Strategic Management Concepts & Cases

Fred R. David
8th edition

Chapter 4: The Internal Assessment

PowerPoint Slides By: Anthony F. Chelte

Western New England College

Ch. 4-1 2001 Prentice Hall

Comprehensive Strategic Management Model

External Audit Chapter 3

Vision & Mission Statements

Long-Term Objectives

Generate, Evaluate, Select Strategies

Implement Strategies: Mgmt Issues

Chapter 2

Chapter 5

Chapter 6

Chapter 7

Implement Strategies: Marketing, Fin/Acct, R&D, CIS

Measure & Evaluate Performance

Chapter 8

Chapter 9

Internal Audit Chapter 4

Ch. 4-2 2001 Prentice Hall

Internal Assessment
Like a product or service, the planning process itself must be managed and shaped, if it is to serve executives as a vehicle for strategic decision-making
Robert Lenz
Ch. 4-3 2001 Prentice Hall

Internal Assessment (Contd)

Weak leadership can wreck the soundest strategy.

Sun Zi

Ch. 4-4 2001 Prentice Hall

Internal Assessment (Contd)

Internal Strategic Management Audit

Functional areas of the business

Strengths

Weaknesses

Ch. 4-5 2001 Prentice Hall

Internal Assessment (Contd)

Internal Audit:

Focuses on developing objectives and strategies to capitalize on internal strengths and overcome weaknesses
Ch. 4-6 2001 Prentice Hall

Internal Assessment (Contd)

Distinctive Competencies
A

firms strengths that cannot be easily matched or imitated by competitors competitive advantage involves taking advantage of distinctive competencies designed in part to improve on a firms weaknesses and turn to strengths
Ch. 4-7 2001 Prentice Hall

Building

Strategies

Internal Assessment (Contd)

Internal Audit Gather & assimilate information from:

Management Marketing Finance/accounting Production/operations Research & development Management information systems
Ch. 4-8 2001 Prentice Hall

Internal Assessment (Contd)

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

Ch. 4-9 2001 Prentice Hall

Internal Assessment (Contd)

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 integrationis considered valid and taught to new members

Ch. 4-10 2001 Prentice Hall

Internal Assessment (Contd)

Organizational Culture

Resistant to change May represent a strength or weakness of firm Cultural products include:

Values, beliefs, rites, rituals, ceremonies, myths, stories, legends, sagas, language, symbols, heroes
Ch. 4-11 2001 Prentice Hall

Internal Assessment (Contd)

Organizational 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
Ch. 4-12 2001 Prentice Hall

Internal Assessment (Contd)

Management

Planning Organizing Motivating Staffing Controlling

Ch. 4-13 2001 Prentice Hall

Internal Assessment (Contd)

Function Planning Stage of StrategicManagement Process When Most Important
Strategy Formulation Strategy Implementation Strategy Implementation

Organizing
Motivating Staffing Controlling
2001 Prentice Hall

Strategy Implementation
Strategy Evaluation
Ch. 4-14

Internal Assessment (Contd)

Management Forecasting Establishing objectives Planning Devising strategies Developing policies Setting goals

Ch. 4-15 2001 Prentice Hall

Internal Assessment (Contd)

Management

Organizing

Organizational design Job specialization Job descriptions Job specifications Span of control Unity of command Coordination Job design Job analysis
Ch. 4-16 2001 Prentice Hall

Internal Assessment (Contd)

Management

Motivating

Leadership Communication Work groups Job enrichment Job satisfaction Needs fulfillment Organizational change Morale

Ch. 4-17 2001 Prentice Hall

Internal Assessment (Contd)

Management Wage & salary admin Employee benefits Interviewing Hiring Firing Training Management development Safety Affirmative action EEO Labor relations Career development Discipline procedures
Ch. 4-18 2001 Prentice Hall

Staffing

Internal Assessment (Contd)

Management Quality control Financial control Sales control Inventory control Expense control Analysis of variances Rewards Sanctions

Controlling

Ch. 4-19 2001 Prentice Hall

Internal Assessment (Contd)

Management Audit 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 organizations structure appropriate?
Ch. 4-20 2001 Prentice Hall

Internal Assessment (Contd)

Management Audit Checklist (Contd)

Are job descriptions and job specifications clear? Is employee morale high? Are employee turnover and absenteeism low? Are organizational reward and control mechanisms effective?

