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8/8/2019 Business Policy - Internal Assessment
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The Internal Assessment
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Internal strengths/weaknesses
External opportunities/threats
Clear statement of mission
Nature of an Internal Audit
Basis for Objectives & Strategies
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Internal Audit
Information from:
Management
Marketing
Finance/accounting
Production/operations
Research & Development
Management information Systems
Parallels process of exter nal audit
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Resource Based View (RBV)
Approach to Competitive Advantage
Inter nal resources are more important
than exter nal factors
8/8/2019 Business Policy - Internal Assessment
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Resource Based View (RBV)
3 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
8/8/2019 Business Policy - Internal Assessment
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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
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Cultural
Products
Values
Legends Beliefs
Heroes Rites
Symbols RitualsMyths
Integrating Strategy & Culture
8/8/2019 Business Policy - Internal Assessment
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Management
Planning
Stage When MostImportantFunction
Strategy Formulation
Organizing Strategy Implementation
Motivating Strategy Implementation
Staffing
Controlling
Strategy Implementation
Strategy Evaluation
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Marketing
Customer Needs/Wants for Products/Services
1. Defining
2. Anticipating
3. Creating
4. Fulfilling
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Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
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Finance/Accounting
Finance/ Accounting Functions
1. Investment decision (Capital budgeting)2. Financing decision
3. Dividend decision
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Key Financial Ratios³They can be classified into five
types
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.
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Liquidity ratios
1. Current ratio = Current Assets/Current
Liabilities
2. Quick (acid-test) ratio = Cash+ Accts
Rcvbl/Current Liabilities
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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
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Activity ratios
1.In
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
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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
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Growth ratios
1. Sales
2. Net income
3. Ear nings per share
4. Dividends per share
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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
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Management Information
Systems
Information Systems
CIO/CTO
Security
User-friendly
E-commerce
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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
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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
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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
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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
= 2.5
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IFE± Gateway Computers (2003)
Key Internal Factors Weight Rating WtdScore
Strengths
1. Several new senior executive with world-
class skills an
d leadership experien
ce
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
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IFE± Gateway Computers (2003)
Key Internal Factors Weight Rating WtdScore
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
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IFE± Gateway Computers (2003)
Key Internal Factors Weight Rating WtdScore
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
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IFE± Gateway Computers (2003)
Key Internal Factors Weight Rating WtdScore
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