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Chapter 4 The Internal Assessment. Strategic Management: Concepts and Cases . 9 th edition Fred R. David PowerPoint Slides by Anthony F. Chelte Western New England College. Chapter Outline. The Nature of an Internal Audit Integrating Strategy and Culture Management. Chapter Outline.

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chapter 4 the internal assessment
Chapter 4The 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

chapter outline
Chapter Outline
  • The Nature of an Internal Audit
  • Integrating Strategy and Culture
  • Management

Fred R. David

Prentice Hall

chapter outline1
Chapter Outline
  • Marketing
  • Finance/Accounting
  • Production/Operations

Fred R. David

Prentice Hall

chapter outline2
Chapter Outline
  • Research and Development
  • Management Information Systems
  • The Internal Factor Evaluation Matrix (IFE)

Fred R. David

Prentice Hall

the internal assessment
The Internal Assessment

Great spirits have always encountered violent opposition from mediocre minds.

-- Albert Einstein

Fred R. David

Prentice Hall

nature of an internal audit
Nature of an Internal Audit

All organizations –

  • Strengths
  • Weaknesses

Fred R. David

Prentice Hall

nature of an internal audit1
Nature of an Internal Audit

Basis for objectives & strategies:

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

Fred R. David

Prentice Hall

key internal forces
Key Internal Forces

Functional business areas:

  • Vary by organization
  • Divisions have differing strengths and weaknesses

Fred R. David

Prentice Hall

key internal forces1
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

Fred R. David

Prentice Hall

internal audit
Internal Audit
  • Parallels process of external audit
  • Gather & assimilate information from:
    • Management
    • Marketing
    • Finance/accounting
    • Production/operations
    • Research & development
    • Management information systems

Fred R. David

Prentice Hall

internal audit1
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.

Fred R. David

Prentice Hall

internal audit2
Internal Audit

Key to organizational success:

  • Coordination and understanding among managers from all functional areas

Fred R. David

Prentice Hall

internal audit3
Internal Audit

Functional relationships:

  • Number and complexity increases relative to organization size

Fred R. David

Prentice Hall

internal audit4
Internal Audit

Financial Ratio Analysis:

  • Exemplifies complexity of relationships among functional areas of the business

Fred R. David

Prentice Hall

integrating strategy and culture
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

Fred R. David

Prentice Hall

integrating strategy and culture1
Integrating Strategy and Culture

Organizational Culture --

  • Resistant to change
  • May represent a strength or weakness of the firm

Fred R. David

Prentice Hall

integrating strategy and culture2
Integrating Strategy and Culture

Cultural products

Fred R. David

Prentice Hall

integrating strategy and culture3
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

Fred R. David

Prentice Hall

functions of management
Functions of Management

Five basic activities –

  • Planning
  • Organizing
  • Motivating
  • Staffing
  • Controlling

Fred R. David

Prentice Hall

slide20

Functions of Management

Stage When Most Important

Function

Planning

Strategy Formulation

Organizing

Strategy Implementation

Motivating

Strategy Implementation

Staffing

Strategy Implementation

Controlling

Strategy Evaluation

Fred R. David

Prentice Hall

functions of management1
Functions of Management

Planning

  • Start of the process
  • Bridge between present and future
  • Increases likelihood of achieving desired results

Fred R. David

Prentice Hall

slide22

Planning

Forecasting

Establishing objectives

Devising strategies

Developing policies

Setting goals

Planning

Fred R. David

Prentice Hall

functions of management2
Functions of Management

Organizing

  • Achieve coordinated effort
  • Defining task and authority relationships
  • Departmentalization
  • Delegation of authority

Fred R. David

Prentice Hall

slide24

Organizing

Organizational design

Job specialization

Job descriptions

Job specifications

Span of control

Unity of command

Coordination

Job design

Job analysis

Organizational design

Job specialization

Job descriptions

Job specifications

Span of control

Unity of command

Coordination

Job design

Job analysis

Organizational design

Job specialization

Job descriptions

Job specifications

Span of control

Unity of command

Coordination

Job design

Job analysis

Organizing

Organizing

Organizing

Fred R. David

Prentice Hall

functions of management3
Functions of Management

Motivating

  • Influencing people to accomplish specific objectives
  • Communication is a major component

