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

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 -2

Key Internal Forces

Distinctive Competencies:
Firms

strengths that cannot be easily matched or imitated by competitors

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -3

Key Internal Forces

Distinctive Competencies:
Building

competitive advantage involves taking advantage of distinctive competencies

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -4

Internal Audit Process

Parallels process of external audit
Information

gathered from:

Management Marketing Finance/accounting Production/operations

Research & development

Management information systems
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 4 -5

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
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 4 -6

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
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 4 -7

Internal Audit
Financial Ratio Analysis

Exemplifies complexity of relationships among functional areas of the business

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -8

Resource Based View (RBV)

Three All-Encompassing Categories
1.

Physical resources

2.
3.

Human resources
Organizational resources

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -9

Resource Based View (RBV)

Empirical Indicators

Rare

Hard to imitate
Not easily substitutable
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 4 -10

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -11

Integrating Strategy & Culture

Organizational Culture

Resistant to change

May represent:

Strength

Weakness
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 4 -12

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
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 4 -13

Management
Functions of Management
1. 2. 3. 4. 5.

Planning Organizing Motivating Staffing Controlling

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 4 -14

Management
Function Planning Organizing Motivating Staffing Controlling
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Stage When Most Important

Strategy Formulation

Strategy Implementation

Strategy Implementation

Strategy Implementation

Strategy Evaluation
Ch 4 -15

Planning
Synergy

Can develop through planning Exists when everyone pulls together as a team that knows what it wants to achieve

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -16

Management Audit Checklist

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -17

Management Audit Checklist

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -18

Management Audit Checklist

Is employee absenteeism low? Is employee turnover low? Are the reward mechanisms effective? Are the organizations control mechanisms effective?

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -19

Marketing
Customer Needs or Wants for Products and Services
1. Defining

2. Anticipating
3. Creating 4. Fulfilling
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 4 -20

Finance/Accounting

1. Investment decision (Capital

budgeting)
2. Financing decision 3. Dividend decision

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -21

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?

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -22

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?

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -23

Production/Operations
Production/Operations Functions

Process Capacity

Inventory
Workforce

Quality
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 4 -24

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 4 -25

Management Information Systems

Purpose

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -26

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 4 -27

Value Chain Analysis

Core competencies Distinctive competencies Benchmarking

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -28

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -29

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

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -30