Transcript Strategic Management Concepts & Cases Eighth Edition Fred

Chapter 4
The Internal Assessment
Strategic Management:
Concepts and Cases. 9th edition
Fred R. David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Fred R. David
Prentice Hall
Ch 4-1
Chapter Outline
• The Nature of an Internal Audit
• Integrating Strategy and Culture
• Management
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Ch 4-2
Chapter Outline
• Marketing
• Finance/Accounting
• Production/Operations
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Ch 4-3
Chapter Outline
• Research and Development
• Management Information Systems
• The Internal Factor Evaluation
Matrix (IFE)
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Ch 4-4
The Internal Assessment
Great spirits have always encountered
violent opposition from mediocre minds.
-- Albert Einstein
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Ch 4-5
Nature of an Internal Audit
All organizations –
•
•
Strengths
Weaknesses
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Ch 4-6
Nature of an Internal Audit
Basis for objectives & strategies:
– Internal strengths/weaknesses
– External opportunities/threats
– Clear statement of mission
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Ch 4-7
Key Internal Forces
Functional business areas:
– Vary by organization
– Divisions have differing strengths and
weaknesses
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Ch 4-8
Key Internal Forces
Distinctive Competencies
• A firm’s strengths that cannot be easily
matched or imitated by competitors
• Building competitive advantage involves
taking advantage of distinctive competencies
• Strategies designed in part to improve on a
firm’s weaknesses and turn to strengths
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Ch 4-9
Internal Audit
• Parallels process of external audit
• Gather & assimilate information from:
•
•
•
•
•
•
Management
Marketing
Finance/accounting
Production/operations
Research & development
Management information systems
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Ch 4-10
Internal Audit
Involvement in performing an internal
strategic-management audit provides
vehicle for understanding nature and
effect of decisions in other functional
business areas of the firm.
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Ch 4-11
Internal Audit
Key to organizational success:
– Coordination and understanding among
managers from all functional areas
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Ch 4-12
Internal Audit
Functional relationships:
– Number and complexity increases relative
to organization size
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Ch 4-13
Internal Audit
Financial Ratio Analysis:
– Exemplifies complexity of relationships
among functional areas of the business
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Ch 4-14
Integrating Strategy and 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 4-15
Integrating Strategy and Culture
Organizational Culture -•
Resistant to change
•
May represent a strength or weakness
of the firm
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Ch 4-16
Integrating Strategy and Culture
Cultural products
Values
beliefs
rites
rituals
ceremonies
myths
stories
legends
sagas
language
symbols
heroes
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Ch 4-17
Integrating Strategy and Culture
Culture can inhibit strategic management:
–
Miss changes in external environment
because they are blinded by strongly held
beliefs
–
When a culture has been effective in the
past, natural tendency to stick with it in
future, even during times of major strategic
change
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Ch 4-18
Functions of Management
Five basic activities –
–
–
–
–
–
Planning
Organizing
Motivating
Staffing
Controlling
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Ch 4-19
Functions of 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 4-20
Functions of Management
Planning
–
Start of the process
– Bridge between present and future
– Increases likelihood of achieving desired
results
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Ch 4-21
Planning
Forecasting
Establishing objectives
Planning
Devising strategies
Developing policies
Setting goals
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Ch 4-22
Functions of Management
Organizing
–
Achieve coordinated effort
– Defining task and authority relationships
– Departmentalization
– Delegation of authority
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Ch 4-23
Organizing
Organizational
design
Organizational
Organizational design
design
Job
Job
Job specialization
specialization
specialization
Job
Job
Job descriptions
descriptions
descriptions
Job
Job
Job specifications
specifications
specifications
Span
of
control
Span
Span of
of control
control
Unity
Unity
Unity of
of
ofcommand
command
command
Coordination
Coordination
Coordination
Job
Job
Job design
design
design
Job
Job
Job analysis
analysis
analysis
Organizing
Organizing
Organizing
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Ch 4-24
Functions of Management
Motivating
–
Influencing people to accomplish specific
objectives
– Communication is a major component
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Ch 4-25
Motivating
Leadership
Communication
Work groups
Job enrichment
Job satisfaction
Needs fulfillment
Organizational
change
Morale
Motivating
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Ch 4-26
Functions of Management
Staffing
–
Personnel management
– Human resources management
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Ch 4-27
Staffing
Wage & salary admin
Employee benefits
Interviewing
Hiring
Firing
Training
Management development
Safety
Affirmative action
EEO
Labor relations
Career development
Discipline procedures
Management
Staffing
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Ch 4-28
Functions of Management
Controlling
–
Ensure actual operations conform to
planned operations
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Ch 4-29
Controlling
Management
Quality control
Financial control
Sales control
Inventory control
Expense control
Analysis of variances
Rewards
Sanctions
Controlling
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Ch 4-30
Management Audit Checklist
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•
•
•
•
Does the firm use strategicmanagement 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?
