fred r. david prentice hall ch 4-1 chapter 4 the internal assessment strategic management: concepts...

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


Ch 4-2

Chapter OutlineChapter Outline

• The Nature of an Internal Audit

• Integrating Strategy and Culture

• Management


Ch 4-3


• Marketing

• Finance/Accounting

• Production/Operations


Ch 4-4


• Research and Development

• Management Information Systems

• The Internal Factor Evaluation Matrix (IFE)


Ch 4-5

The Internal AssessmentThe Internal Assessment

Great spirits have always encountered violent opposition from mediocre minds.

-- Albert Einstein


Ch 4-6

Nature of an Internal AuditNature of an Internal Audit

All organizations –All organizations –

• Strengths• Weaknesses


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


Ch 4-8

Key Internal ForcesKey Internal Forces

Functional business areas:Functional business areas:

– Vary by organization

– Divisions have differing strengths and weaknesses


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


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


Ch 4-11


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 4-12


Key to organizational success:

– Coordination and understanding among managers from all functional areas


Ch 4-13


Functional relationships:

– Number and complexity increases relative to organization size


Ch 4-14


Financial Ratio Analysis:

– Exemplifies complexity of relationships among functional areas of the business


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


Ch 4-16


Organizational Culture --

• Resistant to change

• May represent a strength or weakness of the firm


Ch 4-17


Cultural products

Values

beliefs

rites

rituals

ceremonies

myths

stories

legends

sagas

language

symbols

heroes


Ch 4-18


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


Ch 4-19

Functions of ManagementFunctions of Management

Five basic activities –

– Planning– Organizing– Motivating– Staffing– Controlling


Ch 4-20


Planning

Stage When Most ImportantFunction

Strategy Formulation

Organizing

Strategy Implementation

Motivating


Staffing

Controlling


Strategy Evaluation


Ch 4-21


Planning

– Start of the process– Bridge between present and future– Increases likelihood of achieving desired

results


Ch 4-22

PlanningPlanning

Planning

Forecasting

Establishing objectives

Devising strategies

Developing policies

Setting goals


Ch 4-23


Organizing

– Achieve coordinated effort– Defining task and authority relationships– Departmentalization– Delegation of authority


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 analysis

Organizing

Organizational designJob specializationJob descriptions



Job analysis


Ch 4-25


Motivating

– Influencing people to accomplish specific objectives

– Communication is a major component


Ch 4-26

MotivatingMotivating

Motivating

LeadershipCommunication

Work groupsJob enrichmentJob satisfactionNeeds fulfillmentOrganizational

changeMorale


Ch 4-27


Staffing

– Personnel management– Human resources management


Ch 4-28

StaffingStaffing

Staffing

Wage & salary adminEmployee benefits

InterviewingHiringFiring

TrainingManagement development

SafetyAffirmative action

EEOLabor relations

Career developmentDiscipline procedures

Management


Ch 4-29


Controlling

– Ensure actual operations conform to planned operations


Ch 4-30

ControllingControlling

Controlling

Quality controlFinancial control

Sales controlInventory controlExpense control

Analysis of variancesRewardsSanctions

Management


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?


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?


Ch 4-33

MarketingMarketing

Process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services


Ch 4-34

MarketingMarketing

1. Customer analysis2. Selling products/services3. Product and service planning4. Pricing5. Distribution6. Marketing research7. Opportunity analysis


Ch 4-35

MarketingMarketing

Customer analysis

Customer surveys

Consumer information

Market positioning strategies

Customer profiles

Market segmentation strategies


Ch 4-36

MarketingMarketing

Selling Products/services

Advertising

Sales

Promotion

Publicity

Sales force management

Customer relations

Dealer relations


Ch 4-37

MarketingMarketing

Product/service planning

Test marketing

Brand positioning

Devising warrantees

Packaging

Product features/options

Product style

Quality


Ch 4-38

MarketingMarketing

Pricing

Forward integration

Discounts

Credit terms

Condition of sale

Markups

Costs

Unit pricing


Ch 4-39

MarketingMarketing

Distribution

Warehousing

Channels

Coverage

Retail site locations

Sales territories

Inventory levels

Transportation


Ch 4-40

MarketingMarketing

Marketing research

Data collection

Data input

Data analysis

Support all business functions


Ch 4-41

MarketingMarketing

Opportunity Analysis

Assessing costs

Assessing benefits

Assessing risks

Cost/benefit/risk analysis


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?


Ch 4-43


• 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?


Ch 4-44


• Are marketing planning and budgeting effective?

• Do the firm’s marketing mangers have adequate experience and training


Ch 4-45

Finance/AccountingFinance/Accounting

• Determining financial strengths and weaknesses key to strategy formulation

• Investment decision (Capital budgeting)• Financing decision• Dividend decision


Ch 4-46

Finance/AccountingFinance/Accounting

Functions of Finance/Accounting –

1. Investment decision (Capital budgeting)

2. Financing decision

3. Dividend decision


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


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



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



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)



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



Ch 4-52

Growth ratios

• Firm’s ability to maintain economic position

Ratios

Sales

Net income

Earnings per share

Dividends per share



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


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


Ch 4-55

• Process• Capacity• Inventory• Workforce• Quality

Production/OperationsProduction/Operations


Ch 4-56

Process

Design of facility

Choice of technology

Facility layout

Process flow analysis

Facility location

Line balancing

Process control



Ch 4-57

Capacity

Forecasting

Facilities planning

Aggregate planning

Scheduling

Capacity planning

Queuing analysis



Ch 4-58

Inventory

Raw material

Work in process

Finished goods

Materials handling



Ch 4-59

Workforce

Job design

Work measurement

Job enrichment

Work standards

Motivation techniques



Ch 4-60

Quality

Quality control

Sampling

Testing

Quality assurance

Cost control



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


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


Ch 4-63

• Development of new products before competition

• Improving product quality• Improving manufacturing processes to

reduce costs

Research and DevelopmentResearch and Development


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


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


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


Ch 4-67

Purpose –– Improve performance of an enterprise by

improving the quality of managerial decisions.

Management Information Management Information SystemsSystems


Ch 4-68

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

Management Information Management Information SystemsSystems


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


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?



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?



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


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



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



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



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



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



Ch 4-78

Key TermsKey Terms

• Activity ratios• Buying• Capital budgeting• Communication• Computer information systems• Controlling• Cost/benefit analysis• Cultural products• Customer analysis


Ch 4-79

Key TermsKey Terms

• Distinctive competencies• Distribution• Dividend decision• Financial ratio analysis• Financing decisions• Functions of finance/accounting• Functions of management


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


Ch 4-81

Key TermsKey Terms

• Leverage ratios• Liquidity ratios• Marketing research• Motivating• Opportunity analysis• Organizational culture• Organizing• Personnel management• Planning• Pricing


Ch 4-82

Key TermsKey Terms

• Product and service planning• Production/operations functions• Profitability ratios• Research and development


Ch 4-83

Key TermsKey Terms

• Selling• Social responsibility• Staffing• Synergy• Test marketing

fred r. david prentice hall ch 4-1 chapter 4 the internal assessment strategic management: concepts...

Documents

david prentice hall

strengths slide

business slide

culture management slide

internal audit key

internal audit basis

internal audit involvement

internal integrationis