Strategic Management Chapter 04

Chapter 4
The Internal Assessment
Strategic Management: Concepts & Cases 13th Edition Fred David
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall
Ch 4 -1
Ch 4 -2
Internal Assessment
Great
spirits have always encountered violent opposition from mediocre minds. Albert Einstein
Weak leadership can wreck the soundest
strategy. Sun Tzu
Ch 4 -3
Internal Audit
Identify strengths and weaknesses in

Management Marketing Finance and accounting Production and operations Research and development Management information systems
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 4 -4
Nature of an Internal Audit

Basis for Objectives & Strategies
Internal strengths/weaknesses External opportunities/threats Clear statement of mission
Ch 4 -5
Key Internal Forces

Distinctive Competencies:
Firms
strengths that cannot be easily matched or imitated by competitors
Ch 4 -6
Key Internal Forces

Distinctive Competencies:
Building
competitive advantage involves taking advantage of distinctive competencies
Ch 4 -7
Internal Audit Process

Parallels process of external audit
Information

gathered from:
Management Marketing Finance/accounting Production/operations
Research & development

Management information systems
Internal Audit
Involvement in performing an internal strategic-management audit provides a vehicle for understanding the nature and effect of decisions in other functional business areas of the firm
Ch 4 -10
Internal Audit
Managers
and employees from all areas provide information

A
team of managers then selects 10 to 15 key organizational strengths and weaknesses to focus on
Internal Audit
Financial Ratio Analysis
Exemplifies complexity of relationships among functional areas of the business
Ch 4 -12
Resource Based View (RBV)

Approach to Competitive Advantage
Internal resources are more important than external factors
Ch 4 -13

Three All-Encompassing Categories
1.
Physical resources
2.
3.
Human resources
Organizational resources
Ch 4 -14

Empirical Indicators
Rare
Hard to imitate
Not easily substitutable
Integrating Strategy & 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 as the correct way to perceive, think, and feel
Ch 4 -16

Organizational Culture

Resistant to change
May represent:

Strength
Weakness

Values Legends Beliefs
Heroes
Cultural Products
Rites
Symbols
Myths
Rituals
Ch 4 -18

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
Management
Functions of Management
1. 2. 3. 4. 5.
Planning Organizing Motivating Staffing Controlling

Management
Function Planning Organizing Motivating Staffing Controlling
Stage When Most Important

Strategy Formulation
Strategy Implementation
Strategy Evaluation
Ch 4 -21
Management
Planning

Beginning of management process
Bridge between present & future

Improves likelihood of attaining desired results
Ch 4 -22
Management
Developing a mission Forecasting future events and trends
Planning
Establishing objectives
Choosing strategies to pursue
Ch 4 -23
Planning
Synergy
Can develop through planning Exists when everyone pulls together as a team that knows what it wants to achieve
Ch 4 -24
Management
Organizing

Achieves coordinated effort Defines task & authority relationships Determines who does what Determines who reports to whom
Management
Organizing
Breaking down tasks into jobs Combining jobs to form departments Delegating authority
Ch 4 -26
Management
Motivating

Influencing to accomplish specific objectives Four components include:

Leadership
Group dynamics Communication Organizational change
Management
Staffing

Personnel management
Human resource management
Ch 4 -28
Management
Staffing

Recruiting Interviewing Testing Selecting Orienting Training Developing Caring for
Evaluating Rewarding Disciplining Promoting Transferring Demoting Dismissing

Ch 4 -29
Management
Controlling

Establishing performance standards Ensure actual operations conform to planned operations Taking corrective actions
Ch 4 -30
Management
Controlling
1. Establish performance standards 2. Measure individual and organizational
performance
3. Compare actual performance to
planned performance standards

4. Take corrective action
Management Audit Checklist
Does the firm use strategic management concepts? Are objectives/goals measurable? Well communicated? Do managers at all levels plan effectively?
Ch 4 -32

Do managers delegate well? Is the organizations structure appropriate? Are job descriptions clear? Are job specifications clear? Is employee morale high?
Ch 4 -33

Is employee absenteeism low? Is employee turnover low? Are the reward mechanisms effective? Are the organizations control mechanisms effective?
Ch 4 -34
Marketing
Customer Needs or Wants for Products and Services
1. Defining
2. Anticipating
3. Creating 4. Fulfilling
Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services 3. Product & service planning
4. Pricing
5. Distribution 6. Marketing research 7. Opportunity analysis
Marketing
Customer surveys Consumer information Customer Analysis Market positioning strategies Customer profiles
Market segmentation strategies

Marketing
Selling Products/Services
Advertising Sales Promotion Publicity Personal Selling Sales force management Customer relations Dealer relations
Ch 4 -38
Ch 4 -39
Marketing
Test marketing Brand positioning Devising warranties Packaging Product features/options Product style Quality Deleting old products Providing for customer service
Product/Service Planning
Ch 4 -40
Marketing
Pricing
Major Stakeholders
Consumers Governments Suppliers Distributors Competitors
Ch 4 -41
Marketing
Distribution
Warehousing Distribution channels Retail site locations Sales territories Inventory levels Transportation Wholesaling Retailing
Ch 4 -42
Marketing
Gather data
Marketing Research
Record data
Analyze data
Ch 4 -43
Marketing
Assessing costs
Cost/Benefit Analysis
Assessing benefits
Assessing risks
Ch 4 -44
Marketing Audit
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?
Marketing Audit
6. Does the firm conduct market research? 7. Are product quality & customer service
good?
8. Are the firms products and services
priced appropriately?
9. Does the firm have effective promotion,
advertising, and publicity strategies?
Ch 4 -46
Marketing Audit
10. Are the marketing, planning, and
budgeting effective?
11. Do the firms marketing managers have
adequate experience and training?

