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Chapter Objectives
1. Describe how to perform an internal strategic-management audit.
2. Discuss the Resource-Based iew !RB" in strategic management.
#. Discuss $e% interrelationships among the functional areas of business.
&. 'dentif% the basic functions or activities that ma$e up management(mar$eting( )nance*accounting production*operations( research and
development( and management information s%stems.
+. ,plain how to determine and prioritie a )rm/s internal strengths and
wea$nesses.
0. ,plain the importance of )nancial ratio anal%sis.
. Discuss the nature and role of management information s%stems in strategic
management.
. Develop an 'nternal 3actor ,valuation !'3," 4atri.
5. ,plain cost*bene)t anal%sis value chain anal%sis( and benchmar$ing as
strategic-management tools.
6e% 'nternal 3orces
Distinctive competencies
7 )rm/s strengths that cannot be easil% matched or imitated b%
competitors
Building competitive advantages involves ta$ing advantage of distinctive
competencies.
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8he 9rocess of 9erforming an 'nternal 7udit
The internal audit
Re:uires gathering and assimilating information about the )rm/s
management( mar$eting( )nance*accounting( production*operations(
research and development !R;D"( and management information
s%stems operations
9rovides more opportunit% for participants to understand how their
jobs( departments( and divisions )t into the whole organiation
8he Resource-Based iew !RB"
The Resource-Based View (RBV) approach
contends that internal resources are more important for a )rm than
eternal factors in achieving and sustaining competitive advantage
9roponents of the RB contend that organiational performance will primaril%
be determined b% internal resources that can be grouped into three all-
encompassing categories< physical resources, human resources, and
organizational resources
Physical resources include all plant and e:uipment( location( technolog%(
raw materials( machines human resources include all emplo%ees(
training(eperience( intelligence( $nowledge( s$ills( abilities= and
organizational resources include )rm structure( planning processes(
information s%stems( patents( trademar$s( cop%rights( databases( and so on.
3or a resource to be valuable( it must be either !1" rare( !2" hard to imitate( or
!#" not easil% substitutable
8hese three characteristics of resources enable a )rm to implement
strategies that improve its e>cienc% and e?ectiveness and lead to a
sustainable competitive advantage
!"ample #ultural Products De$ned
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'ntegrating @trateg% and Culture
Organiational culture signi)cantl% a?ects business decisions and thus must
be evaluated during an internal strategic-management audit.
'f strategies can capitalie on cultural strengths( such as a strong wor$ ethic
or highl% ethical beliefs( then management often can swiftl% and easil%
implement changes.
4anagement
8he functions of management consist of )ve basic activities< planning(
organiing( motivating( sta>ng( and controlling.
8hese activities are important to assess in strategic planning because an
organiation should continuall% capitalie on its management strengths and
improve on its management wea$nesses.
8he Basic 3unctions of 4anagement
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4anagement 7udit Chec$list of Auestions
1. Does the )rm use strategic-management concepts
2. 7re compan% objectives and goals measurable and well communicated
#. Do managers at all hierarchical levels plan e?ectivel%
&. Do managers delegate authorit% well
+. 's the organiation/s structure appropriate
0. 7re job descriptions and job speci)cations clear
. 's emplo%ee morale high
. 7re emplo%ee turnover and absenteeism low
5. 7re organiational reward and control mechanisms e?ective
4ar$eting
%ar&eting
the process of de)ning( anticipating( creating( and ful)lling customers/needs and wants for products and services
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#ustomer analysis
the eamination and evaluation of consumer needs( desires( and wants
involves administering customer surve%s( anal%ing consumer
information( evaluating mar$et positioning strategies( developing
customer pro)les( and determining optimal mar$et segmentation
strategies
essential in developing an e?ective mission statement
Desirable Characteristics of 7ds 8oda%
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9roduct and @ervice 9lanning
Product and service planning
includes activities such as test mar$eting= product and brand
positioning= devising warranties= pac$aging= determining product
options( features( st%le( and :ualit%= deleting old products= and
providing for customer service
important when a compan% is pursuing product development or
diversi)cation
9ricing
3ive major sta$eholders a?ect pricing decisions< consumers( governments(suppliers( distributors( and competitors
@ometimes an organiation will pursue a forward integration strateg%
primaril% to gain better control over prices charged to consumers
Distri'ution
includes warehousing( distribution channels( distribution coverage(
retail site locations( sales territories( inventor% levels and location(
transportation carriers( wholesaling( and retailing
especiall% important when a )rm is striving to implement a mar$et
development or forward integration strateg%
4ar$eting Research
%ar&eting research
the s%stematic gathering( recording( and anal%ing of data about
problems relating to the mar$eting of goods and services
can uncover critical strengths and wea$nesses
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Cost*Bene)t 7nal%sis
8hree steps are re:uired to perform a cost*bene)t anal%sis<
1. compute the total costs associated with a decision(
2. estimate the total bene)ts from the decision(
#. compare the total costs with the total bene)ts.
