Chapter 4

The Internal Assessment

Strategic Management:
Concepts & Cases
13th Edition
Fred David

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Internal Audit
 Identify strengths and weaknesses in
 Management
 Marketing

 Finance and accounting

 Production and operations

 Research and development

 Management information systems

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Key Internal Forces

Distinctive Competencies:

Firm’s strengths that cannot be

easily matched or imitated by
competitors

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Key Internal Forces

Distinctive Competencies:

Building competitive advantage

involves taking advantage of
distinctive competencies

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Internal Audit Process
Parallels process of external audit

Information gathered from:

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

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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
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Internal Audit

Financial Ratio Analysis

Exemplifies complexity of
relationships among functional areas
of the business

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Resource Based View (RBV)

Three All-Encompassing Categories

1. Physical resources
2. Human resources
3. Organizational resources

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Resource Based View (RBV)

Empirical Indicators

 Rare
 Hard to imitate
 Not easily substitutable

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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

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Integrating Strategy & Culture

Organizational Culture

 Resistant to change
 May represent:
 Strength
 Weakness

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Integrating Strategy & Culture

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
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Management

Functions of Management

1. Planning
2. Organizing
3. Motivating
4. Staffing
5. Controlling
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Management
Stage When Most
Function Important
Planning Strategy Formulation

Organizing Strategy Implementation

Motivating Strategy Implementation

Staffing Strategy Implementation

Controlling Strategy Evaluation

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Planning

 Synergy

 Can develop through planning

 Exists when everyone pulls

together as a team that knows

what it wants to achieve

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Management Audit Checklist

 Does the firm use strategic

management concepts?
 Are objectives/goals measurable? Well
communicated?
 Do managers at all levels plan
effectively?

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Management Audit Checklist

 Do managers delegate well?

 Is the organization’s structure
appropriate?
 Are job descriptions clear?
 Are job specifications clear?
 Is employee morale high?

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Management Audit Checklist

 Is employee absenteeism low?

 Is employee turnover low?
 Are the reward mechanisms effective?
 Are the organization’s control
mechanisms effective?

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Marketing

Customer Needs or Wants for Products

and Services

1. Defining

2. Anticipating

3. Creating

4. Fulfilling
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Finance/Accounting

1. Investment decision (Capital

budgeting)
2. Financing decision

3. Dividend decision

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Finance/Accounting Audit

1. Where is the firm financially strong/weak as

indicated by financial ratio analysis?
2. Can the firm raise needed short-term capital?
3. Can the firm raise needed long-term capital
through debt and/or equity?
4. Does the firm have sufficient working capital?
5. Are capital budgeting procedures effective?

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Finance/Accounting Audit

6. Are dividend payout policies reasonable?

7. Does the firm have good relations with its
investors and stockholders?
8. Are the firm’s financial managers
experienced and well trained?
9. Is the firm’s debt situation excellent?

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Production/Operations

Production/Operations Functions

 Process
 Capacity
 Inventory
 Workforce
 Quality

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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
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Management Information Systems

Purpose

 Improve performance of an
enterprise by improving the quality
of managerial decisions

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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

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Value Chain Analysis

 Core competencies

 Distinctive competencies

 Benchmarking

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Transforming Value Chain Activities into Sustained
Competitive Advantage

Value Some
Chain Some Core Distinctive
Core
Activities Competencies Competencie
Competencies
Are Evolve into s Yield
Arise in Some
Identified Distinctive Sustained
Activities
and Competencies Competitive
Assessed Advantages

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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

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