Download - The Internal Assessment
Copyright 2005 Prentice Hall Ch 4 -1
Chapter 4 The Internal Assessment
Strategic Management: Concepts & Cases
10th EditionFred David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
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Chapter Outline
The Nature of an Internal Audit
The Resource-Based View (RBV)
Integrating Strategy & Culture
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Chapter Outline (cont’d)
Management
Marketing
Opportunity Analysis
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Chapter Outline (cont’d)
Finance/Accounting
Production/Operations
Research & Development
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Chapter Outline (cont’d)
Management Information Systems
The Internal Factor Evaluation (IFE) Matrix
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The biggest levers you’ve got to change a company are strategy, structure, and culture. If I could pick two, I’d pick strategy and culture. –Wayne Leonard, CEO, Entergy
Internal Assessment
Weak leadership can wreck the soundest strategy. – Sun Zi
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The Nature of an Internal Audit
-- Strengths
-- Weaknesses
Functional Areas of Business
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Internal strengths/weaknesses External opportunities/threats Clear statement of mission
Nature of an Internal Audit
Basis for Objectives & Strategies
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Key Internal Forces
Functional Business Areas:
Vary by organization
Divisions have differing strengths & weaknesses
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Key Internal Forces
Distinctive Competencies:
Firm’s strengths that cannot be easily matched or imitated by competitors
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Key Internal Forces
Distinctive Competencies:
Building competitive advantage involves taking advantage of distinctive competencies
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Key Internal Forces
Distinctive Competencies:
Strategies designed to improve on a firm’s weaknesses and turn to strengths
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Internal Audit
•Information from:•Management
•Marketing
•Finance/accounting
•Production/operations
•Research & Development
•Management information Systems
Parallels process of external audit
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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
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Internal Audit
Coordination & understanding among managers from all functional areas
Key to Organizational Success
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Internal Audit
Number and complexity increases relative to organization size
Functional Relationships
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Internal Audit
Exemplifies complexity of relationships among functional areas of the business
Financial Ratio Analysis
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Resource Based View (RBV)
Approach to Competitive Advantage
Internal resources are more important than external factors
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Resource Based View (RBV)
3 All Encompassing Categories
1. Physical resources
2. Human resources
3. Organizational resources
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Resource Based View (RBV)
Empirical Indicators
Rare
Hard to imitate
Not easily substitutable
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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
Organizational Culture
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Integrating Strategy & Culture
Organizational Culture
Resistant to change
May represent
Strength
Weakness
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CulturalProducts
Values
Legends Beliefs
Heroes Rites
Symbols RitualsMyths
Integrating Strategy & Culture
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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
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Management
Functions of Management
1. Planning
2. Organizing
3. Motivating
4. Staffing
5. Controlling
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Management
Planning
Stage When Most ImportantFunction
Strategy Formulation
Organizing Strategy Implementation
Motivating Strategy Implementation
Staffing
Controlling
Strategy Implementation
Strategy Evaluation
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Management
Planning
Beginning of management process
Bridge between present & future
Improves likelihood of attaining desired results
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Planning
Forecasting
Establishing objectives
Devising strategies
Developing policies
Setting goals
Management
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Management
Organizing
Achieves coordinated effort
Defines task & authority relationships
Departmentalization
Delegation of authority
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Organizing
Organizational designJob specializationJob descriptions
Job specificationsSpan of control
Unity of commandCoordinationJob design
Job analysis
Management
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Management
Motivating
Influencing to accomplish specific objectives
Communication – major component
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Motivating
LeadershipCommunication
Work groupsJob enrichmentJob satisfactionNeeds fulfillment
Organizational changeMorale
Management
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Management
Staffing
Personnel management
Human resources management
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Staffing
Wage & salary admin.Employee benefits
InterviewingHiring
DischargingTraining
Management developmentAffirmative Action
EEOLabor relations
Management
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Management
Controlling
Establishing performance standards
Ensure actual operations conform to planned operations
Taking corrective actions
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Controlling
QualityFinancial
SalesInventoryExpense
Analysis of varianceRewardsSanctions
Management
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Management Audit Checklist
•Does the firm use strategic management concepts?•Are objectives/goals measurable? Well communicated?•Do managers at all levels plan effectively?
•Does the firm use strategic management concepts?•Are objectives/goals measurable? Well communicated?•Do managers at all levels plan effectively?
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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?
