Strategic Management ?

Strategic

management is an ongoing process that evaluates and controls the business and the industries in which the company is involved Assesses its competitors and sets goals and strategies to meet all existing and potential competitors; Reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment.
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Popular Definitions of Strategic Planning

Alfred Chandler: It is concerned with the determination of the basic long term goals and objectives of an enterprise, and the adoption of courses of action and allocation of resources necessary for carrying out these goals.
William Glueck: It is a stream of decisions and actions which leads to the deployment of and effective strategy or strategies to help achieve corporate objectives --- decisions and actions, which determine whether an enterprise excels, survives or dies. Hayes and Wheelwright: Strategic planning is planning that is long term, wide ranging and critical to organizational success, in terms of the costs of the resources it affects and the outcomes it envisions. Harvey: Strategic planning is long-range planning that focuses on the organization as a whole. Managers consider the organization as a total unit and ask themselves what must be done in the long run to attain organizational goals. The most successful managers are those who are 2able

Birth of strategic management

Strategic management as a discipline originated in the 1950s and 60s. Although there were numerous early contributors to the literature, the most influential pioneers were Alfred D. Chandler, Philip Selznick, Igor Ansoff, and Peter Drucker. Alfred D. Chandler recognized the importance of coordinating the various aspects of management under one allencompassing strategy. Philip Selznick introduced the idea of matching the organization's internal factors with external environmental circumstances. This core idea was developed into what we now call SWOT ANALYSIS
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Igor Ansoff built on Chandler's work by adding a range of strategic concepts and inventing a whole new vocabulary. He developed a strategy grid that compared market penetration strategies, product development strategies, market development strategies Peter Drucker was a prolific strategy theorist, author of dozens of management books, with a career spanning five decades. His contributions to strategic management were many but two are most important. Firstly, he stressed the importance of objectives. An organization without clear objectives is like a ship without a rudder. As early as 1954 he was developing a theory of management based on objectives. This evolved into his theory of management by objectives (MBO)
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The Japanese challenge By the late 70s, Americans had started to notice how successful Japanese industry had become. In industry after industry, including steel, watches, ship building, cameras, autos, and electronics, the Japanese were surpassing American and European companies. Westerners wanted to know why. Numerous theories purported to explain the Japanese success including: Higher employee morale, dedication, and loyalty; Lower cost structure, including wages; Effective government industrial policy; Modernization after WWII leading to high capital intensity and productivity; Economies of scale associated with increased exporting; Relatively low value of the Yen leading to low interest rates and capital costs, low dividend expectations, and inexpensive exports; Superior quality control techniques such as Total Quality Management and other systems introduced by W. Edwards Deming in the 1950s and 60s.
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A study was released in response to Japanese challenge which indicated that there were 8 keys to excellence that were shared by 43 firms. A bias for action Do it. Try it. Dont waste time studying it with multiple reports and committees. Customer focus Get close to the customer. Know your customer. Entrepreneurship Even big companies act and think small by giving people the authority to take initiatives. Productivity through people Treat your people with respect and they will reward you with productivity. Value-oriented CEOs The CEO should actively propagate corporate values throughout the organization. Stick to the knitting Do what you know well. Keep things simple and lean Complexity encourages waste and confusion. Simultaneously centralized and decentralized Have tight centralized control while also allowing maximum individual autonomy.
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STAGE -1
Strategy formulation

Developing a vision and mission Identifying an organizations external opportunities and threats Determining internal strengths and weaknesses Establishing long term objectives Generating alternative strategies Choosing particular strategies to pursue
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The issues at strategy formulation stage Deciding what new business to enter Deciding business to abandon Deciding how to allocate resources Deciding whether to expand operations or diversify Deciding whether to enter international market Deciding whether to merge or form a joint venture
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STAGE -2 Strategy Implementation Establish annual objectives Devise policies Motivate employees Allocate resources Developing a strategy supportive culture Creating an effective organizational structure Redirecting marketing efforts Preparing budgets Developing and utilizing information system Linking employee compensation to organizational performance
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STAGE 3 Strategy Evaluation

Reviewing external and internal factors that are bases for current strategies Measuring performance Taking corrective actions
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Thinking Strategically: Three big Strategic Questions

Where

are we now? do we want to go?

Where

How

will we get there?

