6 Journal 2 (Challenging case study and exercise

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The Internal Assessment

Chapter Four

Chapter Objectives

Concept of internal strategic-management audit.

Financial ratio analysis.

Internal Factor Evaluation (IFE) Matrix.

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A Comprehensive Strategic-Management Model

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Key Internal Forces

Distinctive competencies

A firm’s strengths that cannot be easily matched or imitated by competitors

Building competitive advantages involves taking advantage of distinctive competencies.

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The Resource-Based View (RBV)

Proponents of the RBV contend that organizational performance will primarily be determined by internal resources that can be grouped into three all-encompassing categories: physical resources, human resources, and organizational resources

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Physical resources include all plant and equipment, location, technology, raw materials, machines; human resources include all employees, training,

experience, intelligence, knowledge, skills, abilities; and organizational resources include firm structure, planning processes, information systems, patents, trademarks, copyrights, databases, and so on.

The Resource-Based View (RBV)

For a resource to be valuable competencies and competitive advantage, it must be either (1) rare, (2) hard to imitate, or (3) not easily substitutable
These three characteristics of resources enable a firm to implement strategies that improve its efficiency and effectiveness and lead to a sustainable competitive advantage

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Management Audit Checklist
of Questions

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?

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Management Audit Checklist
of Questions (cont.)

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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Marketing

Marketing

the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services

4Ps (Marketing Mix)

Product/Service

Place

Price

Promotion

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Strategic Issues in Marketing

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Strategic Issues in Marketing

Customer analysis

the examination and evaluation of consumer needs, desires, and wants

involves administering customer surveys, analyzing consumer information, evaluating market positioning strategies, developing customer profiles, and determining optimal market segmentation strategies

essential in developing an effective mission statement

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Desirable Characteristics
of Ads Today

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Strategic Issues in Marketing

Product and service planning

includes activities such as test marketing; product and brand positioning; devising warranties; packaging; determining product options, features, style, and quality; deleting old products; and providing for customer service

important when a company is pursuing product development or diversification

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Strategic Issues in Marketing

Five major stakeholders affect pricing decisions: consumers, governments, suppliers, distributors, and competitors
Sometimes an organization will pursue a forward integration strategy primarily to gain better control over prices charged to consumers

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Distribution

Distribution

includes warehousing, distribution channels, distribution coverage, retail site locations, sales territories, inventory levels and location, transportation carriers, wholesaling, and retailing

especially important when a firm is striving to implement a market development or forward integration strategy

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Marketing Research

Marketing research

the systematic gathering, recording, and analyzing of data about problems relating to the marketing of goods and services

can uncover critical strengths and weaknesses

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Cost/Benefit Analysis

Three steps are required to perform a cost/benefit analysis:

compute the total costs associated with a decision,

estimate the total benefits from the decision,

compare the total costs with the total benefits.

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Marketing Audit Checklist
of Questions

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?

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Marketing Audit Checklist
of Questions

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?

Is the firm’s Internet presence excellent as compared to rivals?

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Finance/Accounting Functions

The functions of finance/accounting comprise three decisions:

the investment decision

the financing decision

the dividend decision

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Finance/Accounting Functions

Investment decision

the allocation and reallocation of capital and resources to projects, products, assets, and divisions of an organization

Financing decision

determines the best capital structure for the firm and includes examining various methods by which the firm can raise capital

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Finance/Accounting Functions

Dividend decisions

concern issues such as the percentage of earnings paid to stockholders, the stability of dividends paid over time, and the repurchase or issuance of stock

determine the amount of funds that are retained in a firm compared to the amount paid out to stockholders

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Finance/Accounting Audit Checklist

Where is the firm financially strong and weak as indicated by financial ratio analyses?

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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5 Areas of Ratio Analysis

Solvency (Liquidity)
Debt level (Leverage)
Activity (Turnover)
Profitability
Trend

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A Summary of Key
Financial Ratios

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A Summary of Key
Financial Ratios

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A Summary of Key
Financial Ratios

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A Summary of Key
Financial Ratios

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Finance/Accounting Functions

How has each ratio changed over time?

How does each ratio compare to industry norms?

How does each ratio compare with key competitors?

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Strategies on Production/Operations

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Strategic Audit for Production/Operations

Are supplies 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?

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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?

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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Management Information Systems

A management information system’s purpose is to improve the performance of an enterprise by improving the quality of managerial decisions
An effective information system thus collects, codes, stores, synthesizes, and presents information in such a manner that it answers important operating and strategic questions

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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?

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?

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Management Information Systems Audit

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?

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A Sample Internal Factor Evaluation Matrix for a Retail Computer Store

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Now we can develop SWOT matrix!