The Internal Assessment: Strategic Management: Concepts & Cases 10 Edition Fred David

Chapter 4
The Internal Assessment

Strategic Management:
Concepts & Cases
10th Edition
Fred David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Copyright 2005 Prentice Hall
Ch 4 -1
Chapter Outline
The Nature of an Internal Audit
The Resource-Based View (RBV)
Integrating Strategy & Culture
Ch 4 -2
Chapter Outline (contd)

Management
Marketing
Opportunity Analysis
Ch 4 -3

Finance/Accounting
Production/Operations
Research & Development
Ch 4 -4

Management Information Systems
The Internal Factor Evaluation (IFE) Matrix
Ch 4 -5
Internal Assessment
The biggest levers youve got to change a
company are strategy, structure, and culture.
If I could pick two, Id pick strategy and
culture.
Wayne Leonard, CEO, Entergy
Weak leadership can wreck the soundest

strategy.
Sun Zi
Ch 4 -6
The Nature of an Internal

Audit
Functional Areas of Business
-- Strengths
-- Weaknesses
Ch 4 -7
Nature of an Internal Audit

Basis for Objectives & Strategies
Internal strengths/weaknesses
External opportunities/threats
Clear statement of mission
Ch 4 -8
Key Internal Forces

Functional Business Areas:
Vary by organization
Divisions have differing strengths &
weaknesses
Ch 4 -9
Key Internal Forces

Distinctive Competencies:
Firms strengths that cannot be easily
matched or imitated by competitors
Ch 4 -10
Key Internal Forces

Building competitive advantage involves
taking advantage of distinctive
competencies
Ch 4 -11
Key Internal Forces

Strategies designed to improve on a
firms weaknesses and turn to strengths
Ch 4 -12
Internal Audit
Parallels process of external audit
Information from:
Management
Marketing
Finance/accounting
Production/operations
Management information Systems
Ch 4 -13
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
Ch 4 -14
Internal Audit
Key to Organizational Success
Coordination & understanding among
managers from all functional areas
Ch 4 -15
Internal Audit
Functional Relationships
Number and complexity increases
relative to organization size
Ch 4 -16
Internal Audit
Financial Ratio Analysis
Exemplifies complexity of relationships
among functional areas of the business
Ch 4 -17
Resource Based View (RBV)

Approach to Competitive Advantage
Internal resources are more important

than external factors
Ch 4 -18

3 All Encompassing Categories
1. Physical resources
2. Human resources
3. Organizational resources
Ch 4 -19

Empirical Indicators
Rare
Hard to imitate
Not easily substitutable
Ch 4 -20

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
Ch 4 -21

Resistant to change
May represent
Strength
Weakness
Ch 4 -22

Values
Beliefs
Legends
Cultural
Products
Heroes
Symbols
Myths
Rites
Rituals
Ch 4 -23

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 -24
Management
Functions of Management
1. Planning
2. Organizing
3. Motivating
4. Staffing
5. Controlling
Ch 4 -25
Management
Stage When Most
Important
Function
Planning
Strategy Formulation
Organizing
Strategy Implementation
Motivating
Staffing
Controlling
Strategy Evaluation
Ch 4 -26
Management
Planning
Beginning of management process

Bridge between present & future
Improves likelihood of attaining
desired results
Ch 4 -27
Management
Forecasting
Establishing objectives
Planning
Devising strategies
Developing policies
Setting goals
Ch 4 -28
Management
Organizing
Achieves coordinated effort

Defines task & authority relationships
Departmentalization
Delegation of authority
Ch 4 -29
Management
Organizing
Organizational design
Job specialization
Job descriptions
Job specifications
Span of control
Unity of command
Coordination
Job design
Job analysis
Ch 4 -30
Management
Motivating
Influencing to accomplish specific

objectives
Communication major component
Ch 4 -31
Management
Motivating
Leadership
Communication
Work groups
Job enrichment
Job satisfaction
Needs fulfillment
Organizational change
Morale
Ch 4 -32
Management
Staffing
Personnel management
Human resources management
Ch 4 -33
Management
Staffing
Wage & salary admin.