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Profit/ (Loss) after Taxation - HBL

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Why did Traditional Strategic Planning Failed

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Traditional strategic planning models were heavily oriented to quantitative analysis. It did not include in the planning process those who had to implement the strategic plan. Planning was often used to exercise blatant control over people Traditional strategic planning was often based on inappropriately aggregated data, data that was no longer current It did not take into account the actual business challenges the managers faced on a day-to-day basis. Traditional strategic planning was based on the assumption that one could measure all of the variables.
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The best strategies experience unforeseen economic, industry, social, and market shifts. The strategies could not deliver what they promised: predictable success. The star department attracts the best and the brightest managers away from other departments, so that the organization has an imbalance of managerial talent throughout the organization. The "star" departments have more power, and people in these departments are able to use their power to play politics and gain even more resources and success.
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Integrating intuition and Analysis -Decision Making

Meaning of intuition (Vision, insight, perception Preanalytical cognitive act that supplies raw materials for the analytical effort). Based on past experience, judgment and feelings most people recognize that intuition is essential for making good strategic decisions Intuition is particularly useful for making decisions in situations of great uncertainty or little precedent. Managers at all levels in an organization inject their intuition and judgment into strategic management analysis. Analytical thinking and intuitive thinking complement each other
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Why some firms do no strategic planning

Poor reward structure Fire fighting Waste of time Too expensive Laziness Contents with success Fear of failure
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Why some firms do no strategic planning

Overconfidence Prior bad experience Self interest Fear of the unknown Honest difference of opinion Suspicion

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Benefits of strategic management

It allows for identification, prioritization, and exploitation of opportunities It provides an objective view of management problems It represents a framework for improved coordination and control of activities It minimizes the effects of adverse conditions and changes It allows major decisions to better support established objectives It allows more effective allocation of time and resources to identified opportunities It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions 21

Benefits of strategic management

It creates a framework for internal communication among personnel It helps integrate the behaviour of individual into a total effort It provides a basis for clarifying individual responsibilities It encourages forward thinking It provides a cooperative, integrated and enthusiastic approach to tackle problems and opportunities It encourages a favourable attitude towards change It gives a degree of discipline and formality to the management of a business.
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VISION AND MISSION STATEMENTS

VisionARY MissionARY A visionary is someone who sees what is possible, who sees the potential. A missionary is someone who carries out that work.
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"Vision without action is a daydream. Action without vision is a nightmare." Japanese proverb

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CONCEPT OF VISION AND MISSION - 1

Vision and Mission are statements of

what we want to be and how we see ourselves fulfilling our ideas of what we want to be.

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CONCEPT OF VISION AND MISSION - 2

The vision statement will usually contain more general and motherhood sounding statement than the mission.

The mission statement should contain commitments on (a) organization purpose (b) Distinctive characteristics (c) Shareholder promises (d) organizational values and beliefs.
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Your mission statement should Express your organizations purpose in a way that inspires support and ongoing commitment

Motivate those who are connected to the organization. Be articulated in a way that is convincing and easy to grasp Use practical verbs to describe what you do
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SOME EXAMPLES OF VISION AND MISSION STATEMENTS

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HOUSE BUILDING FINANCE CORPORATION Vision statement HBFC to be the prime housing finance institution of the country providing affordable housing solutions to low and middle income groups of population by encouraging new construction in Small and Medium housing (SMH) sector. Mission statement HBFC to be a socially responsible and commercial sustainable housing finance institution. Target Market Low and middle income groups of population Target Areas No negative list, all legalized residential locations Responding to housing needs of low income groups is a social responsibility beyond that every thing has to be 29 100% commercially sustainable.

VISION STATEMENT INSTITUTE OF BANKERS IN PAKISTAN

Vision statement
To be the premier financial sector knowledge institute of international standard and repute. Mission statement To train and develop a sound human resource base for the financial sector and to work for continuous learning, adaptation and application of knowledge.
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PepsiCo

Vision
"PepsiCo's responsibility is to continually improve all aspects of the world in which we operate - environment, social, economic - creating a better tomorrow than today." Our vision is put into action through programs and a focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company. Mission Our mission is to be the world's premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity 31

IBM
Vision Statement - Solutions for a small planet Mission Statement - At IBM, we strive to lead in the invention, development and manufacture of the industry's most advanced information technologies, including computer systems, software, storage systems and microelectronics. We translate these advanced technologies into value for our customers through our professional solutions, services and consulting businesses worldwide.

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Vision and Mission Statements SAM Division, HBFC

VISION HBFCL to be an NPL free Housing Institution.

