fred r. david prentice hall ch 4-1 chapter 4 the internal assessment strategic management: concepts...
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Fred R. DavidPrentice Hall
Ch 4-1
Chapter 4Chapter 4The Internal AssessmentThe Internal Assessment
Strategic Management:
Concepts and Cases. 9th edition
Fred R. David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Fred R. DavidPrentice Hall
Ch 4-2
Chapter OutlineChapter Outline
• The Nature of an Internal Audit
• Integrating Strategy and Culture
• Management
Fred R. DavidPrentice Hall
Ch 4-3
Chapter OutlineChapter Outline
• Marketing
• Finance/Accounting
• Production/Operations
Fred R. DavidPrentice Hall
Ch 4-4
Chapter OutlineChapter Outline
• Research and Development
• Management Information Systems
• The Internal Factor Evaluation Matrix (IFE)
Fred R. DavidPrentice Hall
Ch 4-5
The Internal AssessmentThe Internal Assessment
Great spirits have always encountered violent opposition from mediocre minds.
-- Albert Einstein
Fred R. DavidPrentice Hall
Ch 4-6
Nature of an Internal AuditNature of an Internal Audit
All organizations –All organizations –
• Strengths• Weaknesses
Fred R. DavidPrentice Hall
Ch 4-7
Nature of an Internal AuditNature of an Internal Audit
Basis for objectives & strategies:Basis for objectives & strategies:
– Internal strengths/weaknesses– External opportunities/threats– Clear statement of mission
Fred R. DavidPrentice Hall
Ch 4-8
Key Internal ForcesKey Internal Forces
Functional business areas:Functional business areas:
– Vary by organization
– Divisions have differing strengths and weaknesses
Fred R. DavidPrentice Hall
Ch 4-9
Key Internal ForcesKey Internal Forces
Distinctive Competencies
• A firm’s strengths that cannot be easily matched or imitated by competitors
• Building competitive advantage involves taking advantage of distinctive competencies
• Strategies designed in part to improve on a firm’s weaknesses and turn to strengths
Fred R. DavidPrentice Hall
Ch 4-10
Internal AuditInternal Audit
• Parallels process of external audit
• Gather & assimilate information from:• Management• Marketing• Finance/accounting• Production/operations• Research & development• Management information systems
Fred R. DavidPrentice Hall
Ch 4-11
Internal AuditInternal 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.
Fred R. DavidPrentice Hall
Ch 4-12
Internal AuditInternal Audit
Key to organizational success:
– Coordination and understanding among managers from all functional areas
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Ch 4-13
Internal AuditInternal Audit
Functional relationships:
– Number and complexity increases relative to organization size
Fred R. DavidPrentice Hall
Ch 4-14
Internal AuditInternal Audit
Financial Ratio Analysis:
– Exemplifies complexity of relationships among functional areas of the business
Fred R. DavidPrentice Hall
Ch 4-15
Integrating Strategy and CultureIntegrating Strategy and 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
Fred R. DavidPrentice Hall
Ch 4-16
Integrating Strategy and CultureIntegrating Strategy and Culture
Organizational Culture --
• Resistant to change
• May represent a strength or weakness of the firm
Fred R. DavidPrentice Hall
Ch 4-17
Integrating Strategy and CultureIntegrating Strategy and Culture
Cultural products
Values
beliefs
rites
rituals
ceremonies
myths
stories
legends
sagas
language
symbols
heroes
Fred R. DavidPrentice Hall
Ch 4-18
Integrating Strategy and CultureIntegrating Strategy and Culture
Culture can inhibit strategic management:
– Miss changes in external environment because they are blinded by strongly held beliefs
– When a culture has been effective in the past, natural tendency to stick with it in future, even during times of major strategic change
Fred R. DavidPrentice Hall
Ch 4-19
Functions of ManagementFunctions of Management
Five basic activities –
– Planning– Organizing– Motivating– Staffing– Controlling
Fred R. DavidPrentice Hall
Ch 4-20
Functions of ManagementFunctions of Management
Planning
Stage When Most ImportantFunction
Strategy Formulation
Organizing
Strategy Implementation
Motivating
Strategy Implementation
Staffing
Controlling
Strategy Implementation
Strategy Evaluation
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Ch 4-21
Functions of ManagementFunctions of Management
Planning
– Start of the process– Bridge between present and future– Increases likelihood of achieving desired
results
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Ch 4-22
PlanningPlanning
Planning
Forecasting
Establishing objectives
