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Fakultas Dr. Mirza, ST,MM

Program Studi

Chapter 4
The Internal Assessment

Strategic Management:
Concepts & Cases
11th Edition
Fred David

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How frequently should we verify

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Nature of an Internal Audit

Basis for Objectives & Strategies

• Internal strengths/weaknesses
• External opportunities/threats
• Clear statement of mission

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Internal Audit

Parallels process of external audit

•Information from:
•Research & Development
•Management Information Systems
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Resource Based View (RBV)
Approach to Competitive Advantage

Internal resources are more important than

external factors

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Resource Based View (RBV)

Three 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

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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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Integrating Strategy & Culture
Legends Beliefs

Heroes Rites

Symbols Myths Rituals

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Stage When Most
Function Important
Planning Strategy Formulation

Organizing Strategy Implementation

Motivating Strategy Implementation

Staffing Strategy Implementation

Controlling Strategy Evaluation

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Customer Needs/Wants for Products/Services

1. Defining
2. Anticipating
3. Creating
4. Fulfilling

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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 Functions

1. Investment decision (Capital budgeting)

2. Financing decision
3. Dividend decision
4. Financial analysis – Key financial ratios

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Production/Operations Functions

 Process
 Capacity
 Inventory
 Workforce
 Quality

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Research & Development
Research & Development Functions

 Development of new products before

 Improving product quality
 Improving manufacturing processes to
reduce costs

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Management Information
• Information Systems
• Security
• User-friendly
• E-commerce

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Managerial Questions Checklist
• 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

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Marketing Audit Checklist
• 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
• Are marketing planning and budgeting effective?
• Do the firm’s marketing managers have adequate experience and
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Accounting Audit Checklist
• 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
• Are the firm’s financial managers experienced and well
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Accounting Ratios
• Liquidity ratios measure a firm’s ability to meet maturing short-term
– Current ratio

– Quick (acid-test) ratio
Leverage ratios measure the extent to which a firm has been financed by debt.
• How has each ratio
– Debt-to-total-assets ratio

Debt-to-equity ratio
Long-term debt-to-equity ratio
changed over time?
– Times-interest-earned (coverage) ratio

Activity ratios measure how effectively a firm is using its resources.
Inventory turnover
• 2. How does each ratio
– Fixed assets turnover

Total assets turnover
Accounts receivable turnover
compare to industry

– Average collection period
Profitability ratios measure management’s overall effectiveness as shown by
returns generated on sales and investment.
– Gross profit margin

Operating profit margin
Net profit margin
• 3. How does each ratio
– Return on total assets

Return on stockholders’ equity
Earnings per share
compare with key

– Price-earnings ratio
Growth ratios measure the firm’s ability to maintain its economic position in
the growth of the economy and industry.

– Net income
– Earnings per share
– Dividends per share

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Production/Operations Audit Checklist

• 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
• Does the firm have technological competencies?

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R&D Audit Checklist of Questions
• 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
• Is communication between R&D and other organizational
units effective?
• Are present products technologically competitive?

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Information Systems Audit
• Checklist
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
• 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
• Is the firm’s information system continually being improved in content and

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Terima Kasih
Dr.Mirza, ST,MM