MISSION
To make the existing NPL default portfolio to zero and to design and implement an effective strategy to control, monitor, follow up and ensure that cases do not move upward in classified category.
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Process of developing Mission Statements

A widely used approach is given as under:

Select several articles about mission statements and ask all managers to read these background information.

Then ask managers themselves to prepare a mission statement for the organization.
A facilitator, or committee of top managers, should them merge these statements into a single documents and distribute this draft mission statement to all managers.
Continued -34

A request for modification, additions, and deletions is needed next alongwith a meeting to revise the documents. To the extent that all managers have input into and support the final mission statement documents, organizations can more easily obtain managers support for other strategy formulation.

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Other method:
Use discussion groups of managers to develop and modify the mission statement. Hire an outside consultant of facilitator to manage the process and help draft language. Sometimes an outside person with expertise in developing mission statements, who has unbiased views, can manage the process more effectively than internal group or committee of the managers.
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Why organization carefully develop a written mission statement To ensure unanimity of purpose with the organization To provide a basis, or standard, for allocating organizational resources To establish a general tone or organizational climate To serve a focal point for individual to identify with the organizations purpose To facilitate the translation of objectives To specify organizational purpose
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Characteristics of Mission Statement A declaration of attitude A customer orientation A declaration of social policy Components of Mission Statement Customers Products or services Markets Technology Concern for survival, growth or profitability Philosophy Self concept Concern for public image Concern for employee

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Components of Mission Statement Customers Products or services Markets Technology Concern for survival, growth or profitability Philosophy Self concept Concern for public image Concern for employee
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THE EXTERNAL ASSESSMENT

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EXTERNAL AUDIT -- Tools and concepts needed to conduct an external strategic management audit (sometimes called environmental scanning or industry analysis)

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The nature of external audit: The purpose of an external audit is to develop a finite (exhaustive list of every possible factors that could influence the business) set of a final list of opportunities that could benefit a firm and threats that should be avoided.

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Environmental Scanning Brown and Weiner (1985) define environmental scanning as "a kind of radar to scan the world systematically and signal the new, the unexpected, the major and the minor". Aguilar (1967), in his study of the information gathering practices of managers, defined scanning as the systematic collection of external information in order to (1) lessen the randomness of information flowing into the organization and (2) provide early warnings for managers of changing external conditions.

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Process of performing an external audit To perform an external audit, a company first must gather competitive intelligence and information about economic forces, social, demographic, and environmental forces, political, governmental and legal forces, technological forces, and competitive forces.

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Key External forces: Economic forces Social, demographic, and environmental forces Political, governmental, and legal forces Technological forces Competitive forces

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1. Economic factors: Import and export factors Price fluctuations Monetary policies Fiscal policies Tax rates

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2. Social, demographic, and environmental forces: Number of birth rates Number of deaths Immigration rates Life expectancy rates Attitude towards business Attitude towards work Attitude towards saving Attitude towards careers Regional changes in taste and preferences

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3. Political, governmental, and legal forces: Government regulations or deregulations Government fiscal and monetary policies Political action committee Changes in patent laws Political conditions in foreign countries World oil, currency, and labour market Local, state, and national elections Import export regulations Lobbying activities
When industries depend heavily on government contracts or subsidy, political forecasts can be the most important part of an external audit.
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4. Technological forces Revolutionary technological changes and discoveries are having a dramatic impact on organizations. The Internet alone is acting as a national and even global economic engine that is spurring activity, a critical factor in a countrys ability to improve living standards, and it is saving companies billions of dollars in distribution and transaction costs from direct sale to self-service system.
Continued --49