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Ch 4-31
Management Audit Checklist
•
•
•
•
Are job descriptions and job
specifications clear?
Is employee morale high?
Are employee turnover and
absenteeism low?
Are organizational reward and control
mechanisms effective?
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Ch 4-32
Marketing
Process of defining, anticipating, creating,
and fulfilling customers’ needs and
wants for products and services
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Ch 4-33
Marketing
1.
2.
3.
4.
5.
6.
7.
Customer analysis
Selling products/services
Product and service planning
Pricing
Distribution
Marketing research
Opportunity analysis
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Ch 4-34
Marketing
Customer surveys
Consumer information
Market positioning
strategies
Customer analysis
Customer profiles
Market segmentation
strategies
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Ch 4-35
Marketing
Advertising
Sales
Promotion
Selling
Products/services
Publicity
Sales force management
Customer relations
Dealer relations
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Ch 4-36
Marketing
Test marketing
Brand positioning
Devising warrantees
Packaging
Product/service
planning
Product features/options
Product style
Quality
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Ch 4-37
Marketing
Forward integration
Discounts
Credit terms
Condition of sale
Pricing
Markups
Costs
Unit pricing
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Ch 4-38
Marketing
Warehousing
Channels
Coverage
Distribution
Retail site locations
Sales territories
Inventory levels
Transportation
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Ch 4-39
Marketing
Data collection
Data input
Data analysis
Marketing research
Support all business
functions
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Ch 4-40
Marketing
Assessing costs
Assessing benefits
Opportunity
Analysis
Assessing risks
Cost/benefit/risk
analysis
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Ch 4-41
Marketing Audit
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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 force?
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Ch 4-42
Marketing Audit
•
•
•
•
Does the firm conduct market research?
Are product quality and customer
service good?
Are the firm's products/services priced
appropriately?
Does the firm have an effective
promotion, advertising, and publicity
strategy?
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Ch 4-43
Marketing Audit
•
•
Are marketing planning and budgeting
effective?
Do the firm’s marketing mangers have
adequate experience and training
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Ch 4-44
Finance/Accounting
•
•
•
•
Determining financial strengths and
weaknesses key to strategy formulation
Investment decision (Capital budgeting)
Financing decision
Dividend decision
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Ch 4-45
Finance/Accounting
Functions of Finance/Accounting –
1.
2.
3.
Investment decision (Capital budgeting)
Financing decision
Dividend decision
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Ch 4-46
Basic Financial Ratios
Firm’s ability to meet
its short-term
obligations
Ratios
Liquidity ratios
Current ratio
Quick
(or acid-test)
ratio
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Ch 4-47
Basic Financial Ratios
•
Extent of debt
financing
Ratios
Debt-to-total-assets
Leverage ratios
Debt-to-equity
Long-term debt-to-equity
Times-interest earned
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Ch 4-48
Basic Financial Ratios
Effective use of firm’s
resources
•
Ratios
Inventory-turnover
Activity ratios
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
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Ch 4-49
Basic Financial Ratios
•
Effectiveness shown
by returns on sales
and investment
Ratios
Profitability ratios
Gross profit margin
Operating profit margin
Net profit margin
Return on total assets (ROA)
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Ch 4-50
Basic Financial Ratios
•
Effectiveness shown
by returns on sales
and investment
Ratios
Profitability ratios
(continued)
Return on stockholders’ equity
(ROE)
Earnings per share
Price-earnings ratio
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Ch 4-51
Basic Financial Ratios
•
Firm’s ability to
maintain economic
position
Ratios
Growth ratios
Sales
Net income
Earnings per share
Dividends per share
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Ch 4-52
Finance/Accounting Audit
•
•
•
•
•
Where is the firm 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?
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Ch 4-53
Finance/Accounting Audit
•
•
•
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?
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Ch 4-54
Production/Operations
•
•
•
•
•
Process
Capacity
Inventory
Workforce
Quality
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Ch 4-55
Production/Operations
Design of facility
Choice of technology
Facility layout
Process flow analysis
Process
Facility location
Line balancing
Process control
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Ch 4-56
Production/Operations
Forecasting
Facilities planning
Aggregate planning
Capacity
Scheduling
Capacity planning
Queuing analysis
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Ch 4-57
Production/Operations
Raw material
Work in process
Inventory
Finished goods
Materials handling
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Ch 4-58
Production/Operations
Job design
Work measurement
Job enrichment
Workforce
Work standards
Motivation techniques
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Ch 4-59
Production/Operations
Quality control
Sampling
Quality
Testing
Quality assurance
Cost control
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Ch 4-60
Production/Operations Audit
•
•
•
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?