•Do managers delegate well?•Is the organization’s structure appropriate?•Are job descriptions clear?•Are job specifications clear?•Is employee morale high?
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Management Audit Checklist
•Is employee absenteeism low?•Is employee turnover low?•Are the reward mechanisms effective?•Are the organization’s control mechanisms effective?
•Is employee absenteeism low?•Is employee turnover low?•Are the reward mechanisms effective?•Are the organization’s control mechanisms effective?
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Marketing
Customer Needs/Wants for Products/Services
1. Defining
2. Anticipating
3. Creating
4. Fulfilling
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Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
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Customer Analysis
Customer surveys
Consumer information
Market positioning strategies
Customer profiles
Market segmentation strategies
Marketing
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AdvertisingSales
PromotionPublicity
Sales force managementCustomer relations
Dealer relations
Marketing
Selling Products/Services
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Test marketingBrand positioning
Devising warranteesPackaging
Product features/optionsProduct style
Quality
Marketing
Planning Product/Service
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Forward integrationDiscounts
Credit termsCondition of sale
MarkupsCosts
Unit pricing
Marketing
Pricing
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WarehousingChannelsCoverage
Retail site locationsSales territoriesInventory levelsTransportation
Marketing
Distribution
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Data collectionData input
Data analysisSupport business functions
Marketing
Marketing Research
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Assessing costs
Assessing benefits
Assessing risks
Cost/benefit/risk analysis
Marketing
Opportunity Analysis
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Marketing
Opportunity Analysis
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?
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Marketing
Opportunity Analysis
6. Does the firm conduct market research?
7. Are product quality & customer service good?
8. Are the firm’s products/services priced appropriately?
9. Does the firm have effective promotion, advertising, & publicity strategies?
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Marketing
Opportunity Analysis
10.Are the marketing planning & budgeting effective?
11.Do the firm’s marketing managers have adequate experience and training?
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Finance/Accounting
Determining financial strengths & weaknesses key to strategy formation
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Finance/Accounting
Finance/Accounting Functions
1. Investment decision (Capital budgeting)
2. Financing decision
3. Dividend decision
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Firm’s ability to meet its short-term obligations
Ratios
Current ratioQuick (or acid test) ratio
Basic Financial Ratios
Liquidity Ratios
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Extent of debt financing
Ratios
Debt-to-total assetsDebt-to-equity
Long-term debt-to-equityTimes-interest earned
Basic Financial Ratios
Leverage Ratios
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Effective use of firm’s resources
Ratios
Inventory-turnoverFixed assets turnoverTotal assets turnover
Accounts receivable turnoverAverage collection period
Basic Financial Ratios
Activity Ratios
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Effectiveness shown by returns on sales &
investment
Ratios
Gross profit marginOperating profit margin
Net profit marginReturn on total assets (ROA)
Basic Financial Ratios
Profitability Ratios
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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)
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Firm’s ability to maintain economic position
Ratios
SalesNet income
Earnings per shareDividends per share
Basic Financial Ratios
Growth Ratios
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Finance/Accounting Audit
•Where is the firm strong/weak indicated by financial ratio analysis?•Can the firm raise short-term capital as needed?•Can the firm raise long-term capital as needed through debt and/or equity?
•Where is the firm strong/weak indicated by financial ratio analysis?•Can the firm raise short-term capital as needed?•Can the firm raise long-term capital as needed through debt and/or equity?
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Finance/Accounting Audit
•Does the firm have sufficient working capital?•Are capital budgeting procedures effective?•Are dividend payout policies reasonable?•Are the firm’s financial managers experienced & well trained?
•Does the firm have sufficient working capital?•Are capital budgeting procedures effective?•Are dividend payout policies reasonable?•Are the firm’s financial managers experienced & well trained?
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Production/Operations
Production/Operations Functions
Process
Capacity
Inventory
Workforce
Quality
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Facility designTechnology selection
Facility layoutProcess flow analysis
Facility locationLine balancingProcess control
Production/Operations
Process
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ForecastingFacilities planning
Aggregate planningScheduling
Capacity planningQueuing analysis
Production/Operations
Capacity
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Raw materialsWork in processFinished goods
Materials handling
Production/Operations
Inventory
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Job designWork measurement
Job enrichmentWork standards
Motivation techniques
Production/Operations
Workforce
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Quality controlSamplingTesting
Quality assuranceCost Control
Production/Operations
Quality
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Production/Operations Audit
•Are suppliers of materials, parts, etc. reliable and reasonable?•Are facilities, equipment & machinery in good condition?•Are inventory-control policies and procedures effective?