Technological advancement can dramatically affect organizations products, services, markets, suppliers, distributors, competitors, customers, manufacturing process, marketing practices and competitive position. No company or industry today is insulated against emerging technological developments. In high-tech industries, identification and evaluation of key technological opportunities and threats can be most important part of the external strategic management audit.
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5. Competitive forces An important part of an external audit is identifying rival firms and determining their strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies. Competition in virtually all industries can be described as intense and sometimes cut throat. Collecting and evaluating information on competitors is essential for successful strategy formulation. Identifying major competitors is not always easy because many firms have divisions that compete in different industries. Most multidivisional firms generally do not provide sales and profit information on a divisional basis for competitive reasons.
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Key questions about competitors What are the major competitors strengths? What are the major competitors weaknesses? What are the major competitors objectives and strengths? How will the major competitors likely respond to current economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive trends affecting our industry? How vulnerable are the major competitors to our alternative company strategies? How are our products or services positioned relative to major competitors? To what extent are new firms entering and old firms leaving this industry? To what extent could substitute products or services be a threat to competitors in this industry?
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Competitive Analysis Porters Five-Force Model (Michael E. Porter of Harvard Business School) Rivalry among competing firms: rivalry among competing firms is usually the most powerful of the five competitive forces. Changes in strategy by one firm may met with retaliatory countermoves such lowering prices, enhancing quality, adding features, providing services etc. Potential entry of new competitors: whenever new firms can easily enter particular industry, the intensity of competitiveness among firm increases. Profitable markets that yield high returns will draw firms. This results in many new entrants, which will effectively decrease profitability.
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Potential development of substitute products: Firms are in close competition with producers of substitute products of other industries. The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases Bargaining power of suppliers: Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for unique resources. The bargaining power of suppliers affects the intensity of competition in an industry, especially when there is large number of suppliers, when there are only a few good substitute raw materials, or when the cost of switching raw material is especially costly. Bargaining power of consumers: When customers are concentrated or large, or buy in volume, their bargaining power represents a major force affecting the intensity of competition in an industry.
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External Strategic Management Audit

Identify & Evaluate factors beyond the control of a single firm

Increased foreign competition Population shifts Information technology

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Key External Forces & the Organization

Key External Forces

Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products Services

Opportunities & Threats

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Performing External Audit

Long-term orientation

External Factors

Measurable Applicable to competing firms Hierarchical

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I/O Perspective Firm Performance

Industry Properties
Economies of Scale Barriers to market entry Product differentiation Level of competitiveness

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Social, Cultural, Demographic & Environmental Forces

Aging population
Less Caucasian Widening gap between rich & poor 2025 = 18.5% population >65 years 2075 = no ethnic or racial majority

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Key Social, Cultural, Demographic & Environmental Variables

Childbearing rates

Number of special interest groups

Number of marriages & divorces Number of births & deaths

Immigration & emigration rates

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Political, Government & Legal Forces Globalization of Industry

Worldwide trend toward similar consumption patterns Global buyers and sellers E-commerce Technology for instant currency transfers

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Competitive Forces
Identifying Rival Firms
Strengths
Weaknesses Capabilities

Opportunities
Threats Objectives Strategies

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Competitive Forces
7 Characteristics of most Competitive U.S. Firms:
1. Market share matters 2. Understand what business you are in 3. Broke or not, fix it 4. Innovate or evaporate

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Competitive Forces
7 Characteristics of most Competitive U.S. Firms:
5. People make a difference 6. Acquisition is essential to growth 7. No substitute for quality

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The Five-Forces Model of Competition

Potential development of substitute products

Bargaining power of suppliers

Rivalry among competing firms

Bargaining power of consumers

Potential entry of new competitors

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The Global Challenge

Gain & maintain exports to other nations

Defend domestic markets against imported goods

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Industry Analysis: The External Factor Evaluation (EFE) Matrix Summarize & Evaluate
Economic Social Cultural Demographic Environmental Political Governmental Technological Competitive

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EFE Gateway Computers (2003) Key External Factors

Weight Rating Wtd Score

Opportunities
1. Global PC market expected to grow 20% in 2004 0.10 0.10 3 3 0.30 0.30

2. Cost of PC component parts expected to decrease 10% - 2004 3. Internet use growing rapidly
4. China entered WTO; lowered taxes for importing PCs 5. The average income for PC worker has declined from $40K/yr to $30k/yr

0.05
0.10 0.05

2
1 3

0.10
0.10 0.15
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EFE Gateway Computers (2003) (contd) Key External Factors

Weight Rating Wtd Score

Opportunities (contd)
6. Modernization of business firms and government agencies
7. U.S. (& world) economies recovering 8. 30% of Chinese population can afford a PC; only 10% of homes have a PC

0.05
0.05 0.05 0.10 0.10

2
3 1 1 1

0.10
0.15 0.05 0.10 0.05
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Threats
1. Intense rivalry in industry

EFE Gateway Computers (2003) (contd) Key External Factors

Weight Rating Wtd Score

Threats (contd)
2. Severe price cutting in PC industry
3. Different countries have different regs and infrastructure for PCs 4. Palm & PDA becoming substitutes 5. Demand exceeds supply of experienced PC workers 6. Birth rate in U.S. declining annually

0.10
0.05 0.05 0.05 0.05

2
1 3 4 3

0.20
0.05 0.15 0.20 0.15

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EFE Gateway Computers (2003) (contd) Key External Factors