Devising strategies
Developing policies
Setting goals
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Ch 4-23
Functions of ManagementFunctions of Management
Organizing
– Achieve coordinated effort– Defining task and authority relationships– Departmentalization– Delegation of authority
Fred R. DavidPrentice Hall
Ch 4-24
OrganizingOrganizing
Organizing
Organizational design
Job specializationJob descriptions
Job specificationsSpan of control
Unity of commandCoordinationJob design
Job analysis
Organizing
Organizational design
Job specializationJob descriptions
Job specificationsSpan of control
Unity of commandCoordinationJob design
Job analysis
Organizing
Organizational designJob specializationJob descriptions
Job specificationsSpan of control
Unity of commandCoordinationJob design
Job analysis
Fred R. DavidPrentice Hall
Ch 4-25
Functions of ManagementFunctions of Management
Motivating
– Influencing people to accomplish specific objectives
– Communication is a major component
Fred R. DavidPrentice Hall
Ch 4-26
MotivatingMotivating
Motivating
LeadershipCommunication
Work groupsJob enrichmentJob satisfactionNeeds fulfillmentOrganizational
changeMorale
Fred R. DavidPrentice Hall
Ch 4-27
Functions of ManagementFunctions of Management
Staffing
– Personnel management– Human resources management
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Ch 4-28
StaffingStaffing
Staffing
Wage & salary adminEmployee benefits
InterviewingHiringFiring
TrainingManagement development
SafetyAffirmative action
EEOLabor relations
Career developmentDiscipline procedures
Management
Fred R. DavidPrentice Hall
Ch 4-29
Functions of ManagementFunctions of Management
Controlling
– Ensure actual operations conform to planned operations
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Ch 4-30
ControllingControlling
Controlling
Quality controlFinancial control
Sales controlInventory controlExpense control
Analysis of variancesRewardsSanctions
Management
Fred R. DavidPrentice Hall
Ch 4-31
Management Audit ChecklistManagement Audit 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 organization’s structure
appropriate?
Fred R. DavidPrentice Hall
Ch 4-32
Management Audit ChecklistManagement Audit Checklist
• Are job descriptions and job specifications clear?
• Is employee morale high?• Are employee turnover and
absenteeism low?• Are organizational reward and control
mechanisms effective?
Fred R. DavidPrentice Hall
Ch 4-33
MarketingMarketing
Process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services
Fred R. DavidPrentice Hall
Ch 4-34
MarketingMarketing
1. Customer analysis2. Selling products/services3. Product and service planning4. Pricing5. Distribution6. Marketing research7. Opportunity analysis
Fred R. DavidPrentice Hall
Ch 4-35
MarketingMarketing
Customer analysis
Customer surveys
Consumer information
Market positioning strategies
Customer profiles
Market segmentation strategies
Fred R. DavidPrentice Hall
Ch 4-36
MarketingMarketing
Selling Products/services
Advertising
Sales
Promotion
Publicity
Sales force management
Customer relations
Dealer relations
Fred R. DavidPrentice Hall
Ch 4-37
MarketingMarketing
Product/service planning
Test marketing
Brand positioning
Devising warrantees
Packaging
Product features/options
Product style
Quality
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Ch 4-38
MarketingMarketing
Pricing
Forward integration
Discounts
Credit terms
Condition of sale
Markups
Costs
Unit pricing
Fred R. DavidPrentice Hall
Ch 4-39
MarketingMarketing
Distribution
Warehousing
Channels
Coverage
Retail site locations
Sales territories
Inventory levels
Transportation
Fred R. DavidPrentice Hall
Ch 4-40
MarketingMarketing
Marketing research
Data collection
Data input
Data analysis
Support all business functions
Fred R. DavidPrentice Hall
Ch 4-41
MarketingMarketing
Opportunity Analysis
Assessing costs
Assessing benefits
Assessing risks
Cost/benefit/risk analysis
Fred R. DavidPrentice Hall
Ch 4-42
Marketing AuditMarketing Audit
• Are markets segmented effectively?• Is the organization positioned well among
competitors?• Has the firm’s market share been increasing?• Are present channels of distribution reliable
and cost effective?• Does the firm have an effective sales force?
Fred R. DavidPrentice Hall
Ch 4-43
Marketing AuditMarketing Audit
• Does the firm conduct market research?• Are product quality and customer
service good?• Are the firm's products/services priced
appropriately?• Does the firm have an effective
promotion, advertising, and publicity strategy?
