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The Internal Assessment

Strategic Management

Usman Chaudhry - FSM


Internal Assessment

Weak leadership can wreck the soundest strategy

Sun Tzu

Usman Chaudhry - FSM


Internal Assessment
Functional areas of the business
Strengths
Weaknesses

Focuses on developing objectives and strategies to capitalize on


internal strengths and overcome weaknesses

Weaknesses Strength Distinctive Competitive


Competencies Advantage

Usman Chaudhry - FSM


Internal Assessment
Distinctive Competencies

A firms 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 firms weaknesses


and turn to strengths

Usman Chaudhry - FSM


Internal Assessment
Resource Based View (RBV)
Internal resources are more important than external resources.

Three All-Encompassing Categories


Physical resources
Human resources
Organizational resources
Rare
Hard to imitate
Not easily substitutable (sustainability)

Usman Chaudhry - FSM


Internal Assessment

Gather & assimilate information from:

Management
Marketing
Finance/accounting
Production/operations
Research & development
Management information systems

Usman Chaudhry - FSM


Internal Assessment
Integrating 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 integrationis considered valid and taught
to new members
Resistant to change
May represent a strength or weakness of firm

Usman Chaudhry - FSM


Internal Assessment

Integrating Strategy and Culture

Ignoring the effect that culture can have on


relationships among the functional areas of the
business can result in barriers to communication,
lack of coordination, and an inability to adapt to
changing conditions

Usman Chaudhry - FSM


Internal Assessment

Management

Functions of Management
Planning
Organizing
Motivating
Staffing
Controlling

Usman Chaudhry - FSM


Management

Planning Strategy Formulation

Organizing Strategy
Implementation

Strategy
Motivating
Implementation

Strategy
Staffing Implementation

Controlling Strategy Evaluation


Usman Chaudhry - FSM
Internal Assessment

Management 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 organizations structure appropriate?

Usman Chaudhry - FSM


Internal Assessment

Management 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?

Usman Chaudhry - FSM


Internal Assessment
Marketing
The process of defining, anticipating, creating, and fulfilling customers
needs and wants for products and services.

Customer analysis (surveys)


Selling products/services (advertising)
Product and service planning (test mkt, packaging, features)
Pricing
Distribution (transportation, warehousing)
Marketing research
Opportunity analysis (cost-benefit analysis)
Usman Chaudhry - FSM
Internal Assessment
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 force?
Does the firm conduct market research?

Usman Chaudhry - FSM


Internal Assessment
Marketing Audit Checklist

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?
Are marketing planning and budgeting effective?
Do the firms marketing mangers have adequate experience
and training?

Usman Chaudhry - FSM


Internal Assessment

Finance/Accounting

Investment decision (Capital budgeting)


Financing decision
to raise capital-selling assets etc
Dividend decision
a myth that paying dividends=higher stock price

Usman Chaudhry - FSM


Internal Assessment
Firms ability to
Financial ratios
meet its short-term
obligations

Ratios

Liquidity ratios Current ratio

Quick
(or acid-test)
ratio

Usman Chaudhry - FSM


Internal Assessment
Extent of debt
financing
Financial ratios
Ratios

Debt-to-total-assets
Leverage ratios Debt-to-equity

Long-term debt-to-equity

Usman Chaudhry - FSM


Internal Assessment
Effective use of firms
Financial ratios resources

Ratios

Inventory-turnover
Activity ratios
Fixed assets turnover

Total assets turnover

Accounts receivable turnover

Average collection period


Usman Chaudhry - FSM
Internal Assessment
Effectiveness shown
Financial ratios by returns on sales
and investment

Ratios
Profitability
Gross profit margin
ratios
Operating profit margin

Net profit margin

Usman Chaudhry - FSM


Internal Assessment
Firms ability to
Financial ratios maintain economic
position

Ratios

Growth ratios Sales

Net income

Earnings per share

Dividends per share

Usman Chaudhry - FSM


Internal Assessment

How has each ratio changed over time?


How does each ratio compare to industry norms?
How does each ratio compare with key
competitors?