Weight Rating Wtd Score

Threats (contd)
7. U.s. consumers and businesses delaying purchase of PCs 8. PC firms diversifying into consumer electronics Total 0.05 2 0.10

0.05

0.15

1.00

2.40

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Industry Analysis EFE Total weighted score of 4.0

Organization response is outstanding to threats and weaknesses

Total weighted score of 1.0

Firms strategies not capitalizing on opportunities or avoiding threats

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Industry Analysis: Competitive Profile Matrix (CPM)

Identifies firms major competitors and their strengths & weaknesses in relation to a sample firms strategic positions

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Gateway
Critical Success Factors
Market share Inventory sys Fin position Prod. Quality Cons. Loyalty
Wt Rating Wtd Score

Apple
Rating Wtd Score

Dell
Rating Wtd Score

0.15 0.08 0.10 0.08 0.02

3 2 2 3 3

0.45 0.16 0.20 0.24 0.06

2 2 3 4 3

0.30 0.16 0.30 0.32 0.06

4 4 3 3 4

0.60 0.32 0.30 0.24 0.08

Sales Distr
Global Exp. Org. Structure

0.10
0.15 0.05

3
3 3

0.30
0.45 0.15

2
2 3

0.20
0.30 0.15

3
4 3

0.30
0.60 0.15
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Gateway CSFs (contd)

Prod. Capacity
Wt Rating Wtd Score

Apple
Rating Wtd Score

Dell
Rating Wtd Score

0.04

0.12

0.12

0.12

E-commerce
Customer Serv Price competitive Mgt. experience Total

0.10
0.10 0.02 0.01 1.00

3
3 4 2

0.30
0.30 0.08 0.02 2.83

3
2 1 4

0.30
0.20 0.02 0.04 2.47

3
4 3 2

0.30
0.40 0.06 0.02 3.49

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THE INTERNAL ASSESSMENT

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It covers typical functional areas in manufacturing organizations and focuses on identifying and evaluating a firms strengths and weaknesses in the functional areas of business including: Management

Marketing
Finance/Accounting Production/Operations Research & Development Management Information System Functional areas in other types of organizations may differ e.g. hospital, universities, government, etc. have different organizational structure 78

The scope of internal auditing within an organization is broad and may involve topics such as the efficacy of operations, the reliability of financial reporting, deterring and investigating fraud, safeguarding assets, and compliance with laws and regulations.

It does this by using a systematic methodology for analyzing business processes, procedures and activities with the goal of highlighting organizational problems and recommending solutions.
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Distinctive Competencies :
Firms strength that can not be easily matched or imitated by competitors. Building competitive advantage involves taking advantage of distinctive competencies.

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Strengths and weaknesses

All organizations have strengths and weaknesses in the functional areas of business. No enterprise is equally strong or weak in all areas. One company is known for excellent production and design, whereas another company is known for superb marketing. Internal strengths/weaknesses, coupled with external opportunities/threats and a clear statement of mission, provide the basis for establishing objectives and strategies.
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Resource Based View (RBV): Approach to competitive advantage Competitive advantage of an organization lies in its resources, strengths and competencies. Internal resources are more important than external factors because: Physical Resources: Human Resources: Organizational Resources: Rare Hard to imitate Not easily substitutable
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Organization Culture:
Pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integration. It is considered valid and taught to new members.

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Integrating Culture With Your Strategy

Culture is one of the most powerful - and most often neglected - elements of the profit equation. There are few other aspects of your business that have the inherent capacity to increase employee productivity, streamline your work processes, and grow revenues in ways that are as powerful and predictable as your corporate culture.
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Corporate culture is simple: its the way we work together, the ways in which our organizational structures support business strategy, and the ways we attract and retain excellent employees and customers. Basically, corporate culture provides the frame-work to implement and operationalize your strategy.
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But how do you work with your own business culture to maximize your profits and to realize your strategy? The answer begins with analyzing just what type of corporate culture you want to have. For example, many companies have a strategic objective to obtain - and then retain - a certain percentage of market share. If you have a strategic goal similar to this, how do you structure the work that your employees do in order to realize that goal? Are your employees free to offer their ideas and experiences, so that you reap the benefit of as many sources of new and creative ideas as possible? Do you encourage free and open discussion, and do you try to allow this to happen outside of the normal work day? We often find that while many companies say they encourage new and innovative ideas from their employees, few actually build this process into their work day. Some of our clients, in seeking to link their culture to their strategy in this area, have developed both formal and informal processes that encourage employees to offer their ideas in safe and open environments, and have built in a reward process to honor those ideas that are adopted or 86 implemented by the company.

