

Developing a mission

Forecasting future events and trends

Establishing objectives

Choosing strategies to pursue

Management

Ch 4 -24

Planning

Synergy Can develop through planning Exists when everyone pulls

together as a team that knows what it wants to achieve

Ch 4 -25

Management

Organizing

Achieves coordinated effort

Defines task & authority relationships

Determines who does what

Determines who reports to whom

Ch 4 -26

Management

Organizing Breaking down tasks into jobs Combining jobs to form

departments Delegating authority

Ch 4 -27

Management

Motivating

Influencing to accomplish specific objectives

Four components include:

Leadership

Group dynamics

Communication

Organizational change

Ch 4 -28

Management

Staffing

Personnel management

Human resource management

Ch 4 -29

ManagementStaffing Recruiting Interviewing Testing Selecting Orienting Training Developing Caring for

Evaluating Rewarding Disciplining Promoting Transferring Demoting Dismissing

Ch 4 -30

Management

Controlling

Establishing performance standards

Ensure actual operations conform to planned operations

Taking corrective actions

Ch 4 -31

Management

Controlling

1. Establish performance standards

2. Measure individual and organizational performance

3. Compare actual performance to planned performance standards

4. Take corrective action

Ch 4 -32

Management Audit Checklist

Does the firm use strategic management concepts?

Are objectives/goals measurable? Well communicated?

Do managers at all levels plan effectively?

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?

Ch 4 -34

Management Audit Checklist

Is employee absenteeism low? Is employee turnover low? Are the reward mechanisms effective? Are the organization’s control

mechanisms effective?

Ch 4 -35

Marketing

Customer Needs or Wants for Products and Services

1. Defining

2. Anticipating

3. Creating

4. Fulfilling

Ch 4 -36

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 -37

Customer Analysis

Customer surveys

Consumer information

Market positioning strategies

Customer profiles

Market segmentation strategies

Marketing

Ch 4 -38

AdvertisingSales Promotion

PublicityPersonal Selling

Sales force managementCustomer relations

Dealer relations

Marketing

Selling Products/Services

Ch 4 -39

Ch 4 -40

Test marketingBrand positioning

Devising warrantiesPackaging

Product features/optionsProduct style

QualityDeleting old products

Providing for customer service

Marketing

Product/Service Planning

Ch 4 -41

ConsumersGovernments

SuppliersDistributorsCompetitors

Marketing

Pricing

Major Stakeholders

Ch 4 -42

WarehousingDistribution channelsRetail site locations

Sales territoriesInventory levelsTransportationWholesaling

Retailing

Marketing

Distribution

Ch 4 -43

Gather data

Record data

Analyze data

Marketing

Marketing Research

Ch 4 -44

Assessing costs

Assessing benefits

Assessing risks

Marketing

Cost/Benefit Analysis

Ch 4 -45

Marketing Audit

1. Are markets segmented effectively?

2. Is the organization positioned well among competitors?

3. Has the firm’s market share been increasing?

4. Are the distribution channels reliable & cost effective?

5. Is the sales force effective?

Ch 4 -46

Marketing Audit

6. Does the firm conduct market research?

7. Are product quality & customer service good?

8. Are the firm’s products and services priced appropriately?

9. Does the firm have effective promotion, advertising, and publicity strategies?

Ch 4 -47

Marketing Audit

10.Are the marketing, planning, and budgeting effective?

11.Do the firm’s marketing managers have adequate experience and training?