Employee benefits
Interviewing
Hiring
Discharging
Training
Management development
Affirmative Action
EEO
Labor relations
Ch 4 -34
Management
Controlling
Establishing performance standards

Ensure actual operations conform to
planned operations
Taking corrective actions
Ch 4 -35
Management
Controlling
Quality
Financial
Sales
Inventory
Expense
Analysis of variance
Rewards
Sanctions
Ch 4 -36
Management Audit Checklist

Does
Does the
the firm
firm use
use strategic
strategic management
management
concepts?
concepts?
Are
Are objectives/goals
objectives/goals measurable?
measurable? Well
Well
communicated?
communicated?
Do
Do managers
managers at
at all
all levels
levels plan
plan
effectively?
effectively?
Ch 4 -37

Do
Do managers
managers delegate
delegate well?
well?
Is
Is the
the organizations
organizations structure
structure
appropriate?
appropriate?
Are
Are job
job descriptions
descriptions clear?
clear?
Are
Are job
job specifications
specifications clear?
clear?
Is
Is employee
employee morale
morale high?
high?
Ch 4 -38

Is
Is employee
employee absenteeism
absenteeism low?
low?
Is
Is employee
employee turnover
turnover low?
low?
Are
Are the
the reward
reward mechanisms
mechanisms effective?
effective?
Are
Are the
the organizations
organizations control
control
mechanisms
mechanisms effective?
effective?
Ch 4 -39
Marketing
Customer Needs/Wants for Products/Services
1. Defining
2. Anticipating
3. Creating
4. Fulfilling
Ch 4 -40
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 -41
Marketing
Customer surveys
Consumer information
Customer
Analysis
Market positioning
strategies
Customer profiles
Market segmentation
strategies
Ch 4 -42
Marketing
Selling
Products/Services
Advertising
Sales
Promotion
Publicity
Sales force management
Customer relations
Dealer relations
Ch 4 -43
Marketing
Planning
Product/Service
Test marketing
Brand positioning
Devising warrantees
Packaging
Product features/options
Product style
Quality
Ch 4 -44
Marketing
Pricing
Forward integration
Discounts
Credit terms
Condition of sale
Markups
Costs
Unit pricing
Ch 4 -45
Marketing
Distribution
Warehousing
Channels
Coverage
Retail site locations
Sales territories
Inventory levels
Transportation
Ch 4 -46
Marketing
Marketing Research
Data collection
Data input
Data analysis
Support business functions
Ch 4 -47
Marketing
Assessing costs
Opportunity
Analysis
Assessing benefits
Assessing risks
Cost/benefit/risk analysis
Ch 4 -48
Marketing
1. Are markets segmented effectively?
2. Is the organization positioned well among
competitors?
3. Has the firms market share been
increasing?
4. Are the distribution channels reliable &
cost effective?
5. Is the sales force effective?
Ch 4 -49
Marketing
6. Does the firm conduct market research?
7. Are product quality & customer service
good?
8. Are the firms products/services priced
appropriately?
9. Does the firm have effective promotion,
advertising, & publicity strategies?
Ch 4 -50
Marketing
10. Are the marketing planning & budgeting
effective?
11. Do the firms marketing managers have
adequate experience and training?
Ch 4 -51
Finance/Accounting
Determining financial strengths &

weaknesses key to strategy
formation
Ch 4 -52
Finance/Accounting
Finance/Accounting Functions
1. Investment decision (Capital budgeting)

2. Financing decision
3. Dividend decision
Ch 4 -53
Basic Financial Ratios
Firms ability to meet its

short-term obligations
Liquidity Ratios
Ratios
Current ratio
Quick (or acid test) ratio
Ch 4 -54
Extent of debt financing

Ratios
Leverage Ratios
Debt-to-total assets
Debt-to-equity
Long-term debt-to-equity
Times-interest earned
Ch 4 -55
Effective use of firms

resources
Ratios
Activity Ratios
Inventory-turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Ch 4 -56
Effectiveness shown by
returns on sales &
investment
Profitability Ratios
Ratios
Gross profit margin
Operating profit margin
Net profit margin
Return on total assets (ROA)
Ch 4 -57
Effectiveness shown by
returns on sales &
investment
(contd)
Ratios
Return on stockholders equity
(ROE)
Earnings per share
Price-earnings ratio
Ch 4 -58
Firms ability to maintain