Ch. 4-21 2001 Prentice Hall

Internal Assessment (Contd)

Marketing

Customer analysis Selling products/services Product and service planning Pricing Distribution Marketing research Opportunity analysis
Ch. 4-22 2001 Prentice Hall

Internal Assessment (Contd)

Marketing Customer surveys Consumer information Market positioning strategies Customer profiles Market segmentation strategies
Ch. 4-23 2001 Prentice Hall

Customer analysis

Internal Assessment (Contd)

Advertising Marketing

Sales
Promotion

Selling Products/services

Publicity
Sales force management Customer relations Dealer relations
Ch. 4-24 2001 Prentice Hall

Internal Assessment (Contd)

Test marketing Marketing

Brand positioning
Devising warrantees

Product/service planning

Packaging
Product features/options Product style Quality
Ch. 4-25 2001 Prentice Hall

Internal Assessment (Contd)

Forward integration Marketing

Discounts
Credit terms

Pricing

Condition of sale
Markups

Costs
Unit pricing
Ch. 4-26 2001 Prentice Hall

Internal Assessment (Contd)

Warehousing Marketing

Channels
Coverage

Distribution

Retail site locations

Sales territories

Inventory levels
Transportation
Ch. 4-27 2001 Prentice Hall

Internal Assessment (Contd)

Marketing

Data collection
Data input

Marketing research

Data analysis Support all business functions

Ch. 4-28 2001 Prentice Hall

Internal Assessment (Contd)

Marketing Assessing costs Assessing benefits

Opportunity analysis

Assessing risks Cost/benefit/risk analysis

Ch. 4-29 2001 Prentice Hall

Internal Assessment (Contd)

Marketing Audit Checklist

Are markets segmented effectively? Is the organization positioned well among competitors? Has the firms market share been increasing? Are present channels of distribution reliable and cost effective? Does the firm have an effective sales force?
Ch. 4-30 2001 Prentice Hall

Internal Assessment (Contd)

Marketing Audit Checklist

(Contd)

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?
Ch. 4-31 2001 Prentice Hall

Internal Assessment (Contd)

Marketing Audit Checklist (Contd)

Are marketing planning and budgeting effective? Do the firms marketing mangers have adequate experience and training?

Ch. 4-32 2001 Prentice Hall

Internal Assessment (Contd)

Finance/Accounting

Investment decision (Capital budgeting) Financing decision Dividend decision

Ch. 4-33 2001 Prentice Hall

Internal Assessment (Contd)

Financial ratios

Firms ability to meet its short-term obligations

Ratios

Liquidity ratios

Current ratio Quick (or acid-test) ratio

Ch. 4-34 2001 Prentice Hall

Internal Assessment (Contd)

Financial ratios

Extent of debt financing

Ratios
Debt-to-total-assets

Leverage ratios

Debt-to-equity Long-term debt-to-equity Times-interest earned

Ch. 4-35 2001 Prentice Hall

Internal Assessment (Contd)

Financial ratios

Effective use of firms resources

Ratios
Inventory-turnover

Activity ratios

Fixed assets turnover Total assets turnover Accounts receivable turnover Average collection period
Ch. 4-36 2001 Prentice Hall

Internal Assessment (Contd)

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)
Ch. 4-37 2001 Prentice Hall

Internal Assessment (Contd)

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

Ch. 4-38 2001 Prentice Hall

Internal Assessment (Contd)

Financial ratios

Firms ability to maintain economic position

Ratios

Growth ratios

Sales Net income Earnings per share Dividends per share

Ch. 4-39 2001 Prentice Hall

Internal Assessment (Contd)

Finance/Accounting Audit Checklist

(Contd)

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?
Ch. 4-40 2001 Prentice Hall

Internal Assessment (Contd)

Finance/Accounting Audit Checklist

Are dividend payout policies reasonable? Does the firm have good relations with its investors and stockholders? Are the firms financial managers experienced and well trained?

Ch. 4-41 2001 Prentice Hall

Internal Assessment (Contd)

Production/Operations

Process Capacity Inventory Workforce Quality

Ch. 4-42 2001 Prentice Hall

Internal Assessment (Contd)

Production/Operations Design of facility

Choice of technology
Facility layout

Process

Process flow analysis Facility location Line balancing Process control

Ch. 4-43 2001 Prentice Hall

Internal Assessment (Contd)

Production/Operations Forecasting Facilities planning Aggregate planning Capacity Scheduling Capacity planning Queuing analysis
Ch. 4-44 2001 Prentice Hall

Internal Assessment (Contd)

Production/Operations Raw material Work in process Inventory Finished goods Materials handling

Ch. 4-45 2001 Prentice Hall

Internal Assessment (Contd)

Production/Operations

Job design
Work measurement

Workforce

Job enrichment Work standards Motivation techniques

Ch. 4-46 2001 Prentice Hall

Internal Assessment (Contd)

Production/Operations

Quality control
Sampling

Quality

Testing Quality assurance Cost control

Ch. 4-47 2001 Prentice Hall

Internal Assessment (Contd)

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?

