1. Chapter 4
The Internal Assessment
Strategic Management:
Concepts & Cases
11th Edition
Fred David
Ch 4 -1
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2. Chapter Outline
The Nature of an Internal Audit
The Resource-Based View (RBV)
Integrating Strategy & Culture
Ch 4 -2
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3. Chapter Outline (cont’d)
Management
Marketing
Opportunity Analysis
Ch 4 -3
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4. Chapter Outline (cont’d)
Finance/Accounting
Production/Operations
Research & Development
Ch 4 -4
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5. Chapter Outline (cont’d)
Management Information Systems
The Internal Factor Evaluation (IFE) Matrix
Ch 4 -5
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6. Internal Assessment
The biggest levers you’ve got to change a
company are strategy, structure, and culture.
If I could pick two, I’d pick strategy and
culture. –
Wayne Leonard, CEO, Entergy
Weak leadership can wreck the soundest
strategy. –
Sun Zi
Ch 4 -6
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7. Nature of an Internal Audit
Functional Areas of Business
-- Strengths
-- Weaknesses
Ch 4 -7
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8. Nature of an Internal Audit
Basis for Objectives & Strategies
 Internal strengths/weaknesses
 External opportunities/threats
 Clear statement of mission
Ch 4 -8
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9. Key Internal Forces
Functional Business Areas:
Vary by organization
Divisions have differing strengths &
weaknesses
Ch 4 -9
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10. Key Internal Forces
Distinctive Competencies:
Firm’s strengths that cannot be easily
matched or imitated by competitors
Ch 4 -10
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11. Key Internal Forces
Distinctive Competencies:
Building competitive advantage involves
taking advantage of distinctive
competencies
Ch 4 -11
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12. Key Internal Forces
Distinctive Competencies:
Strategies designed to improve on a
firm’s weaknesses and turn to strengths
Ch 4 -12
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13. Internal Audit
Parallels process of external audit
•Information from:
•Management
•Marketing
•Finance/accounting
•Production/operations
•Research & Development
•Management information Systems
Ch 4 -13
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14. Internal Audit
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 -14
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15. Internal Audit
Key to Organizational Success
Coordination & understanding among
managers from all functional areas
Ch 4 -15
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16. Internal Audit
Functional Relationships
Number and complexity increases
relative to organization size
Ch 4 -16
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17. Internal Audit
Financial Ratio Analysis
Exemplifies complexity of relationships
among functional areas of the business
Ch 4 -17
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18. Resource Based View (RBV)
Approach to Competitive Advantage
Internal resources are more important
than external factors
Ch 4 -18
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19. Resource Based View (RBV)
3 All Encompassing Categories
1. Physical resources
2. Human resources
3. Organizational resources
Ch 4 -19
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20. Resource Based View (RBV)
Empirical Indicators
 Rare
 Hard to imitate
 Not easily substitutable
Ch 4 -20
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21. 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
Ch 4 -21
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22. Integrating Strategy & Culture
Organizational Culture
 Resistant to change
 May represent:
 Strength
 Weakness
Ch 4 -22
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23. Integrating Strategy & Culture
Values
Legends Beliefs
Cultural
Heroes Rites
Products
Symbols Rituals
Myths
Ch 4 -23
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24. 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
Ch 4 -24
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25. U.S. Versus Foreign Cultures
To successfully compete in world markets, U.S.
managers must obtain a better knowledge of
historical, cultural, and religious forces that
motivate and drive people in other countries.