FMCG vs Auto Industry

Usman Chaudhry - FSM


Internal Assessment
Finance/Accounting Audit Checklist

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?

Usman Chaudhry - FSM


Internal Assessment

Finance/Accounting Audit Checklist

Does the firm have good relations with its investors and
stockholders?
Are the firms financial managers experienced and well trained?

Usman Chaudhry - FSM


Internal Assessment
Production/Operations

The extent to which a manufacturing plants output reaches


its potential output is called capacity utilization

The estimated plant capacity utilization in Europe for the


major auto producers in Volkswagen (84%), Renault (77%),
Peugeot (73%), Ford (66%), GM (60%), and Fiat (55%).

Usman Chaudhry - FSM


Production/Operations

The production/operations function of a business


consists of all those activities that transform inputs
into good and services.
These inputs, transformations, and outputs vary across
industries and markets.

Usman Chaudhry - FSM


Production/Operations
Five functions/decision of production and operations
management.
Process
Capacity
Inventory
Workforce
Quality

Strengths and weaknesses in the five functions of production


can mean the success or failure of an enterprise.
Usman Chaudhry - FSM
Internal Assessment

Production/Operations

Facility layout

Process Choice of technology

Process flow analysis

Process control

Usman Chaudhry - FSM


Internal Assessment

Production/Operations
Forecasting

Scheduling

Capacity Queuing analysis

Capacity utilization is a
major consideration

Usman Chaudhry - FSM


Internal Assessment

Production/Operations

Raw material

Work in process
Inventory
Finished goods

Materials handling

Usman Chaudhry - FSM


Internal Assessment

Production/Operations
Job design

Work measurement
Workforce
Job enrichment
(skilled/unskilled
/clerical)
Work standards

Motivation techniques

Usman Chaudhry - FSM


Internal Assessment

Production/Operations
Quality control

Sampling

Testing
Quality
Quality assurance

Cost control

Usman Chaudhry - FSM


Internal Assessment
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?

Usman Chaudhry - FSM


Internal Assessment

Research & Development

Development of new products before competition


Improving product quality
Improving manufacturing processes to reduce costs

Usman Chaudhry - FSM


Research & Development

Huawei Technologies, the worlds largest supplier of


telecom equipment, increased its R&D spending by 25
present in 2012 to $4.7 billion, almost equal to rival
Ericssons R&D expenditure of $4.8 billion.

A key decision for many firms in whether to be a first mover


or a late follower.

Usman Chaudhry - FSM


Internal Assessment
Financing as many
Research & Development
projects as possible

Using a percentage-of-
sales method
R&D budget
approaches Budgeting relative to
competitors

Deciding how many


successful new
products are needed
Usman Chaudhry - FSM
Research & Development

R&D in organizations can take two basic forms;

1. Internal R&D

2. External (Contract) R&D


a) Outsourcing
b) Joint ventures

Usman Chaudhry - FSM


Internal Assessment
Research & Development Audit Checklist

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

Usman Chaudhry - FSM


Internal Assessment
Management Information Systems

Billions of bits of information are now in the cloud.

Information Systems
Security
User-friendly
E-commerce

Usman Chaudhry - FSM


Internal Assessment

Management Information Systems

MISs purpose is to improve the performance of an enterprise


by improving the quality of the managerial decisions

Data becomes information only when it is Evaluated


Filtered
Condensed
Analysed
Organized
Usman Chaudhry - FSM
Internal Assessment
MIS 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?
Is the information system user-friendly?
Are computer training workshops provided for users?
Is the firms system being improved?

Usman Chaudhry - FSM


Internal Assessment

Value Chain Analysis (VCA)

It refers to the process whereby a firm determines the cost


associated with organizational activities from purchasing raw
materials to manufacturing product(s) to marketing those
products.
VCA aims to identify where low-cost advantages or
disadvantages exist anywhere along the value chain.

Usman Chaudhry - FSM


Internal Analysis (IFE)
Internal Factor Evaluation Matrix

Allows strategists to summarize & evaluate the major


strengths and weaknesses in the functional areas of
a business

Usman Chaudhry - FSM