Ch. 4-48 2001 Prentice Hall

Internal Assessment (Contd)

Production/Operations Audit Checklist
(Contd)

Are quality-control policies and procedures effective? Are facilities, resources, and markets strategically located? Does the firm have technological competencies?
Ch. 4-49 2001 Prentice Hall

Internal Assessment (Contd)

Research & Development

Development of new products before competition Improving product quality Improving manufacturing processes to reduce costs

Ch. 4-50 2001 Prentice Hall

Internal Assessment (Contd)

Research & Development Financing as many projects as possible Use percentage-ofsales method R&D budgets Budgeting relative to competitors

Deciding how many successful new products are needed

Ch. 4-51 2001 Prentice Hall

Internal Assessment (Contd)

Research & Development Audit Checklist

Does the firm have R&D facilities? Are they adequate? If outside R&D firms are used, are they cost effective? Are the organizations R&D personnel well qualified? Are R&D resources allocated effectively?
Ch. 4-52 2001 Prentice Hall

Internal Assessment (Contd)

Research & Development Audit Checklist (Contd)

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

Ch. 4-53 2001 Prentice Hall

Internal Assessment (Contd)

Computer Information Systems

Information Systems CIO/CTO Security User-friendly E-commerce

Ch. 4-54 2001 Prentice Hall

Internal Assessment (Contd)

Computer 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?
Ch. 4-55 2001 Prentice Hall

Internal Assessment (Contd)

Computer Information Systems Audit Checklist (Contd)

Do managers from all functional areas of the firm contribute input to the information system? Are there effective passwords for entry into the firms information system? Are strategists of the firm familiar with the information systems of rival firms?
Ch. 4-56 2001 Prentice Hall

Internal Assessment (Contd)

Computer Information Systems Audit Checklist (Contd)

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 firms system being improved?
Ch. 4-57 2001 Prentice Hall

Competitive Analysis: Porters Five-Forces Model

Potential development of substitute products

Bargaining power of suppliers

Rivalry among competing firms

Bargaining power of consumers

Potential entry of new competitors

Ch. 4-58 2001 Prentice Hall

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

Ch. 4-59 2001 Prentice Hall

Internal Analysis (IFE) (Contd)

Five-Step Process: (Contd)

Assign 1-4 rating to each factor

Firms

factor

current strategies response to the

Multiply each factors weight by its rating

Produces

a weighted score
Ch. 4-60 2001 Prentice Hall

Internal Analysis (IFE) (Contd)

Five-Step Process:

(Contd)

Sum the weighted scores for each

Determines

the total weighted score for the organization possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5
Ch. 4-61 2001 Prentice Hall

Highest

Circus Circus
Internal Strengths
Largest casino company in world
Room occupancy rates over 95% Increasing free cash flows Owns 1 mile on Las Vegas strip Strong management team Buffets at most facilities Minimal comps provided Long-range planning

Weight

Rating

Weighted score

.05
.10 .05 .15 .05 .05 .05 .05

4
4 3 4 3 3 3 4

.20
.40 .15 .60 .15 .15 .15 .20

Reputation as family-friendly
Financial ratios

.05
.05

3
3

.15
.15

Ch. 4-62 2001 Prentice Hall

Circus Circus
Internal Weaknesses
Most properties located in Las Vegas
Little diversification Family reputation, not high rollers Laughlin properties Recent loss of joint ventures

Weight

Rating

Weighted score

.05
.05 .05 .10 .10

1
2 2 1 1

.05
.10 .10 .10 .10

TOTAL (including Strengths)

1.0

2.75

Ch. 4-63 2001 Prentice Hall

Internal Analysis (IFE) (Contd)

Circus Circus (in the previous example), has a total weighted score of 2.75 indicating that the firm is above average in its overall internal strength

Ch. 4-64 2001 Prentice Hall

Key Terms & Concepts

Activity ratios Buying Capital budgeting Communication Computer information systems Controlling Cost/benefit analysis Cultural products Customer analysis

Distinctive competencies Distribution Dividend decision Financial ratio analysis Financing decisions Functions of finance/accounting Functions of management

Ch. 4-65 2001 Prentice Hall

Key Terms & Concepts (Contd)

Functions of marketing Functions of production/operations Growth ratio Human resource management Internal audit Internal Factor Evaluation (IFE) Matrix Investment Decision

Leverage ratios Liquidity ratios Marketing research Motivating Opportunity analysis Organizational culture Organizing Personnel management Planning Pricing

Ch. 4-66

2001 Prentice Hall

Key Terms & Concepts (Contd)

Product and service planning Production/operations functions Profitability ratios Research and development

Selling Social responsibility Staffing Synergy Test marketing

Ch. 4-67 2001 Prentice Hall