Ch 4 -25
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26. Ch 4 -26
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27. Management
Functions of Management
1. Planning
2. Organizing
3. Motivating
4. Staffing
5. Controlling
Ch 4 -27
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28. Management
Stage When Most
Function Important
Planning Strategy Formulation
Organizing Strategy Implementation
Motivating Strategy Implementation
Staffing Strategy Implementation
Controlling Strategy Evaluation
Ch 4 -28
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29. Management
Planning
 Beginning of management process
 Bridge between present & future
 Improves likelihood of attaining
desired results
Ch 4 -29
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30. Management
Forecasting
Establishing objectives
Planning Devising strategies
Developing policies
Setting goals
Ch 4 -30
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31. Management
Organizing
 Achieves coordinated effort
 Defines task & authority relationships
 Departmentalization
 Delegation of authority
Ch 4 -31
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32. Management
Organizational design
Job specialization
Job descriptions
Job specifications
Organizing Span of control
Unity of command
Coordination
Job design
Job analysis
Ch 4 -32
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33. Management
Motivating
 Influencing to accomplish specific
objectives
 Communication – major component
Ch 4 -33
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34. Management
Leadership
Communication
Work groups
Job enrichment
Motivating
Job satisfaction
Needs fulfillment
Organizational change
Morale
Ch 4 -34
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35. Management
Staffing
 Personnel management
 Human resources management
Ch 4 -35
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36. Management
Wage & salary admin.
Employee benefits
Interviewing
Hiring
Discharging
Staffing
Training
Management development
Affirmative Action
EEO
Labor relations
Ch 4 -36
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37. Management
Controlling
 Establishing performance standards
 Ensure actual operations conform to
planned operations
 Taking corrective actions
Ch 4 -37
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38. Management
Quality
Financial
Sales
Inventory
Controlling
Expense
Analysis of variance
Rewards
Sanctions
Ch 4 -38
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39. Management Audit Checklist
••Does the firm use strategic management
Does the firm use strategic management
concepts?
concepts?
••Are objectives/goals measurable? Well
Are objectives/goals measurable? Well
communicated?
communicated?
••Do managers at all levels plan
Do managers at all levels plan
effectively?
effectively?
Ch 4 -39
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40. Management Audit Checklist
••Do managers delegate well?
Do managers delegate well?
••Is the organization’s structure
Is the organization’s structure
appropriate?
appropriate?
••Are job descriptions clear?
Are job descriptions clear?
••Are job specifications clear?
Are job specifications clear?
••Is employee morale high?
Is employee morale high?
Ch 4 -40
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41. Management Audit Checklist
••Is employee absenteeism low?
Is employee absenteeism low?
••Is employee turnover low?
Is employee turnover low?
••Are the reward mechanisms effective?
Are the reward mechanisms effective?
••Are the organization’s control
Are the organization’s control
mechanisms effective?
mechanisms effective?
Ch 4 -41
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42. Marketing
Customer Needs/Wants for Products/Services
1. Defining
2. Anticipating
3. Creating
4. Fulfilling
Ch 4 -42
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43. Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
Ch 4 -43
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44. Marketing
Customer surveys
Consumer information
Market positioning
Customer
strategies
Analysis
Customer profiles
Market segmentation
strategies
Ch 4 -44
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45. Marketing
Advertising
Sales
Promotion
Selling
Products/Services Publicity
Sales force management
Customer relations
Dealer relations
Ch 4 -45
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46. Marketing
Test marketing
Brand positioning
Devising warrantees
Planning
Product/Service Packaging
Product features/options
Product style
Quality
Ch 4 -46
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47. Marketing
Forward integration
Discounts
Credit terms
Pricing
Condition of sale
Markups
Costs
Unit pricing
Ch 4 -47
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48. Marketing
Warehousing
Channels
Coverage
Distribution Retail site locations
Sales territories
Inventory levels
Transportation
Ch 4 -48
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49. Marketing
Data collection
Marketing Research Data input
Data analysis
Support business functions
Ch 4 -49
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50. Marketing
Assessing costs
Assessing benefits
Opportunity
Analysis
Assessing risks
Cost/benefit/risk analysis
Ch 4 -50
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51. Marketing
Opportunity Analysis
1. Are markets segmented effectively?
2. Is the organization positioned well among
competitors?
3. Has the firm’s market share been
increasing?
4. Are the distribution channels reliable &
cost effective?
5. Is the sales force effective?
Ch 4 -51
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52. Marketing
Opportunity Analysis
6. Does the firm conduct market research?
7. Are product quality & customer service
good?
8. Are the firm’s products/services priced
appropriately?
9. Does the firm have effective promotion,
advertising, & publicity strategies?
