Chapter 4
The Internal Assessment
Strategic
Management:
Concepts & Cases
11th Edition
Fred David
Copyright 2007 Prentice Hall
Ch 4 -1
How frequently should we verify strategies?
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Ch 4 -2
Nature of an Internal Audit
Basis for Objectives & Strategies
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Internal strengths/weaknesses
External opportunities/threats
Clear statement of mission
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Ch 4 -3
Internal Audit
Parallels process of external audit
•Information from:
•Management
•Marketing
•Finance/accounting
•Production/operations
•Research & Development
•Management Information Systems
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Ch 4 -4
Resource Based View (RBV)
Approach to Competitive Advantage
Internal resources are more important
than external factors
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Ch 4 -5
Resource Based View (RBV)
Three All Encompassing Categories
1. Physical resources
2. Human resources
3. Organizational resources
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Ch 4 -6
Resource Based View (RBV)
Empirical Indicators
 Rare
 Hard to imitate
 Not easily substitutable
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Ch 4 -7
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
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Ch 4 -8
Integrating Strategy & Culture
Values
Beliefs
Legends
Heroes
Symbols
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Cultural
Products
Myths
Rites
Rituals
Ch 4 -9
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Ch 4 -10
Management
Function
Stage When Most
Important
Planning
Strategy Formulation
Organizing
Strategy Implementation
Motivating
Strategy Implementation
Staffing
Strategy Implementation
Controlling
Strategy Evaluation
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Ch 4 -11
Marketing
Customer Needs/Wants for Products/Services
1. Defining
2. Anticipating
3. Creating
4. Fulfilling
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Ch 4 -12
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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Ch 4 -13
Finance/Accounting
Finance/Accounting Functions
1. Investment decision (Capital budgeting)
2. Financing decision
3. Dividend decision
4. Financial analysis – Key financial ratios
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Ch 4 -14
Production/Operations
Production/Operations Functions
 Process
 Capacity
 Inventory
 Workforce
 Quality
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Ch 4 -15
Research & Development
Research & Development Functions
 Development of new products before
competitors
 Improving product quality
 Improving manufacturing processes to
reduce costs
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Ch 4 -16
Management Information
Systems
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Information Systems
CIO/CTO
Security
User-friendly
E-commerce
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Ch 4 -17
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Ch 4 -18
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Ch 4 -19
Managerial Questions Checklist
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Does the firm use strategic-management concepts?
Are company objectives and goals measurable and well
communicated?
Do managers at all hierarchical levels plan effectively?
Do managers delegate authority well?
Is the organization’s structure appropriate?
Are job descriptions and specifications clear?
Is employee morale high?
Are employee turnover and absenteeism low?
Are organizational reward and control mechanisms effective?
Copyright 2007 Prentice Hall
Ch 4 -20
Marketing Audit Checklist
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Are markets segmented effectively?
Is the organization positioned well among competitors?
Has the firm’s market share been increasing?
Are present channels of distribution reliable and cost-effective?
Does the firm have an effective sales organization?
Does the firm conduct market research?
Are product quality and customer service good?
Are the firm’s products and services priced appropriately?
Does the firm have an effective promotion, advertising, and
publicity strategy?
Are marketing planning and budgeting effective?
Do the firm’s marketing managers have adequate experience
and training?
Copyright 2007 Prentice Hall
Ch 4 -21
Accounting Audit Checklist
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Where is the firm financially strong and weak as
indicated by financial ratio analysis?
Can the firm raise needed short-term capital?
Can the firm raise needed long-term capital
through debt and/or equity?
Does the firm have sufficient working capital?
Are capital budgeting procedures effective?
Are dividend payout policies reasonable?
Does the firm have good relations with its investors
and stockholders?
Are the firm’s financial managers experienced and
well trained?
Copyright 2007 Prentice Hall
Ch 4 -22
Accounting Ratios
Liquidity ratios measure a firm’s ability to meet maturing short-term
obligations.
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Current ratio
Quick (acid-test) ratio
Leverage ratios measure the extent to which a firm has been financed
by debt.
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Debt-to-total-assets ratio
Debt-to-equity ratio
Long-term debt-to-equity ratio
Times-interest-earned (coverage) ratio
Activity ratios measure how effectively a firm is using its resources.
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Inventory turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Profitability ratios measure management’s overall effectiveness as
shown by returns generated on sales and investment.
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Gross profit margin
Operating profit margin
Net profit margin
Return on total assets
Return on stockholders’ equity
Earnings per share
Price-earnings ratio
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Growth ratios measure the firm’s ability to maintain its economic position
in the growth of the economy and industry.
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Sales
Net income
Earnings per share
Dividends per share
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How has each ratio
changed over time?
2. How does each ratio
compare to industry
norms?
3. How does each ratio
compare with key
competitors?
BNI
Ch 4 -23
Production/Operations Audit Checklist
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Are suppliers of raw materials, parts, and
subassemblies reliable and reasonable?
Are facilities, equipment, machinery, and offices in
good condition?
Are inventory-control policies and procedures
effective?
Are quality-control policies and procedures
effective?
Are facilities, resources, and markets strategically
located?
Does the firm have technological competencies?
Copyright 2007 Prentice Hall
Ch 4 -24
R&D Audit Checklist of Questions
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Does the firm have R&D facilities? Are they
adequate?
If outside R&D firms are used, are they cost
effective?
Are the organization’s R&D personnel well qualified?
Are R&D resources allocated effectively?
Are management information and computer systems
adequate?
Is communication between R&D and other
organizational units effective?
Are present products technologically competitive?
Copyright 2007 Prentice Hall
Ch 4 -25
Information Systems Audit Checklist
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Do all managers in the firm use the information system to make
decisions?
Is there a chief information officer or director of information systems
position in the firm?
Are data in the information system updated regularly?
Do managers from all functional areas of the firm 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?
Is the information system user friendly?
Do all users of the information system understand the competitive
advantages that information can provide firms?
Are computer training workshops provided for users of the
information system?
Is the firm’s information system continually being improved in content
and user-friendliness?
Copyright 2007 Prentice Hall
Ch 4 -26
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Chapter 4 The Internal Assessment