Business Policy - Internal Assessment

8/8/2019 Business Policy - Internal Assessment

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The Internal Assessment

Internal strengths/weaknesses

External opportunities/threats

Clear statement of mission

Nature of an Internal Audit

Basis for Objectives & Strategies

Internal Audit

Information from:

Management

Marketing

Finance/accounting

Production/operations

Research & Development

Management information Systems

Parallels process of exter nal audit

Resource Based View (RBV)

Approach to Competitive Advantage

Inter nal resources are more important

than exter nal factors

3 All Encompassing Categories

1. Physical resources

2. Human resources

3. Organizational resources

Empirical Indicators

Hard to imitate

Not easily substitutable

Integrating Strategy & Culture

Pattern of behavior developed by anorganization as it learns to cope with its

problem of external adaptation and

internal integration«is considered valid

and taught to new members

Organizational Culture

Cultural

Products

Values

Legends Beliefs

Heroes Rites

Symbols RitualsMyths

Integrating Strategy & Culture

Management

Planning

Stage When MostImportantFunction

Strategy Formulation

Organizing Strategy Implementation

Motivating Strategy Implementation

Staffing

Controlling

Strategy Implementation

Strategy Evaluation

Marketing

Customer Needs/Wants for Products/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

Finance/Accounting

Finance/ Accounting Functions

1. Investment decision (Capital budgeting)2. Financing decision

3. Dividend decision

Key Financial Ratios³They can be classified into five

Liquidity ratios measure a firm¶s ability to meetmaturing short-term obligations

Leverage ratios measure the extent to which a

firm has been financed by debt. Activity ratios measure how effectively a firm is

using its resources

Profitability ratios measure a management¶s

overall effectiveness as shown by retur nsgenerated on sales and investment.

Growth ratios measure the firm¶s ability tomaintain its economic position in the growth of the economy and industry.

Liquidity ratios

1. Current ratio = Current Assets/Current

Liabilities

2. Quick (acid-test) ratio = Cash+ Accts

Rcvbl/Current Liabilities

Leverage ratios

1. Debt-to-total assets ratio =

Total Debt/Total Assets (Debt Ratio)

2. Debt-to-equity ratio = Total Debt/Total Equity

3. Long-term debt-to-equity ratio =

Long-term Debt/Total Equity

4. Times-interest-ear ned (coverage) ratio =

Profits B.I.T./Total interest

Activity ratios

ventory tur

nover =

Sales/Inventory of Finished Goods

2. Fixed assets tur nover =

Sales/FixedA

ssets 3. Total assets tur nover = Sales/Total Assets

4. Accounts receivable tur nover =

Annual Credit Sales/ Accts Rcvbl

5. Average collection period =

Accts Rcvbl/(TotalCredit Sales/365 Days

Profitability ratios

1. Gross profit margin = Sales-C.o.G.S./Sales

2. Operating profit margin = EBIT/Sales

3. Net profit margin = Net income/Sales

4. Retur n on total assets (RO A) =

Net Income/Total Assets 5. Retur n on stockholders¶ equity (ROE) =

Net Income/Total Equity

6. Ear nings per share (EPS) =

Net Income/# Shares Common Stock Out

7. Price-ear nings ratio (PE) =

Market Price per Share/Ear nings per Share

Growth ratios

1. Sales

2. Net income

3. Ear nings per share

4. Dividends per share

Production/Operations

Production/Operations Functions

Process

Capacity

Inventory

Workforce

Quality

Research & Development

Research & Development Functions

Development of new products before

competitors Improving product quality

Improving manufacturing processes to

reduce costs

Management Information

Systems

Information Systems

CIO/CTO

Security

User-friendly

E-commerce

Competitive Analysis: Porter¶s Five Forces Model

Potential development

of substitute products

Bargaining power

of suppliers

Rivalry amongcompeting firms

Bargaining power

of consumers

Potential entry of newcompetitors

Inter nal Analysis (IFE)

Five-Step Process:

List key inter nal factors

Strengths & weaknesses

Assign weight to each (0 to 1.0)

Sum of all weights = 1.0

Assign 1-4 rating to each factor

Firm¶s current strategies response to the

factor

Multiply each factor¶s weight by its

rating

Produces a weighted score

Sum the weighted scores for each

Determines the total weighted score for the

organization

Highest possible weighted score for the

organization is 4.0; the lowest, 1.0. Average

IFE± Gateway Computers (2003)

Key Internal Factors Weight Rating WtdScore

Strengths

1. Several new senior executive with world-

class skills an

d leadership experien

0.05 4 0.40

2. Continuous decline in operating costs

and cost of goods sold0.05 3 0.15

3. Well-known brand name 0.05 3 0.15

4. Con

sumer R

eports (Sept 2002)recommended Gateway 500X as #1 0.10 4 0.40

5. As a direct seller, Gateway holds high

brand recognition0.05 3 0.15

Strengths (cont¶d)

6. Gateway is diversifying into non-PC

products

0.10 3 0.30

7. Good relationship with its suppliers. 0.05 4 0.20

8. Economies of scale, the 6th largest PC

maker I the world0.05 4 0.20

9. Gateway retails stores excellent 0.05 3 0.15

Weaknesses

1. High operating expense (22% of revenue

vs. 10% for Dell)

0.05 3 0.15

2. Almost no budget for R&D vs. Dell¶s 18%

of revenue0.10 1 0.05

3. Low retur n on assets ratio 0.025 1 0.10

4. No niche market 0.025 2 0.05

Weaknesses (cont¶d)

5. Shortage of cash due to successive

losses

0.10 2 0.20

6. Limited number Gateway stores 0.05 2 0.10

7. Weak performance in overseas market 0.10 2 0.20

TOTAL 1.00 2.85

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