Ch 4 -52
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53. Marketing
Opportunity Analysis
10. Are the marketing planning & budgeting
effective?
11. Do the firm’s marketing managers have
adequate experience and training?
Ch 4 -53
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54. Finance/Accounting
 Determining financial strengths &
weaknesses key to strategy
formation
Ch 4 -54
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55. Finance/Accounting
Finance/Accounting Functions
1. Investment decision (Capital budgeting)
2. Financing decision
3. Dividend decision
Ch 4 -55
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56. Basic Financial Ratios
Firm’s ability to meet its
short-term obligations
Liquidity Ratios
Ratios
Current ratio
Quick (or acid test) ratio
Ch 4 -56
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57. Basic Financial Ratios
Extent of debt financing
Ratios
Leverage Ratios
Debt-to-total assets
Debt-to-equity
Long-term debt-to-equity
Times-interest earned
Ch 4 -57
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58. Basic Financial Ratios
Effective use of firm’s
resources
Activity Ratios Ratios
Inventory-turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Ch 4 -58
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59. Basic Financial Ratios
Effectiveness shown by
returns on sales &
investment
Profitability Ratios
Ratios
Gross profit margin
Operating profit margin
Net profit margin
Return on total assets (ROA)
Ch 4 -59
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60. Basic Financial Ratios
Effectiveness shown by
returns on sales &
investment
Profitability Ratios
(cont’d) Ratios
Return on stockholders equity
(ROE)
Earnings per share
Price-earnings ratio
Ch 4 -60
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61. Basic Financial Ratios
Firm’s ability to maintain
economic position
Growth Ratios Ratios
Sales
Net income
Earnings per share
Dividends per share
Ch 4 -61
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62. Finance/Accounting Audit
••Where is the firm strong/weak as
Where is the firm strong/weak as
indicated by financial ratio analysis?
indicated by financial ratio analysis?
••Can the firm raise short-term capital as
Can the firm raise short-term capital as
needed?
needed?
••Can the firm raise long-term capital as
Can the firm raise long-term capital as
needed through debt and/or equity?
needed through debt and/or equity?
Ch 4 -62
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63. Finance/Accounting Audit
••Does the firm have sufficient working
Does the firm have sufficient working
capital?
capital?
••Are capital budgeting procedures
Are capital budgeting procedures
effective?
effective?
••Are dividend payout policies reasonable?
Are dividend payout policies reasonable?
••Are the firm’s financial managers
Are the firm’s financial managers
experienced & well trained?
experienced & well trained?
Ch 4 -63
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64. Finance/Accounting Audit
Effective Financial Analysis Requires:
Effective Financial Analysis Requires:
1. Analysis of how the ratios have
1. Analysis of how the ratios have
changed over time
changed over time
2. How the ratios compare to industry
2. How the ratios compare to industry
norms
norms
3. How the ratios compare with key
3. How the ratios compare with key
competitors
competitors
Ch 4 -64
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65. Production/Operations
Production/Operations Functions
 Process
 Capacity
 Inventory
 Workforce
 Quality
Ch 4 -65
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66. Production/Operations
Facility design
Technology selection
Facility layout
Process Process flow analysis
Facility location
Line balancing
Process control
Ch 4 -66
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67. Production/Operations
Forecasting
Facilities planning
Capacity Aggregate planning
Scheduling
Capacity planning
Queuing analysis
Ch 4 -67
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68. Production/Operations
Raw materials
Inventory Work in process
Finished goods
Materials handling
Ch 4 -68
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69. Production/Operations
Job design
Work measurement
Workforce Job enrichment
Work standards
Motivation techniques
Ch 4 -69
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70. Production/Operations
Quality control
Sampling
Quality Testing
Quality assurance
Cost Control
Ch 4 -70
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71. Production/Operations Audit
••Are suppliers of materials, parts, etc.
Are suppliers of materials, parts, etc.
reliable and reasonable?
reliable and reasonable?
••Are facilities, equipment & machinery in
Are facilities, equipment & machinery in
good condition?
good condition?
••Are inventory-control policies and
Are inventory-control policies and
procedures effective?
procedures effective?