Finally, perhaps the most obvious and important element of your corporate culture is your leadership. There is no single factor more important in the success of your company than your ability to steer your organization and your employees into the increasingly complex marketplace of tomorrow. Corporate culture is all about how you do that. Do you communicate your strategy clearly and often? Do you help your employees learn from their mistakes as well as their successes? Do you take the time to celebrate accomplishments? Can your employees depend on you for consistent and predictable behavior? Do you model the very behaviors and actions that you expect in your employees? While there may be no secret to effective leadership, there is also no substitute for it. An effective corporate culture that is designed to increase revenues depends on consistent and highly visible leadership.
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Management
Function Planning Organizing Motivating Staffing Controlling Stage When Most Important
Strategy Formulation

Strategy Implementation

Strategy Implementation

Strategy Implementation

Strategy Evaluation

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A typical management audit checklist

Does the firm use strategic management concepts? Are company objectives and goals measurable and well communicated? Do managers delegate well? Is the organizations structure appropriate? Are job descriptions clear? Are job specifications clear? Is employee morale high? Are employee turnover and absenteeism low? Are organizational reward and control mechanisms effective

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Marketing opportunity analysis

Are markets segmented effectively? Is the organization positioned well among competitors? Has the firms market share been increasing? Are the distribution channels reliable & cost effective? Is the sales force effective? Does the firm conduct market research? Are product quality & customer service good? Are the firms products/services priced appropriately? Does the firm have effective promotion, advertising, & publicity strategies? Are the marketing planning & budgeting effective? Do the firms marketing managers have adequate experience and training?

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A typical finance/accounting audit

Where is the firm strong/weak as indicated by financial ratio analysis? Can the firm raise short-term capital as needed? Can the firm raise long-term capital as needed through debt and/or equity? Does the firm have sufficient working capital? Are capital budgeting procedures effective? Are dividend payout policies reasonable? Are the firms financial managers experienced & well trained?
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Finance/Accounting Audit
Effective Financial Analysis Requires: Analysis of how the ratios have changed over time How the ratios compare to industry norms How the ratios compare with key competitors

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A typical production/operations audit

Are quality-control policies & procedures effective? Are facilities, resources, and markets strategically located? Does the firm have technological competencies? Development of new products before competitors? Improving product quality? Improving manufacturing processes to reduce costs? Are suppliers of materials, parts, etc. reliable and reasonable? Are facilities, equipment & machinery in good condition? Are inventory-control policies and procedures effective?
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A typical 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? Are MIS and computer systems adequate? Is communication between R&D & other organizational units effective? Are present products technologically competitive?

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A typical MIS audit

Do managers use the information system to make decisions? Is there a CIO or Director of Information Systems position in the firm? Is data updated regularly? Do managers from all functional areas 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? Do all users understand the competitive advantages that information can provide? Are computer training workshops provided for users? Is the information system user-friendly? Is the firms system being improved?
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IFE Matrix for XYZ Computers

Key Internal Factors

Strengths 1 2 Several new senior executive with world class skills and leadership experience Weight 0.05 0.05 0.05 0.1 0.05 0.1 0.05 Rating 4 3 3 4 3 3 4 Weighted Score 0.4 0.15 0.15 0.4 0.15 0.3 0.2

Continuous decline in operating costs and cost of goods sold

3 Well known brand name 4 Consumer Report as #1 5

As a direct seller, Gateway holds high brand recognition

6 Co. is diversifying into non-PC products 7 Good Relationship with its suppliers

Economies of scale, the sixth largest PC maker in the world

0.05
0.05

4
3

0.2
0.15
96

9 Co. retail stores excellent

Weaknesses 1 High Operating Expenses Almost no budget for R&D Low return on assets ratio No niche market Shortage of cash due to successive loss Limited number of Gateway stores Weak performance in overseas market Total: 0.05 1 0.05

2
3 4 5 6 7

0.1
0.02 5 0.02 5 0.1 0.05 0.1 1

1
2 2 2 2 1

0.1
0.05 0.05 0.2 0.1 0.2 2.85

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IFE Analysis of E-trade

E-trade has major strengths in flat commission, banking accounts, and services to investors E-trade has major weaknesses in declining brokerage accounts and limited number of branches Total weighted score of 2.67 indicates E-trade is above average in its overall internal strength

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