David sm13 ppt_04

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 4 -1

Chapter 4 The Internal Assessment

Strategic Management: Concepts & Cases

13th EditionFred David


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Ch 4 -3

“Great spirits have always encountered violent opposition from mediocre minds.” – Albert Einstein

Internal Assessment

“Weak leadership can wreck the soundest strategy.” – Sun Tzu


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Internal Audit Identify strengths and weaknesses in

Management Marketing Finance and accounting Production and operations Research and development Management information systems


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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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Key Internal Forces

Distinctive Competencies:

Firm’s strengths that cannot be easily matched or imitated by competitors


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Key Internal Forces

Distinctive Competencies:

Building competitive advantage involves taking advantage of distinctive competencies


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Internal Audit Process

Information gathered from:ManagementMarketingFinance/accountingProduction/operationsResearch & developmentManagement information systems

Parallels process of external audit


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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


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Internal Audit

Managers and employees from all areas provide informationA team of managers then selects 10 to 15 key organizational strengths and weaknesses to focus on


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Internal Audit

Exemplifies complexity of relationships among functional areas of the business

Financial Ratio Analysis


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Resource Based View (RBV)

Approach to Competitive Advantage

Internal resources are more important than external factors


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Three All-Encompassing Categories

1. Physical resources

2. Human resources

3. Organizational resources


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Empirical Indicators

Rare Hard to imitate Not easily substitutable


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Integrating Strategy & 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

Organizational Culture


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Organizational Culture

Resistant to change May represent:

Strength Weakness


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CulturalProducts

Values

Legends Beliefs

Heroes Rites

Symbols RitualsMyths



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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


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Management

Functions of Management

1. Planning

2. Organizing

3. Motivating

4. Staffing

5. Controlling


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Management

Planning

Stage When Most ImportantFunction

Strategy Formulation

Organizing Strategy Implementation

Motivating Strategy Implementation

Staffing

Controlling

Strategy Implementation

Strategy Evaluation


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Management

Planning

Beginning of management process Bridge between present & future Improves likelihood of attaining desired

results


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Planning

Developing a mission

Forecasting future events and trends

Establishing objectives

Choosing strategies to pursue

Management


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Planning

Synergy Can develop through planning Exists when everyone pulls

together as a team that knows what it wants to achieve


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ManagementOrganizing

Achieves coordinated effort Defines task & authority relationships Determines who does what Determines who reports to whom


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Management

Organizing Breaking down tasks into jobs Combining jobs to form

departments Delegating authority


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Management

Motivating

Influencing to accomplish specific objectives Four components include:

Leadership Group dynamics Communication Organizational change


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Management

Staffing

Personnel management Human resource management


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ManagementStaffing Recruiting Interviewing Testing Selecting Orienting Training Developing Caring for

Evaluating Rewarding Disciplining Promoting Transferring Demoting Dismissing


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Management

Controlling

Establishing performance standards Ensure actual operations conform to

planned operations Taking corrective actions


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Management

Controlling

1. Establish performance standards

2. Measure individual and organizational performance

3. Compare actual performance to planned performance standards

4. Take corrective action


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Management Audit Checklist

Does the firm use strategic management concepts?

Are objectives/goals measurable? Well communicated?

Do managers at all levels plan effectively?


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Do managers delegate well? Is the organization’s structure

appropriate? Are job descriptions clear? Are job specifications clear? Is employee morale high?


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

mechanisms effective?