Ch 4 -71
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72. Production/Operations Audit
••Are quality-control policies & procedures
Are quality-control policies & procedures
effective?
effective?
••Are facilities, resources, and markets
Are facilities, resources, and markets
strategically located?
strategically located?
••Does the firm have technological
Does the firm have technological
competencies?
competencies?
Ch 4 -72
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73. Research & Development
Research & Development Functions
 Development of new products before
competitors
 Improving product quality
 Improving manufacturing processes to
reduce costs
Ch 4 -73
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74. 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
Ch 4 -74
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75. Research & Development Audit
••Are the R&D facilities adequate?
Are the R&D facilities adequate?
••If R&D is outsourced, is it cost effective?
If R&D is outsourced, is it cost effective?
••Are the R&D personnel well qualified?
Are the R&D personnel well qualified?
••Are R&D resources allocated effectively?
Are R&D resources allocated effectively?
Ch 4 -75
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76. Research & Development Audit
••Are MIS and computer systems
Are MIS and computer systems
adequate?
adequate?
••Is communication between R&D & other
Is communication between R&D & other
organizational units effective?
organizational units effective?
••Are present products technologically
Are present products technologically
competitive?
competitive?
Ch 4 -76
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77. Management Information
Systems
Purpose
 Improve performance of an enterprise by
improving the quality of managerial
decisions.
Ch 4 -77
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78. Management Information
Systems
 Information Systems
 CIO/CTO
 Security
 User-friendly
 E-commerce
Ch 4 -78
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79. Management Information
Systems Audit
••Do managers use the information system
Do managers use the information system
to make decisions?
to make decisions?
••Is there a CIO or Director of Information
Is there a CIO or Director of Information
Systems position in the firm?
Systems position in the firm?
••Is data updated regularly?
Is data updated regularly?
Ch 4 -79
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80. Management Information
Systems Audit
••Do managers from all functional areas
Do managers from all functional areas
contribute input to the information system?
contribute input to the information system?
••Are there effective passwords for entry
Are there effective passwords for entry
into the firm’s information system?
into the firm’s information system?
••Are strategists of the firm familiar with the
Are strategists of the firm familiar with the
information systems of rival firms?
information systems of rival firms?
Ch 4 -80
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81. Management Information
Systems Audit
••Is the information system user-friendly?
Is the information system user-friendly?
••Do all users understand the competitive
Do all users understand the competitive
advantages that information can provide?
advantages that information can provide?
••Are computer training workshops provided
Are computer training workshops provided
for users?
for users?
••Is the firm’s system being improved?
Is the firm’s system being improved?
Ch 4 -81
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82. Ch 4 -82
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83. Ch 4 -83
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84. For Review (Chapter 4)
Key Terms & Concepts
Activity Ratios Cost/Benefit Analysis
Capital Budgeting Cultural Products
Communication Distinctive Competencies
Controlling Distribution
Ch 4 -84
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85. For Review (Chapter 4)
Key Terms & Concepts
Functions of
Dividend Decision
Finance/Accounting
Empirical Indicators Functions of Management
Financial Ratio Analysis Functions of Marketing
Functions of Production/
Financing Decision
Operations
Ch 4 -85
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86. For Review (Chapter 4)
Key Terms & Concepts
Growth Ratios Investment Decision
Human Resource
Leverage Ratios
Management
Internal Audit Liquidity Ratios
Internal Factor Evaluation Management Information
(IFE) Matrix Systems
Ch 4 -86
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87. For Review (Chapter 4)
Key Terms & Concepts
Motivating Personnel Management
Opportunity Analysis Planning
Organizational Culture Pricing
Product & Service
Organizing
Planning
Ch 4 -87
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88. For Review (Chapter 4)
Key Terms & Concepts
Production/Operations
Selling
Functions
Profitability Ratios Staffing
Research & Development Synergy
Resource Based View
Test Marketing
(RBV)
Ch 4 -88
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89. For Review (Chapter 4)
Key Terms & Concepts
Value Chain Analysis
(VCA)
Ch 4 -89
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