economic position
Growth Ratios
Ratios
Sales
Net income
Earnings per share
Dividends per share
Ch 4 -59
Finance/Accounting Audit
Where
Where is
is the
the firm
firm strong/weak
strong/weak indicated
indicated
by
by financial
financial ratio
ratio analysis?
analysis?
Can
Can the
the firm
firm raise
raise short-term
short-term capital
capital as
as
needed?
needed?
Can
Can the
the firm
firm raise
raise long-term
long-term capital
capital as
as
needed
needed through
through debt
debt and/or
and/or equity?
equity?
Ch 4 -60
Finance/Accounting Audit
Does
Does the
the firm
firm have
have sufficient
sufficient working
working
capital?
capital?
Are
Are capital
capital budgeting
budgeting procedures
procedures
effective?
effective?
Are
Are dividend
dividend payout
payout policies
policies reasonable?
reasonable?
Are
Are the
the firms
firms financial
financial managers
managers
experienced
experienced && well
well trained?
trained?
Ch 4 -61
Production/Operations Functions
Process
Capacity
Inventory
Workforce
Quality
Ch 4 -62
Process
Facility design
Technology selection
Facility layout
Process flow analysis
Facility location
Line balancing
Process control
Ch 4 -63
Capacity
Forecasting
Facilities planning
Aggregate planning
Scheduling
Capacity planning
Queuing analysis
Ch 4 -64
Inventory
Raw materials
Work in process
Finished goods
Materials handling
Ch 4 -65
Workforce
Job design
Work measurement
Job enrichment
Work standards
Motivation techniques
Ch 4 -66
Quality
Quality control
Sampling
Testing
Quality assurance
Cost Control
Ch 4 -67
Production/Operations Audit
Are
Are suppliers
suppliers of
of materials,
materials, parts,
parts, etc.
etc.
reliable
reliable and
and reasonable?
reasonable?
Are
Are facilities,
facilities, equipment
equipment && machinery
machinery in
in
good
good condition?
condition?
Are
Are inventory-control
inventory-control policies
policies and
and
procedures
procedures effective?
effective?
Ch 4 -68
Production/Operations Audit
Are
Are quality-control
quality-control policies
policies && procedures
procedures
effective?
effective?
Are
Are facilities,
facilities, resources,
resources, and
and markets
markets
strategically
strategically located?
located?
Does
Does the
the firm
firm have
have technological
technological
competencies?
competencies?
Ch 4 -69

Research & Development Functions
Development of new products before
competitors
Improving product quality
Improving manufacturing processes to
reduce costs
Ch 4 -70

Financing as many
projects as possible
use percent-of-sales
method
R&D Budgets
Budgeting relative to
competitors
How many successful
new products are
needed
Ch 4 -71
Research & Development Audit

Are
Are the
the R&D
R&D facilities
facilities adequate?
adequate?
IfIf R&D
R&D is
is outsourced,
outsourced, is
is itit cost
cost effective?
effective?
Are
Are the
the R&D
R&D personnel
personnel well
well qualified?
qualified?
Are
Are R&D
R&D resources
resources allocated
allocated effectively?
effectively?
Ch 4 -72
Research & Development Audit

Are
Are MIS
MIS and
and computer
computer systems
systems
adequate?
adequate?
Is
Is communication
communication between
between R&D
R&D && other
other
organizational
organizational units
units effective?
effective?
Are
Are present
present products
products technologically
technologically
competitive?
competitive?
Ch 4 -73
Management Information
Systems
Purpose
Improve performance of an enterprise by
improving the quality of managerial
decisions.
Ch 4 -74
Systems
Information Systems
CIO/CTO
Security
User-friendly
E-commerce
Ch 4 -75
Systems Audit
Do
Do managers
managers use
use the
the information
information system
system
to
to make
make decisions?
decisions?
Is
Is there
there aa CIO
CIO or
or Director
Director of
of information
information
systems
systems position
position in
in the
the firm?
firm?
Is
Is data
data updated
updated regularly?
regularly?
Ch 4 -76
Systems Audit
Do
Do managers
managers from
from all
all functional
functional areas
areas
contribute
contribute input
input to
to the
the information
information system?
system?
Are
Are there
there effective
effective passwords
passwords for
for entry
entry
into
into the
the firms
firms information
information system?
system?
Are
Are strategists
strategists of
of the
the firm
firm familiar
familiar with
with the
the
information
information systems
systems of
of rival
rival firms?
firms?
Ch 4 -77
Systems Audit
Is
Is the
the information
information system
system user-friendly?
user-friendly?
Do
Do all
all users
users understand
understand the
the competitive
competitive
advantages
advantages that
that information
information can
can provide?
provide?
Are
Are computer
computer training
training workshops
workshops provided
provided
for
for users?
users?
Is
Is the
the firms
firms system
system being
being improved?
improved?
Ch 4 -78
IFE Gateway Computers (2003)