Fred R. DavidPrentice Hall
Ch 4-44
Marketing AuditMarketing Audit
• Are marketing planning and budgeting effective?
• Do the firm’s marketing mangers have adequate experience and training
Fred R. DavidPrentice Hall
Ch 4-45
Finance/AccountingFinance/Accounting
• Determining financial strengths and weaknesses key to strategy formulation
• Investment decision (Capital budgeting)• Financing decision• Dividend decision
Fred R. DavidPrentice Hall
Ch 4-46
Finance/AccountingFinance/Accounting
Functions of Finance/Accounting –
1. Investment decision (Capital budgeting)
2. Financing decision
3. Dividend decision
Fred R. DavidPrentice Hall
Ch 4-47
Basic Financial RatiosBasic Financial Ratios
Liquidity ratios
Firm’s ability to meet its short-term obligations
Ratios
Current ratio
Quick (or acid-test)
ratio
Fred R. DavidPrentice Hall
Ch 4-48
Leverage ratios
• Extent of debt financing
Ratios
Debt-to-total-assets
Debt-to-equity
Long-term debt-to-equity
Times-interest earned
Basic Financial RatiosBasic Financial Ratios
Fred R. DavidPrentice Hall
Ch 4-49
Activity ratios
• Effective use of firm’s resources
Ratios
Inventory-turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Basic Financial RatiosBasic Financial Ratios
Fred R. DavidPrentice Hall
Ch 4-50
Profitability ratios
• Effectiveness shown by returns on sales and investment
Ratios
Gross profit margin
Operating profit margin
Net profit margin
Return on total assets (ROA)
Basic Financial RatiosBasic Financial Ratios
Fred R. DavidPrentice Hall
Ch 4-51
Profitability ratios(continued)
• Effectiveness shown by returns on sales and investment
Ratios
Return on stockholders’ equity (ROE)
Earnings per share
Price-earnings ratio
Basic Financial RatiosBasic Financial Ratios
Fred R. DavidPrentice Hall
Ch 4-52
Growth ratios
• Firm’s ability to maintain economic position
Ratios
Sales
Net income
Earnings per share
Dividends per share
Basic Financial RatiosBasic Financial Ratios
Fred R. DavidPrentice Hall
Ch 4-53
• Where is the firm 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?
Finance/Accounting AuditFinance/Accounting Audit
Fred R. DavidPrentice Hall
Ch 4-54
• Are dividend payout policies reasonable?• Does the firm have good relations with its
investors and stockholders?• Are the firm’s financial managers experienced
and well trained?
Finance/Accounting AuditFinance/Accounting Audit
Fred R. DavidPrentice Hall
Ch 4-55
• Process• Capacity• Inventory• Workforce• Quality
Production/OperationsProduction/Operations
Fred R. DavidPrentice Hall
Ch 4-56
Process
Design of facility
Choice of technology
Facility layout
Process flow analysis
Facility location
Line balancing
Process control
Production/OperationsProduction/Operations
Fred R. DavidPrentice Hall
Ch 4-57
Capacity
Forecasting
Facilities planning
Aggregate planning
Scheduling
Capacity planning
Queuing analysis
Production/OperationsProduction/Operations
Fred R. DavidPrentice Hall
Ch 4-58
Inventory
Raw material
Work in process
Finished goods
Materials handling
Production/OperationsProduction/Operations
Fred R. DavidPrentice Hall
Ch 4-59
Workforce
Job design
Work measurement
Job enrichment
Work standards
Motivation techniques
Production/OperationsProduction/Operations
Fred R. DavidPrentice Hall
Ch 4-60
Quality
Quality control
Sampling
Testing
Quality assurance
Cost control
Production/OperationsProduction/Operations
Fred R. DavidPrentice Hall
Ch 4-61
• 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?
Production/Operations AuditProduction/Operations Audit
Fred R. DavidPrentice Hall
Ch 4-62
• Are quality-control policies and procedures effective?
• Are facilities, resources, and markets strategically located?
• Does the firm have technological competencies?
Production/Operations AuditProduction/Operations Audit
Fred R. DavidPrentice Hall
Ch 4-63
• Development of new products before competition
• Improving product quality• Improving manufacturing processes to
reduce costs
Research and DevelopmentResearch and Development
Fred R. DavidPrentice Hall
Ch 4-64
R&D budgets
Financing as many projects as possible
Use percentage-of-sales method
Budgeting relative to competitors
Deciding how many successful new
products are needed
Research and DevelopmentResearch and Development
Fred R. DavidPrentice Hall
Ch 4-65
• Does the firm have R&D facilities? Are they adequate?
