Ch 4 -1

The Internal Assessment Process for Strategic Decision Making

Decision Analysis

Dr. Ayham Jaaron

Ch 4 -2

Nature of Internal audit

Functional Business Areas:Functional business areas vary by organization (such as universities, hospitals, manufacturers….etc)

Each division has differing strengths & weaknesses

Strengths that can not be imitated or matched by competitors are called: “distinctive competencies”.

3M: has the distinctive competence of R&D .

Ch 4 -3

Resource Based View (RBV)

In order for a resource to be valuable, it must be either:

Rare

Hard to imitate

Not easily substitutable

These are often called Empirical Indicators”, they lead firms to build strategies that

improve efficiency and competitive advantage.

Ch 4 -4

1) Management

The Functions of Management consist of:1. Planning

2. Organizing

3. Motivating

4. Staffing

5. Controlling

Ch 4 -5

Planning

Specific Tasks Include:Forecasting

Establishing objectives

Developing policies

Setting goals

Management

Ch 4 -6

Organizing

Specific Areas Include:Organizational design

Job specializationJob descriptionsSpan of control

Unity of commandCoordinationJob design

Management

Ch 4 -7

Motivating

Specific Areas Include:Leadership

CommunicationWork groups

Job enrichmentJob satisfactionNeeds fulfillment

Organizational changeMorale

Management

Ch 4 -8

Staffing

Tasks Included

Wage & salary admin.Employee benefits

InterviewingHiring

DischargingTraining

Management developmentLabor relations

Management

Ch 4 -9

Controlling

Key Areas of ConcernQuality

FinancialSales

InventoryExpenseRewardsSanctions

Management

Ch 4 -10

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?

•Do managers delegate well?•Is the organization’s structure appropriate?•Are job descriptions clear?•Are job specifications clear?•Is employee morale high?

Ch 4 -11

Management Audit Checklist

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

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

Ch 4 -12

5) Marketing

It is described as the process of:

1. Defining

2. Anticipating

3. Creating

4. Fulfilling

Customer Needs/Wants for Products/Services

Ch 4 -13

MarketingThere are seven basic functions of Marketing:

1. Customer analysis

2. Selling products/services

3. Product & service planning

4. Pricing

5. Distribution

6. Marketing research

7. Opportunity analysis

Ch 4 -14

Customer Analysis

Activities Include:Customer surveys

Consumer information

Market positioning strategies (identity)

Customer profiles

Market segmentation strategies

Marketing

Ch 4 -15

Activities Include:Advertising

SalesPromotionPublicity

Sales force managementCustomer relations

Dealer relations

Marketing

Selling Products/Services

Ch 4 -16

These Include:

Test alternative marketing plans

Brand positioningDevising warrantees

PackagingProduct features/options

Product styleQuality

Marketing

Planning Product/Service

Ch 4 -17

Include:Discounts

Credit termsCondition of sale

CostsUnit pricing

Marketing

Pricing

Ch 4 -18

WarehousingDistribution Channels

CoverageRetail site locations

Sales territoriesInventory levelsTransportation

Marketing

Distribution

Ch 4 -19

These Activities Include:Data collection

Data inputData analysis

Support business functions

Marketing

Marketing Research

Ch 4 -20

Include:It is assessing costs

associated with marketing decisions.

Assessing/compute benefits

Assessing risks

If total benefits exceed total cost of a marketing decision, an opportunity become more

attractive

Marketing

Opportunity Analysis

Ch 4 -21

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 -22

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 -23

Marketing

Opportunity Analysis

10.Are the marketing planning & budgeting effective?

11.Do the firm’s marketing managers have adequate experience and training?

Ch 4 -24

Finance/Accounting

Determining financial strengths & weaknesses key to strategy formation

Ch 4 -25

Effectiveness shown by returns on sales &

investment

Ratios

Gross profit marginOperating profit margin

Net profit marginReturn on total assets (ROA)

Basic Financial Ratios

Profitability Ratios

Ch 4 -26

Firm’s ability to maintain economic position

Ratios

SalesNet income

Earnings per shareDividends per share

Basic Financial Ratios

Growth Ratios

Ch 4 -27

Finance/Accounting Audit

•Where is the firm strong/weak as indicated by financial ratio analysis?•Can the firm raise short-term capital as needed?•Can the firm raise long-term capital as needed through debt and/or equity?