4ar$eting 7udit Chec$list of Auestions
1. 7re mar$ets segmented e?ectivel%
2. 's the organiation positioned well among competitors
#. as the )rm/s mar$et share been increasing
&. 7re present channels of distribution reliable and cost e?ective
+. Does the )rm have an e?ective sales organiation
0. Does the )rm conduct mar$et research
. 7re product :ualit% and customer service good
. 7re the )rm/s products and services priced appropriatel%
5. Does the )rm have an e?ective promotion( advertising( and publicit%
strateg%
1.7re mar$eting( planning( and budgeting e?ective
11.Do the )rm/s mar$eting managers have ade:uate eperience and training
12.'s the )rm/s 'nternet presence ecellent as compared to rivals
3inance*7ccounting 3unctions
8he functions of nance/accounting comprise three decisions<
1. the investment decision
2. the )nancing decision
#. the dividend decision
3inance*7ccounting 3unctions
nvestment decision
the allocation and reallocation of capital and resources to projects(
products( assets( and divisions of an organiation
inancing decision
determines the best capital structure for the )rm and includes
eamining various methods b% which the )rm can raise capital
Dividend decisions
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concern issues such as the percentage of earnings paid to
stoc$holders( the stabilit% of dividends paid over time( and the
repurchase or issuance of stoc$
determine the amount of funds that are retained in a )rm compared to
the amount paid out to stoc$holders
7 @ummar% of 6e% 3inancial Ratios
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3inance*7ccounting 3unctions
1. ow has each ratio changed over time
2. ow does each ratio compare to industr% norms
#. ow does each ratio compare with $e% competitors
3inance*7ccounting 7udit Chec$list
1. Ehere is the )rm )nanciall% strong and wea$ as indicated b% )nancial ratio
anal%ses
2. Can the )rm raise needed short-term capital
#. Can the )rm raise needed long-term capital through debt and*or e:uit%
&. Does the )rm have su>cient wor$ing capital
+. 7re capital budgeting procedures e?ective
0. 7re dividend pa%out policies reasonable
. Does the )rm have good relations with its investors and stoc$holders
. 7re the )rm/s )nancial managers eperienced and well trained
5. 's the )rm/s debt situation ecellent
9roduction*Operations
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Production*operations +unction
consists of all those activities that transforms inputs into goods and
services
9roduction*operations management deals with inputs( transformations( and
outputs that var% across industries and mar$ets.
8he Basic 3unctions !Decisions" Eithin 9roduction*Operations
'mplications of arious @trategies on 9roduction*Operations
9roduction*Operations 7udit Chec$list
1. 7re supplies of raw materials( parts( and subassemblies reliable and
reasonable
2. 7re facilities( e:uipment( machiner%( and o>ces in good condition
#. 7re inventor%-control policies and procedures e?ective
&. 7re :ualit%-control policies and procedures e?ective
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+. 7re facilities( resources( and mar$ets strategicall% located
0. Does the )rm have technological competencies
Research and Development 7udit
1. Does the )rm have R;D facilities 7re the% ade:uate
2. 'f outside R;D )rms are used( are the% cost-e?ective
#. 7re the organiation/s R;D personnel well :uali)ed
&. 7re R;D resources allocated e?ectivel%
+. 7re management information and computer s%stems ade:uate
0. 's communication between R;D and other organiational units e?ective
. 7re present products technologicall% competitive
4anagement 'nformation @%stems
7 management information s%stem/s purpose is to improve the performanceof an enterprise b% improving the :ualit% of managerial decisions
7n e?ective information s%stem thus collects( codes( stores( s%nthesies( and
presents information in such a manner that it answers important operating
and strategic :uestions
4anagement 'nformation @%stems 7udit
1. Do all managers in the )rm use the information s%stem to ma$e decisions
2. 's there a chief information o>cer or director of information s%stems position
in the )rm
#. 7re data in the information s%stem updated regularl%
&. Do managers from all functional areas of the )rm contribute input to the
information s%stem
+. 7re there e?ective passwords for entr% into the )rm/s information s%stem
0. 7re strategists of the )rm familiar with the information s%stems of rival )rms
. 's the information s%stem user-friendl%
. Do all users of the information s%stem understand the competitive
advantages that information can provide )rms5. 7re computer training wor$shops provided for users of the information
s%stem
1.'s the )rm/s information s%stem continuall% being improved in content- and
user-friendliness
alue Chain 7nal%sis !C7"
Value chain analysis (V#)
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refers to the process whereb% a )rm determines the costs associated
with organiational activities from purchasing raw materials to
manufacturing product!s" to mar$eting those products
aims to identif% where low-cost advantages or disadvantages eist
an%where along the value chain from raw material to customer service
activities
Benchmar$ing
Benchmar&ing
an anal%tical tool used to determine whether a )rm/s value chain
activities are competitive compared to rivals and thus conducive to
winning in the mar$etplace
entails measuring costs of value chain activities across an industr% to
determine Fbest practicesG
8ransforming alue Chain 7ctivities into @ustained Competitive 7dvantage
8he 'nternal 3actor ,valuation !'3," 4atri
1. Hist $e% internal factors as identi)ed in the internal-audit process
2. 7ssign a weight that ranges from . !not important" to 1. !all-important" to
each factor
#. 7ssign a 1-to-& rating to each factor to indicate whether that factorrepresents a strength or wea$ness
&. 4ultipl% each factor/s weight b% its rating to determine a weighted score for
each variable
+. @um the weighted scores for each variable to determine the total weighted
score for the organiation
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