Fred R. David

Prentice Hall

slide26

Motivating

Leadership

Communication

Work groups

Job enrichment

Job satisfaction

Needs fulfillment

Organizational change

Morale

Motivating

Fred R. David

Prentice Hall

functions of management4
Functions of Management

Staffing

  • Personnel management
  • Human resources management

Fred R. David

Prentice Hall

slide28

Staffing

Wage & salary admin

Employee benefits

Interviewing

Hiring

Firing

Training

Management development

Safety

Affirmative action

EEO

Labor relations

Career development

Discipline procedures

Management

Staffing

Fred R. David

Prentice Hall

functions of management5
Functions of Management

Controlling

  • Ensure actual operations conform to planned operations

Fred R. David

Prentice Hall

slide30

Controlling

Management

Quality control

Financial control

Sales control

Inventory control

Expense control

Analysis of variances

Rewards

Sanctions

Controlling

Fred R. David

Prentice Hall

management audit checklist
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 organization’s structure appropriate?

Fred R. David

Prentice Hall

management audit checklist1
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?

Fred R. David

Prentice Hall

marketing
Marketing

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

Fred R. David

Prentice Hall

marketing1
Marketing
  • Customer analysis
  • Selling products/services
  • Product and service planning
  • Pricing
  • Distribution
  • Marketing research
  • Opportunity analysis

Fred R. David

Prentice Hall

slide35

Marketing

Customer surveys

Consumer information

Market positioning

strategies

Customer profiles

Market segmentation strategies

Customer analysis

Fred R. David

Prentice Hall

slide36

Marketing

Advertising

Sales

Promotion

Publicity

Sales force management

Customer relations

Dealer relations

Selling Products/services

Fred R. David

Prentice Hall

slide37

Marketing

Test marketing

Brand positioning

Devising warrantees

Packaging

Product features/options

Product style

Quality

Product/service planning

Fred R. David

Prentice Hall

slide38

Marketing

Forward integration

Discounts

Credit terms

Condition of sale

Markups

Costs

Unit pricing

Pricing

Fred R. David

Prentice Hall

slide39

Marketing

Warehousing

Channels

Coverage

Retail site locations

Sales territories

Inventory levels

Transportation

Distribution

Fred R. David

Prentice Hall

slide40

Marketing

Data collection

Data input

Data analysis

Support all business functions

Marketing research

Fred R. David

Prentice Hall

slide41

Marketing

Assessing costs

Assessing benefits

Assessing risks

Cost/benefit/risk analysis

Opportunity Analysis

Fred R. David

Prentice Hall

marketing audit
Marketing Audit
  • 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?

Fred R. David

Prentice Hall

marketing audit1
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?

Fred R. David

Prentice Hall

marketing audit2
Marketing Audit
  • Are marketing planning and budgeting effective?
  • Do the firm’s marketing mangers have adequate experience and training

Fred R. David

Prentice Hall

finance accounting
Finance/Accounting
  • Determining financial strengths and weaknesses key to strategy formulation
  • Investment decision (Capital budgeting)
  • Financing decision
  • Dividend decision

Fred R. David

Prentice Hall

finance accounting1
Finance/Accounting

Functions of Finance/Accounting –

  • Investment decision (Capital budgeting)
  • Financing decision
  • Dividend decision

Fred R. David

Prentice Hall

slide47

Basic Financial Ratios

Firm’s ability to meet its short-term obligations

Ratios

Current ratio

Quick

(or acid-test)

ratio

Liquidity ratios

Fred R. David

Prentice Hall

slide48

Basic Financial Ratios

  • Extent of debt financing

Ratios

Debt-to-total-assets

Debt-to-equity

Long-term debt-to-equity

Times-interest earned

Leverage ratios

Fred R. David

Prentice Hall

slide49

Basic Financial Ratios

  • Effective use of firm’s resources

Ratios

Inventory-turnover

Fixed assets turnover

Total assets turnover

Accounts receivable turnover

Average collection period

Activity ratios

Fred R. David

Prentice Hall

slide50

Basic Financial Ratios

  • Effectiveness shown by returns on sales and investment

Ratios

Gross profit margin

Operating profit margin

Net profit margin

Return on total assets (ROA)

Profitability ratios

Fred R. David

Prentice Hall

slide51

Basic Financial Ratios

  • Effectiveness shown by returns on sales and investment

Ratios

Return on stockholders’ equity (ROE)

Earnings per share

Price-earnings ratio

Profitability ratios

(continued)

Fred R. David

Prentice Hall

slide52

Basic Financial Ratios

  • Firm’s ability to maintain economic position

Ratios

Sales

Net income

Earnings per share

Dividends per share

Growth ratios

Fred R. David

Prentice Hall

finance accounting audit
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?