12. Is the firm’s Internet presence excellent as compared to rivals?

Ch 4 -48

Finance/Accounting

1. Investment decision (Capital budgeting)

2. Financing decision

3. Dividend decision

Ch 4 -49

Firm’s ability to meet its short-term obligations

Ratios

Current ratioQuick (or acid test) ratio

Basic Financial Ratios

Liquidity Ratios

Ch 4 -50

Extent of debt financing

Ratios

Debt-to-total assetsDebt-to-equity

Long-term debt-to-equityTimes-interest-earned

Basic Financial Ratios

Leverage Ratios

Ch 4 -51

Effective use of firm’s resources

Ratios

Inventory turnoverFixed assets turnoverTotal assets turnover

Accounts receivable turnoverAverage collection period

Basic Financial Ratios

Activity Ratios

Ch 4 -52

Effectiveness shown by returns on sales and

investment

Ratios

Gross profit marginOperating profit margin

Net profit marginReturn on total assets (ROA)

Basic Financial Ratios

Profitability Ratios

Ch 4 -53

Effectiveness shown by returns on sales &

investment

Ratios

Return on stockholders’ equity (ROE)

Earnings per sharePrice-earnings ratio

Basic Financial Ratios

Profitability Ratios(cont’d)

Ch 4 -54

Firm’s ability to maintain economic

position

Ratios

SalesNet Income

Earnings per shareDividends per share

Basic Financial Ratios

Growth Ratios

Ch 4 -55

Ratio

Sales

Net Income

Earnings per share

Dividends per share

Annual percentage growth in

Total sales

Profits

EPS

Dividends per share

Growth Ratios

Ch 4 -56

Ch 4 -57

Ch 4 -58

Ch 4 -59

Ch 4 -60

Finance/Accounting Audit

1. Where is the firm financially strong/weak as indicated by financial ratio analysis?

2. Can the firm raise needed short-term capital?

3. Can the firm raise needed long-term capital through debt and/or equity?

4. Does the firm have sufficient working capital?

5. Are capital budgeting procedures effective?

Ch 4 -61

Finance/Accounting Audit

6. Are dividend payout policies reasonable?

7. Does the firm have good relations with its investors and stockholders?

8. Are the firm’s financial managers experienced and well trained?

9. Is the firm’s debt situation excellent?

Ch 4 -62

Production/Operations

Production/Operations Functions

Process

Capacity

Inventory

Workforce

Quality

Ch 4 -63

Ch 4 -64

Production/Operations Audit

•Are suppliers of materials, parts, etc. reliable and reasonable?•Are facilities, equipment, machinery, and offices in good condition?•Are inventory-control policies and procedures effective?

•Are suppliers of materials, parts, etc. reliable and reasonable?•Are facilities, equipment, machinery, and offices in good condition?•Are inventory-control policies and procedures effective?

Ch 4 -65

Production/Operations Audit

•Are quality-control policies & procedures effective?•Are facilities, resources, and markets strategically located?•Does the firm have technological competencies?

•Are quality-control policies & procedures effective?•Are facilities, resources, and markets strategically located?•Does the firm have technological competencies?

Ch 4 -66

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

Ch 4 -67

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

Ch 4 -68

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?

•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?

Ch 4 -69

Research & Development Audit

•Are MIS and computer systems adequate?•Is communication between R&D and other organizational units effective?•Are present products technologically competitive?

•Are MIS and computer systems adequate?•Is communication between R&D and other organizational units effective?•Are present products technologically competitive?

Ch 4 -70

Management Information Systems

Purpose

Improve performance of an enterprise by improving the quality of managerial decisions

Ch 4 -71

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?

Ch 4 -72

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?

Ch 4 -73

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

Ch 4 -74

Value Chain Analysis

Core competencies

Distinctive competencies

Benchmarking

Ch 4 -75

Transforming Value Chain Activities into Sustained Competitive Advantage

Value Chain

Activities Are

Identified and

Assessed

Value Chain

Activities Are

Identified and

Assessed

Core Competencies Arise in Some

Activities

Core Competencies Arise in Some

Activities

Some Core Competencies

Evolve into Distinctive

Competencies

Some Core Competencies

Evolve into Distinctive

Competencies

Some Distinctive

Competencies Yield

Sustained Competitive Advantages

Some Distinctive

Competencies Yield

Sustained Competitive Advantages

Ch 4 -76

Internal Factor Evaluation (IFE) Matrix

1. List key internal factors

2. Assign a weight ranging from 0.0 to 1.0

3. Assign a 1 to 4 rating to each factor

4. Multiply the weight times the rating

5. Sum the weighted scores