Weight
Rating
Wtd
Score
1. Several new senior executive with worldclass skills and leadership experience
0.05
0.40
2. Continuous decline in operating costs

and cost of goods sold
0.05
0.15
3. Well-known brand name
0.05
0.15
4. Consumer Reports (Sept 2002)

recommended Gateway 500X as #1
0.10
0.40
5. As a direct seller, Gateway holds high

brand recognition
0.05
0.15
Key Internal Factors
Strengths
Ch 4 -79

Weight
Rating
Wtd
Score
6. Gateway is diversifying into non-PC

products
0.10
0.30
7. Good relationship with its suppliers.
0.05
0.20
8. Economies of scale, the 6th largest PC

maker I the world
0.05
0.20
9. Gateway retails stores excellent
0.05
0.15
Strengths (contd)
Ch 4 -80

Weight
Rating
Wtd
Score
1. High operating expense (22% of revenue

vs. 10% for Dell)
0.05
0.15
2. Almost no budget for R&D vs. Dells 18%

of revenue
0.10
0.05
3. Low return on assets ratio
0.025
0.10
4. No niche market
0.025
0.05
Weaknesses
Ch 4 -81

Weight
Rating
Wtd
Score
5. Shortage of cash due to successive

losses
0.10
0.20
6. Limited number Gateway stores
0.05
0.10
7. Weak performance in overseas market
0.10
0.20
TOTAL
1.00
Weaknesses (contd)
2.85
Ch 4 -82
For Review (Chapter 4)

Key Terms & Concepts
Activity Ratios
Cost/Benefit Analysis
Capital Budgeting
Cultural Products
Communication
Distinctive Competencies
Controlling
Distribution
Ch 4 -83

Dividend Decision
Functions of
Finance/Accounting
Empirical Indicators
Functions of Management
Financial Ratio Analysis
Functions of Marketing
Financing Decision
Functions of Production/
Operations
Ch 4 -84

Growth Ratios
Investment Decision
Human Resource
Management
Leverage Ratios
Internal Audit
Liquidity Ratios
Internal Factor Evaluation

(IFE) Matrix
Systems
Ch 4 -85

Motivating
Personnel Management
Planning
Pricing
Organizing
Product & Service

Planning
Ch 4 -86

Functions
Selling
Staffing
Synergy
Resource Based View

(RBV)
Test Marketing
Ch 4 -87

Value Chain Analysis
(VCA)
Ch 4 -88

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Chapter 4

The Internal Assessment

Copyright 2005 Prentice Hall

The Resource-Based View (RBV)

Integrating Strategy & Culture

Copyright 2005 Prentice Hall

Chapter Outline (contd)

Copyright 2005 Prentice Hall

Chapter Outline (contd)

Research & Development

Copyright 2005 Prentice Hall

Chapter Outline (contd)

The Internal Factor Evaluation (IFE) Matrix

Copyright 2005 Prentice Hall

Weak leadership can wreck the soundest

Copyright 2005 Prentice Hall

The Nature of an Internal

Copyright 2005 Prentice Hall

Nature of an Internal Audit

Copyright 2005 Prentice Hall

Key Internal Forces

Copyright 2005 Prentice Hall

Key Internal Forces

Copyright 2005 Prentice Hall

Key Internal Forces

Copyright 2005 Prentice Hall

Key Internal Forces

Copyright 2005 Prentice Hall

Copyright 2005 Prentice Hall

Involvement in performing an internal

Copyright 2005 Prentice Hall

Copyright 2005 Prentice Hall

Copyright 2005 Prentice Hall

Copyright 2005 Prentice Hall

Resource Based View (RBV)

Internal resources are more important

Copyright 2005 Prentice Hall

Resource Based View (RBV)

Copyright 2005 Prentice Hall

Resource Based View (RBV)

Copyright 2005 Prentice Hall

Integrating Strategy & Culture

Pattern of behavior developed by an

Copyright 2005 Prentice Hall

Integrating Strategy & Culture

Copyright 2005 Prentice Hall

Integrating Strategy & Culture

Copyright 2005 Prentice Hall

Integrating Strategy & Culture

Miss external changes due to strongly

Copyright 2005 Prentice Hall

Copyright 2005 Prentice Hall

Beginning of management process

Copyright 2005 Prentice Hall

Copyright 2005 Prentice Hall

Achieves coordinated effort

Copyright 2005 Prentice Hall

Copyright 2005 Prentice Hall

Influencing to accomplish specific

Copyright 2005 Prentice Hall

Copyright 2005 Prentice Hall

Copyright 2005 Prentice Hall

Wage & salary admin.