Fred R. David

Prentice Hall

finance accounting audit1
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?

Fred R. David

Prentice Hall

production operations
Production/Operations
  • Process
  • Capacity
  • Inventory
  • Workforce
  • Quality

Fred R. David

Prentice Hall

production operations1
Production/Operations

Design of facility

Choice of technology

Facility layout

Process flow analysis

Facility location

Line balancing

Process control

Process

Fred R. David

Prentice Hall

production operations2
Production/Operations

Forecasting

Facilities planning

Aggregate planning

Scheduling

Capacity planning

Queuing analysis

Capacity

Fred R. David

Prentice Hall

production operations3
Production/Operations

Raw material

Work in process

Finished goods

Materials handling

Inventory

Fred R. David

Prentice Hall

production operations4
Production/Operations

Job design

Work measurement

Job enrichment

Work standards

Motivation techniques

Workforce

Fred R. David

Prentice Hall

production operations5
Production/Operations

Quality control

Sampling

Testing

Quality assurance

Cost control

Quality

Fred R. David

Prentice Hall

production operations audit
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?

Fred R. David

Prentice Hall

production operations audit1
Production/Operations Audit
  • Are quality-control policies and procedures effective?
  • Are facilities, resources, and markets strategically located?
  • Does the firm have technological competencies?

Fred R. David

Prentice Hall

research and development
Research and Development
  • Development of new products before competition
  • Improving product quality
  • Improving manufacturing processes to reduce costs

Fred R. David

Prentice Hall

research and development1
Research and Development

Financing as many projects as possible

Use percentage-of-sales method

Budgeting relative to competitors

Deciding how many successful new products are needed

R&D budgets

Fred R. David

Prentice Hall

research and development audit
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?

Fred R. David

Prentice Hall

research and development audit1
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?

Fred R. David

Prentice Hall

management information systems
Management Information Systems

Purpose –

  • Improve performance of an enterprise by improving the quality of managerial decisions.

Fred R. David

Prentice Hall

management information systems1
Management Information Systems
  • Information Systems
  • CIO/CTO
  • Security
  • User-friendly
  • E-commerce

Fred R. David

Prentice Hall

management information systems audit
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

management information systems audit1
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

management information systems audit2
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?

Fred R. David

Prentice Hall

internal analysis ife
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

Fred R. David

Prentice Hall

internal analysis ife1
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

Fred R. David

Prentice Hall

internal analysis ife2
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

Fred R. David

Prentice Hall

internal analysis ife3

Mandalay Bay

Internal Strengths

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 Analysis (IFE)

Fred R. David

Prentice Hall

internal analysis ife4

Mandalay Bay

Internal Weaknesses

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

2.75

Internal Analysis (IFE)

Fred R. David

Prentice Hall

internal analysis ife5
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

Fred R. David

Prentice Hall

key terms
Key Terms
  • Activity ratios
  • Buying
  • Capital budgeting
  • Communication
  • Computer information systems
  • Controlling
  • Cost/benefit analysis
  • Cultural products
  • Customer analysis

Fred R. David

Prentice Hall

key terms1
Key Terms
  • Distinctive competencies
  • Distribution
  • Dividend decision
  • Financial ratio analysis
  • Financing decisions
  • Functions of finance/accounting
  • Functions of management

Fred R. David

Prentice Hall

key terms2
Key Terms
  • Functions of marketing
  • Functions of production/operations
  • Growth ratio
  • Human resource management
  • Internal audit
  • Internal Factor Evaluation (IFE) Matrix
  • Investment Decision

Fred R. David

Prentice Hall

key terms3
Key Terms
  • Leverage ratios
  • Liquidity ratios
  • Marketing research
  • Motivating
  • Opportunity analysis
  • Organizational culture
  • Organizing
  • Personnel management
  • Planning
  • Pricing

Fred R. David

Prentice Hall

key terms4
Key Terms
  • Product and service planning
  • Production/operations functions
  • Profitability ratios
  • Research and development

Fred R. David

Prentice Hall

key terms5
Key Terms
  • Selling
  • Social responsibility
  • Staffing
  • Synergy
  • Test marketing

Fred R. David

Prentice Hall

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