• If outside R&D firms are used, are they cost effective?
• Are the organization’s R&D personnel well qualified?
• Are R&D resources allocated effectively?
Research and Development AuditResearch and Development Audit
Fred R. DavidPrentice Hall
Ch 4-66
• Are management information and computer systems adequate?
• Is communication between R&D and other organizational units effective?
• Are present products technologically competitive?
Research and Development AuditResearch and Development Audit
Fred R. DavidPrentice Hall
Ch 4-67
Purpose –– Improve performance of an enterprise by
improving the quality of managerial decisions.
Management Information Management Information SystemsSystems
Fred R. DavidPrentice Hall
Ch 4-68
• Information Systems• CIO/CTO• Security• User-friendly• E-commerce
Management Information Management Information SystemsSystems
Fred R. DavidPrentice Hall
Ch 4-69
• 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?
Management Information Management Information Systems AuditSystems Audit
Fred R. DavidPrentice Hall
Ch 4-70
• Do managers from all functional areas of the firm 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?
Management Information Management Information Systems AuditSystems Audit
Fred R. DavidPrentice Hall
Ch 4-71
• 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?
• Is the firm’s system being improved?
Management Information Management Information Systems AuditSystems Audit
Fred R. DavidPrentice Hall
Ch 4-72
Internal Analysis (IFE)Internal Analysis (IFE)
Five-Step Process:Five-Step Process:
• List key internal factors (10-20)Strengths & weaknesses
• Assign weight to each (0 to 1.0)Sum of all weights = 1.0
Fred R. DavidPrentice Hall
Ch 4-73
Assign 1-4 rating to each factorFirm’s current strategies response to the
factor
• Multiply each factor’s weight by its ratingProduces a weighted score
Internal Analysis (IFE)Internal Analysis (IFE)
Fred R. DavidPrentice Hall
Ch 4-74
• Sum the weighted scores for eachDetermines the total weighted score for the
organization
Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5
Internal Analysis (IFE)Internal Analysis (IFE)
Fred R. DavidPrentice Hall
Ch 4-75
.153.05 Financial ratios
.153.05 Reputation as family-friendly
.204.05 Long-range planning
.153.05 Minimal comps provided
.153.05 Buffets at most facilities
.153.05 Strong management team
.604.15 Owns 1 mile on Las Vegas strip
.153.05 Increasing free cash flows
.404.10 Room occupancy rates over 95%
.204.05 Largest casino company in world
Weighted
scoreRatingWeight
Mandalay BayInternal Strengths
Internal Analysis (IFE)Internal Analysis (IFE)
Fred R. DavidPrentice Hall
Ch 4-76
2.751.0TOTAL (including Strengths)
.101.10Recent loss of joint ventures
.101.10Laughlin properties
.102.05Family reputation, not high rollers
.102.05Little diversification
.051.05Most properties located in Las Vegas
Weighted
scoreRatingWeight
Mandalay BayInternal Weaknesses
Internal Analysis (IFE)Internal Analysis (IFE)
Fred R. DavidPrentice Hall
Ch 4-77
Mandalay Bay (in the previous example), has a total weighted score of 2.75 indicating that the firm is above average in its overall internal strength
Internal Analysis (IFE)Internal Analysis (IFE)
Fred R. DavidPrentice Hall
Ch 4-78
Key TermsKey Terms
• Activity ratios• Buying• Capital budgeting• Communication• Computer information systems• Controlling• Cost/benefit analysis• Cultural products• Customer analysis
Fred R. DavidPrentice Hall
Ch 4-79
Key TermsKey Terms
• Distinctive competencies• Distribution• Dividend decision• Financial ratio analysis• Financing decisions• Functions of finance/accounting• Functions of management
Fred R. DavidPrentice Hall
Ch 4-80
Key TermsKey Terms
• Functions of marketing• Functions of production/operations• Growth ratio• Human resource management• Internal audit• Internal Factor Evaluation (IFE) Matrix• Investment Decision
Fred R. DavidPrentice Hall
Ch 4-81
Key TermsKey Terms
• Leverage ratios• Liquidity ratios• Marketing research• Motivating• Opportunity analysis• Organizational culture• Organizing• Personnel management• Planning• Pricing
Fred R. DavidPrentice Hall
Ch 4-82
Key TermsKey Terms
• Product and service planning• Production/operations functions• Profitability ratios• Research and development