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Marketing

Customer Needs or Wants for Products and Services

1. Defining

2. Anticipating

3. Creating

4. Fulfilling


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MarketingMarketing 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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Customer Analysis

Customer surveys

Consumer information

Market positioning strategies

Customer profiles

Market segmentation strategies

Marketing


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AdvertisingSales Promotion

PublicityPersonal Selling

Sales force managementCustomer relations

Dealer relations

Marketing

Selling Products/Services


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Test marketingBrand positioning

Devising warrantiesPackaging

Product features/optionsProduct style

QualityDeleting old products

Providing for customer service

Marketing

Product/Service Planning


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ConsumersGovernments

SuppliersDistributorsCompetitors

Marketing

Pricing

Major Stakeholders


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WarehousingDistribution channelsRetail site locations

Sales territoriesInventory levelsTransportationWholesaling

Retailing

Marketing

Distribution


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Gather data

Record data

Analyze data

Marketing

Marketing Research


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Assessing costs

Assessing benefits

Assessing risks

Marketing

Cost/Benefit Analysis


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Marketing Audit

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 -46

Marketing Audit

6. Does the firm conduct market research?

7. Are product quality & customer service good?

8. Are the firm’s products and services priced appropriately?

9. Does the firm have effective promotion, advertising, and publicity strategies?


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Marketing Audit

10.Are the marketing, planning, and budgeting effective?

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

12. Is the firm’s Internet presence excellent as compared to rivals?


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Finance/Accounting

1. Investment decision (Capital budgeting)

2. Financing decision

3. Dividend decision


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Firm’s ability to meet its short-term obligations

Ratios

Current ratioQuick (or acid test) ratio

Basic Financial Ratios

Liquidity Ratios


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Extent of debt financing

Ratios

Debt-to-total assetsDebt-to-equity

Long-term debt-to-equityTimes-interest-earned


Leverage Ratios


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Effective use of firm’s resources

Ratios

Inventory turnoverFixed assets turnoverTotal assets turnover

Accounts receivable turnoverAverage collection period


Activity Ratios


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Effectiveness shown by returns on sales and

investment

Ratios

Gross profit marginOperating profit margin

Net profit marginReturn on total assets (ROA)


Profitability Ratios


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Effectiveness shown by returns on sales &

investment

Ratios

Return on stockholders’ equity (ROE)

Earnings per sharePrice-earnings ratio


Profitability Ratios(cont’d)


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Firm’s ability to maintain economic

position

Ratios

SalesNet Income

Earnings per shareDividends per share


Growth Ratios


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Ratio

Sales

Net Income

Earnings per share

Dividends per share

Annual percentage growth in

Total sales

Profits

EPS

Dividends per share

Growth Ratios


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Finance/Accounting Audit

1. Where is the firm financially strong/weak as indicated by financial ratio analysis?

2. Can the firm raise needed short-term capital?3. Can the firm raise needed long-term capital

through debt and/or equity?4. Does the firm have sufficient working capital?5. Are capital budgeting procedures effective?


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Finance/Accounting Audit

6. Are dividend payout policies reasonable?7. Does the firm have good relations with its

investors and stockholders?8. Are the firm’s financial managers

experienced and well trained?9. Is the firm’s debt situation excellent?


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Production/Operations

Production/Operations Functions

Process Capacity Inventory Workforce Quality


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Ch 4 -64

Production/Operations Audit

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


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Production/Operations Audit

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


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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


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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


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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?


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Research & Development Audit

•Are MIS and computer systems adequate?•Is communication between R&D and other organizational units effective?•Are present products technologically competitive?


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Management Information Systems

Purpose

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


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Management Information Systems Audit Do all managers use the information system

to make decisions? Is there a CIO or Director of Information

Systems position in the firm? Are data updated regularly? Do managers from all functional areas

contribute input to the information system? Are there effective passwords for entry into

the firm’s information system?


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Management Information Systems Audit Are strategists of the firm familiar with the

information systems of rival firms? 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 -73

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


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Value Chain Analysis

Core competencies

Distinctive competencies

Benchmarking


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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

Competencies Yield

Sustained Competitive Advantages


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Internal Factor Evaluation (IFE) Matrix

1. List key internal factors2. Assign a weight ranging from 0.0 to 1.03. Assign a 1 to 4 rating to each factor4. Multiply the weight times the rating5. Sum the weighted scores


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David sm13 ppt_04