•Where is the firm strong/weak as indicated by financial ratio analysis?•Can the firm raise short-term capital as needed?•Can the firm raise long-term capital as needed through debt and/or equity?

Ch 4 -28

Finance/Accounting Audit

•Does the firm have sufficient working capital?•Are capital budgeting procedures effective?•Are dividend payout policies reasonable?•Are the firm’s financial managers experienced & well trained?

•Does the firm have sufficient working capital?•Are capital budgeting procedures effective?•Are dividend payout policies reasonable?•Are the firm’s financial managers experienced & well trained?

Ch 4 -29

Production/Operations

Production/Operations Functions

Process

Capacity

Inventory

Workforce

Quality

Ch 4 -30

Facility designTechnology selection

Facility layoutProcess flow analysis

Facility locationLine balancingProcess control

Production/Operations

Process

Ch 4 -31

ForecastingFacilities planning

Aggregate planningScheduling

Capacity planningQueuing analysis

Production/Operations

Capacity

Ch 4 -32

Raw materialsWork in processFinished goods

Materials handling

Production/Operations

Inventory

Ch 4 -33

Job designWork measurement

Job enrichmentWork standards

Motivation techniques

Production/Operations

Workforce

Ch 4 -34

Quality controlSamplingTesting

Quality assuranceCost Control

Production/Operations

Quality

Ch 4 -35

Production/Operations Audit

•Are suppliers of materials, parts, etc. reliable and reasonable?•Are facilities, equipment & machinery in good condition?•Are inventory-control policies and procedures effective?

•Are suppliers of materials, parts, etc. reliable and reasonable?•Are facilities, equipment & machinery in good condition?•Are inventory-control policies and procedures effective?

Ch 4 -36

Production/Operations Audit

•Are quality-control policies & procedures effective?•Are facilities, resources, and markets strategically located?•Does the firm have technological competencies?

•Are quality-control policies & procedures effective?•Are facilities, resources, and markets strategically located?•Does the firm have technological competencies?

Ch 4 -37

Research & Development

Research & Development Functions are: Development of new products before

competitors

Improving product quality

Improving manufacturing processes to reduce costs

Ch 4 -38

Financing as many projects as possible

Use percent-of-sales method

Budgeting relative to competitors

How many successful new products are

needed

Research & Development

R&D Budgets Allocations’ Approaches

Ch 4 -39

Research & Development Audit

•Are the R&D facilities adequate?•If R&D is outsourced, is it cost effective?•Are the R&D personnel well qualified?•Are R&D resources allocated effectively?

•Are the R&D facilities adequate?•If R&D is outsourced, is it cost effective?•Are the R&D personnel well qualified?•Are R&D resources allocated effectively?

Ch 4 -40

Management Information Systems

Purpose

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

Ch 4 -41

Management Information Systems Audit

•Do managers use the information system to make decisions?•Is there a CIO or Director of Information Systems position in the firm?•Is data updated regularly?

•Do managers use the information system to make decisions?•Is there a CIO or Director of Information Systems position in the firm?•Is data updated regularly?

Ch 4 -42

Management Information Systems Audit

•Do managers from all functional areas contribute input to the information system?•Are there effective passwords for entry into the firm’s information system?•Are strategists of the firm familiar with the information systems of rival firms?

•Do managers from all functional areas contribute input to the information system?•Are there effective passwords for entry into the firm’s information system?•Are strategists of the firm familiar with the information systems of rival firms?

Ch 4 -43

Management Information Systems Audit

•Is the information system user-friendly?•Do all users understand the competitive advantages that information can provide?•Are computer training workshops provided for users?•Is the firm’s system being improved?

•Is the information system user-friendly?•Do all users understand the competitive advantages that information can provide?•Are computer training workshops provided for users?•Is the firm’s system being improved?

Ch 4 -44

Ch 4 -45