12. Is the firms Internet presence excellent
as compared to rivals?
Finance/Accounting
1. Investment decision (Capital
budgeting)
2. Financing decision 3. Dividend decision
Ch 4 -48
Basic Financial Ratios
Firms ability to meet its short-term obligations

Liquidity Ratios
Ratios
Current ratio Quick (or acid test) ratio
Ch 4 -49
Extent of debt financing
Ratios
Leverage Ratios
Debt-to-total assets Debt-to-equity Long-term debt-to-equity Times-interest-earned
Ch 4 -50

Effective use of firms resources Ratios
Activity Ratios Inventory turnover Fixed assets turnover Total assets turnover Accounts receivable turnover Average collection period
Ch 4 -51

Effectiveness shown by returns on sales and investment
Profitability Ratios
Ratios
Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA)
Ch 4 -52

Effectiveness shown by returns on sales & investment
Profitability Ratios (contd)
Ratios Return on stockholders equity (ROE) Earnings per share Price-earnings ratio
Ch 4 -53

Firms ability to maintain economic position Ratios
Growth Ratios
Sales Net Income Earnings per share Dividends per share
Ch 4 -54
Growth Ratios
Ratio
Sales Net Income Earnings per share Dividends per share
Annual percentage growth in Total sales Profits EPS
Dividends per share

Ch 4 -55
Ch 4 -56
Ch 4 -57
Ch 4 -58
Ch 4 -59
Finance/Accounting Audit
1.
2. 3.
4. 5.
Where is the firm financially strong/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?
Ch 4 -60
Finance/Accounting Audit
6. 7.
8.
9.
Are dividend payout policies reasonable? Does the firm have good relations with its investors and stockholders? Are the firms financial managers experienced and well trained? Is the firms debt situation excellent?
Ch 4 -61
Production/Operations
Production/Operations Functions

Process Capacity
Inventory
Workforce
Quality
Ch 4 -63
Production/Operations Audit
Are suppliers of materials, parts, etc. reliable and reasonable? Are facilities, equipment, machinery, and offices in good condition? Are inventory-control policies and procedures effective?
Ch 4 -64
Production/Operations Audit
Are quality-control policies & procedures effective? Are facilities, resources, and markets strategically located? Does the firm have technological competencies?
Ch 4 -65
Research & Development

Research & Development Functions
Development of new products before competitors Improving product quality Improving manufacturing processes to reduce costs
These functions can be done internally or externally

Research & Development

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
Research & Development Audit

Are the R&D facilities adequate? If R&D is outsourced, is it cost-effective? Are the R&D personnel well qualified? Are R&D resources allocated effectively?
Ch 4 -68
Research & Development Audit

Are MIS and computer systems adequate? Is communication between R&D and other organizational units effective? Are present products technologically competitive?
Ch 4 -69
Management Information Systems
Purpose
Improve performance of an enterprise by improving the quality of managerial decisions
Ch 4 -70
Management Information Systems Audit

Do all managers use the information system to make decisions? Is there a CIO or Director of Information Systems position in the firm? Are data updated regularly? Do managers from all functional areas contribute input to the information system? Are there effective passwords for entry into the firms information system?
Management Information Systems Audit
Are strategists of the firm familiar with the information systems of rival firms? Is the information system user-friendly? Do all users understand the competitive advantages that information can provide? Are computer training workshops provided for users? Is the firms system being improved?
Value Chain Analysis
The process whereby a firm determines the costs associated with:

Purchasing raw materials Manufacturing products Marketing products
And compares them to the value chain of rival firms

Value Chain Analysis
Core competencies Distinctive competencies Benchmarking
Ch 4 -74
Transforming Value Chain Activities into Sustained Competitive Advantage
Value Chain Activities Are Identified and Assessed
Core Competencies Arise in Some Activities
Some Core Competencies Evolve into Distinctive Competencies
Some Distinctive Competencie s Yield Sustained Competitive Advantages
Ch 4 -75
Internal Factor Evaluation (IFE) Matrix
1. List key internal factors 2. Assign a weight ranging from 0.0 to 1.0
3. Assign a 1 to 4 rating to each factor

4. Multiply the weight times the rating 5. Sum the weighted scores
Ch 4 -76
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Ch 4 -77

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Chapter 4

The Internal Assessment

Strategic Management: Concepts & Cases 13th Edition Fred David

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Weak leadership can wreck the soundest

strategy. Sun Tzu

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Identify strengths and weaknesses in

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 4 -4

Nature of an Internal Audit

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Key Internal Forces

strengths that cannot be easily matched or imitated by competitors

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Key Internal Forces

competitive advantage involves taking advantage of distinctive competencies

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Internal Audit Process

Management Marketing Finance/accounting Production/operations

Research & development

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

and employees from all areas provide information

Exemplifies complexity of relationships among functional areas of the business

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Resource Based View (RBV)

Internal resources are more important than external factors

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Resource Based View (RBV)

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Resource Based View (RBV)

Integrating Strategy & Culture

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Strategy & Culture

Integrating Strategy & Culture

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Strategy & Culture

Planning Organizing Motivating Staffing Controlling

Stage When Most Important

Beginning of management process

Bridge between present & future

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Influencing to accomplish specific objectives Four components include:

Human resource management

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Recruiting Interviewing Testing Selecting Orienting Training Developing Caring for

Evaluating Rewarding Disciplining Promoting Transferring Demoting Dismissing

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

planned performance standards

Management Audit Checklist

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Audit Checklist

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Management Audit Checklist

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Market segmentation strategies

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall