Ch 4 -1

Chapter 4 The Internal Assessment

Strategic Management:

Concepts & Cases11th EditionFred David

Ch 4 -2

How frequently should we verify strategies?

Ch 4 -3

Internal strengths/weaknesses External opportunities/threats Clear statement of mission

Nature of an Internal Audit

Basis for Objectives & Strategies

Ch 4 -4

Internal Audit

•Information from:•Management

•Marketing

•Finance/accounting

•Production/operations

•Research & Development

•Management Information Systems

Parallels process of external audit

Ch 4 -5

Resource Based View (RBV)

Approach to Competitive Advantage

Internal resources are more important than external factors

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Resource Based View (RBV)

Three All Encompassing Categories

1. Physical resources

2. Human resources

3. Organizational resources

Ch 4 -7

Resource Based View (RBV)

Empirical Indicators

Rare

Hard to imitate

Not easily substitutable

Ch 4 -8

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

Ch 4 -9

CulturalProducts

Values

Legends Beliefs

Heroes Rites

Symbols RitualsMyths

Integrating Strategy & Culture

Ch 4 -10

Ch 4 -11

Management

Planning

Stage When Most ImportantFunction

Strategy Formulation

Organizing Strategy Implementation

Motivating Strategy Implementation

Staffing

Controlling

Strategy Implementation

Strategy Evaluation

Ch 4 -12

Marketing

Customer Needs/Wants for Products/Services

1. Defining

2. Anticipating

3. Creating

4. Fulfilling

Ch 4 -13

MarketingMarketing Functions

1. Customer analysis

2. Selling products/services

3. Product & service planning

4. Pricing

5. Distribution

6. Marketing research

7. Opportunity analysis

Ch 4 -14

Finance/AccountingFinance/Accounting Functions

1. Investment decision (Capital budgeting)

2. Financing decision

3. Dividend decision

4. Financial analysis – Key financial ratios

Ch 4 -15

Production/Operations

Production/Operations Functions

Process Capacity Inventory Workforce Quality

Ch 4 -16

Research & Development

Research & Development Functions

Development of new products before competitors

Improving product quality Improving manufacturing processes to

reduce costs

Ch 4 -17

Management Information Systems

Information Systems CIO/CTO Security User-friendly E-commerce

Ch 4 -18

Ch 4 -19

Ch 4 -20

Managerial Questions 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? Are job descriptions and specifications clear? Is employee morale high? Are employee turnover and absenteeism low? Are organizational reward and control mechanisms effective?

Ch 4 -21

Marketing Audit Checklist 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 organization? Does the firm conduct market research? Are product quality and customer service good? Are the firm’s products and services priced appropriately? Does the firm have an effective promotion, advertising, and

publicity strategy? Are marketing planning and budgeting effective? Do the firm’s marketing managers have adequate experience

and training?

Ch 4 -22

Accounting Audit Checklist Where is the firm financially 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? 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?

Ch 4 -23

Accounting Ratios Liquidity ratios measure a firm’s ability to meet maturing short-term

obligations. Current ratio Quick (acid-test) ratio

Leverage ratios measure the extent to which a firm has been financed by debt.

Debt-to-total-assets ratio Debt-to-equity ratio Long-term debt-to-equity ratio Times-interest-earned (coverage) ratio

Activity ratios measure how effectively a firm is using its resources. Inventory turnover Fixed assets turnover Total assets turnover Accounts receivable turnover Average collection period

Profitability ratios measure management’s overall effectiveness as shown by returns generated on sales and investment.

Gross profit margin Operating profit margin Net profit margin Return on total assets Return on stockholders’ equity Earnings per share Price-earnings ratio

Growth ratios measure the firm’s ability to maintain its economic position in the growth of the economy and industry.

Sales Net income Earnings per share Dividends per share

How has each ratio changed over time?

2. How does each ratio compare to industry norms?

3. How does each ratio compare with key competitors?

BNI

Ch 4 -24

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?

Ch 4 -25

R&D Audit Checklist of Questions 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? Are management information and computer systems

adequate? Is communication between R&D and other

organizational units effective? Are present products technologically competitive?

Ch 4 -26

Information Systems 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? 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? 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 of the information

system? Is the firm’s information system continually being improved in content

and user-friendliness?