•Are suppliers of materials, parts, etc. reliable and reasonable?•Are facilities, equipment & machinery in good condition?•Are inventory-control policies and procedures effective?
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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?
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Research & Development
Research & Development Functions
Development of new products before competitors
Improving product quality
Improving manufacturing processes to reduce costs
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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
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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?
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Research & Development Audit
•Are MIS and computer systems adequate?•Is communication between R&D & other organizational units effective?•Are present products technologically competitive?
•Are MIS and computer systems adequate?•Is communication between R&D & other organizational units effective?•Are present products technologically competitive?
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Management Information Systems
Purpose
Improve performance of an enterprise by improving the quality of managerial decisions.
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Management Information Systems
Information Systems CIO/CTO Security User-friendly E-commerce
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Management Information Systems Audit
•Do managers use the information system to make decisions?•Is there a CIO or Director of information systems position in the firm?•Is data updated regularly?
•Do managers use the information system to make decisions?•Is there a CIO or Director of information systems position in the firm?•Is data updated regularly?
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Management Information Systems Audit
•Do managers from all functional areas contribute input to the information system?•Are there effective passwords for entry into the firm’s information system?•Are strategists of the firm familiar with the information systems of rival firms?
•Do managers from all functional areas contribute input to the information system?•Are there effective passwords for entry into the firm’s information system?•Are strategists of the firm familiar with the information systems of rival firms?
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Management Information Systems Audit
•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?
•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?
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IFE– Gateway Computers (2003)
Key Internal Factors Weight RatingWtd
Score
Strengths1. Several new senior executive with world-class skills and leadership experience
0.05 4 0.40
2. Continuous decline in operating costs and cost of goods sold
0.05 3 0.15
3. Well-known brand name 0.05 3 0.15
4. Consumer Reports (Sept 2002) recommended Gateway 500X as #1
0.10 4 0.40
5. As a direct seller, Gateway holds high brand recognition
0.05 3 0.15
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IFE– Gateway Computers (2003)
Key Internal Factors Weight RatingWtd
Score
Strengths (cont’d)6. Gateway is diversifying into non-PC products
0.10 3 0.30
7. Good relationship with its suppliers. 0.05 4 0.20
8. Economies of scale, the 6th largest PC maker I the world
0.05 4 0.20
9. Gateway retails stores excellent 0.05 3 0.15
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IFE– Gateway Computers (2003)
Key Internal Factors Weight RatingWtd
Score
Weaknesses1. High operating expense (22% of revenue vs. 10% for Dell)
0.05 3 0.15
2. Almost no budget for R&D vs. Dell’s 18% of revenue
0.10 1 0.05
3. Low return on assets ratio 0.025 1 0.10
4. No niche market 0.025 2 0.05
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IFE– Gateway Computers (2003)
Key Internal Factors Weight RatingWtd
Score
Weaknesses (cont’d)5. Shortage of cash due to successive losses
0.10 2 0.20
6. Limited number Gateway stores 0.05 2 0.10
7. Weak performance in overseas market 0.10 2 0.20
TOTAL 1.00 2.85
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Key Terms & Concepts
For Review (Chapter 4)
Activity Ratios Cost/Benefit Analysis
Capital Budgeting Cultural Products
Communication Distinctive Competencies
Controlling Distribution
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Key Terms & Concepts
For Review (Chapter 4)
Dividend DecisionFunctions of
Finance/Accounting
Empirical Indicators Functions of Management
Financial Ratio Analysis Functions of Marketing
Financing DecisionFunctions of Production/
Operations
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Key Terms & Concepts
For Review (Chapter 4)
Growth Ratios Investment Decision
Human Resource Management
Leverage Ratios
Internal Audit Liquidity Ratios
Internal Factor Evaluation(IFE) Matrix
Management InformationSystems
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Key Terms & Concepts
For Review (Chapter 4)
Motivating Personnel Management
Opportunity Analysis Planning
Organizational Culture Pricing
OrganizingProduct & Service
Planning
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Key Terms & Concepts
For Review (Chapter 4)
Production/OperationsFunctions
Selling
Profitability Ratios Staffing
Research & Development Synergy
Resource Based View(RBV)
Test Marketing
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Key Terms & Concepts
For Review (Chapter 4)
Value Chain Analysis(VCA)