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Ch 4-61
Production/Operations Audit
•
•
•
Are quality-control policies and procedures
effective?
Are facilities, resources, and markets
strategically located?
Does the firm have technological
competencies?
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Ch 4-62
Research and Development
•
•
•
Development of new products before
competition
Improving product quality
Improving manufacturing processes to
reduce costs
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Ch 4-63
Research and Development
Financing as many
projects as possible
Use percentage-of-sales
method
Budgeting relative to
competitors
R&D budgets
Deciding how many
successful new
products are needed
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Ch 4-64
Research and Development Audit
•
•
•
•
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?
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Ch 4-65
Research and Development Audit
•
•
•
Are management information and computer
systems adequate?
Is communication between R&D and other
organizational units effective?
Are present products technologically
competitive?
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Ch 4-66
Management Information
Systems
Purpose –
–
Improve performance of an enterprise by
improving the quality of managerial
decisions.
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Ch 4-67
Management Information
Systems
•
•
•
•
•
Information Systems
CIO/CTO
Security
User-friendly
E-commerce
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Ch 4-68
Management Information
Systems Audit
•
•
•
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?
Fred R. David
Prentice Hall
Ch 4-69
Management Information
Systems Audit
•
•
•
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?
Fred R. David
Prentice Hall
Ch 4-70
Management Information
Systems Audit
•
•
•
•
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?
Is the firm’s system being improved?
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Ch 4-71
Internal Analysis (IFE)
Five-Step Process:
•
List key internal factors (10-20)
Strengths
•
& weaknesses
Assign weight to each (0 to 1.0)
Sum
of all weights = 1.0
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Ch 4-72
Internal Analysis (IFE)
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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Ch 4-73
Internal Analysis (IFE)
•
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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Ch 4-74
Internal Analysis (IFE)
Mandalay Bay
Weight
Rating
Weighted
score
Largest casino company in world
.05
4
.20
Room occupancy rates over 95%
.10
4
.40
Increasing free cash flows
.05
3
.15
Owns 1 mile on Las Vegas strip
.15
4
.60
Strong management team
.05
3
.15
Buffets at most facilities
.05
3
.15
Minimal comps provided
.05
3
.15
Long-range planning
.05
4
.20
Reputation as family-friendly
.05
3
.15
Financial ratios
.05
3
.15
Internal Strengths
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Ch 4-75
Internal Analysis (IFE)
Mandalay Bay
Weight
Rating
Weighted
score
Most properties located in Las Vegas
.05
1
.05
Little diversification
.05
2
.10
Family reputation, not high rollers
.05
2
.10
Laughlin properties
.10
1
.10
Recent loss of joint ventures
.10
1
.10
TOTAL (including Strengths)
1.0
Internal Weaknesses
Fred R. David
Prentice Hall
2.75
Ch 4-76
Internal Analysis (IFE)
Mandalay Bay (in the previous
example), has a total weighted
score of 2.75 indicating that the firm
is above average in its overall
internal strength
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Prentice Hall
Ch 4-77
Key Terms
•
•
•
•
•
•
•
•
•
Activity ratios
Buying
Capital budgeting
Communication
Computer information systems
Controlling
Cost/benefit analysis
Cultural products
Customer analysis
Fred R. David
Prentice Hall
Ch 4-78
Key Terms
•
•
•
•
•
•
•
Distinctive competencies
Distribution
Dividend decision
Financial ratio analysis
Financing decisions
Functions of finance/accounting
Functions of management
Fred R. David
Prentice Hall
Ch 4-79
Key Terms
•
•
•
•
•
•
•
Functions of marketing
Functions of production/operations
Growth ratio
Human resource management
Internal audit
Internal Factor Evaluation (IFE) Matrix
Investment Decision
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Prentice Hall
Ch 4-80
Key Terms
•
•
•
•
•
•
•
•
•
•
Leverage ratios
Liquidity ratios
Marketing research
Motivating
Opportunity analysis
Organizational culture
Organizing
Personnel management
Planning
Pricing
Fred R. David
Prentice Hall
Ch 4-81
Key Terms
•
•
•
•
Product and service planning
Production/operations functions
Profitability ratios
Research and development
Fred R. David
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Ch 4-82
Key Terms
•
•
•
•
•
Selling
Social responsibility
Staffing
Synergy
Test marketing
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Ch 4-83