Chapter 4 the internal assessment
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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

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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

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Key internal forces

Key Internal Forces

Functional business areas:

  • Vary by organization

  • Divisions have differing strengths and weaknesses

Fred R. David

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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

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Internal audit3

Internal Audit

Functional relationships:

  • Number and complexity increases relative to organization size

Fred R. David

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Internal audit4

Internal Audit

Financial Ratio Analysis:

  • Exemplifies complexity of relationships among functional areas of the business

Fred R. David

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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

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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


Chapter 4 the internal assessment

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


Chapter 4 the internal assessment

Planning

Forecasting

Establishing objectives

Devising strategies

Developing policies

Setting goals

Planning

Fred R. David

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Functions of management2

Functions of Management

Organizing

  • Achieve coordinated effort

  • Defining task and authority relationships

  • Departmentalization

  • Delegation of authority

Fred R. David

Prentice Hall


Chapter 4 the internal assessment

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


Chapter 4 the internal assessment

Motivating

Leadership

Communication

Work groups

Job enrichment

Job satisfaction

Needs fulfillment

Organizational change

Morale

Motivating

Fred R. David

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Functions of management4

Functions of Management

Staffing

  • Personnel management

  • Human resources management

Fred R. David

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Chapter 4 the internal assessment

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


Chapter 4 the internal assessment

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


Chapter 4 the internal assessment

Marketing

Customer surveys

Consumer information

Market positioning

strategies

Customer profiles

Market segmentation strategies

Customer analysis

Fred R. David

Prentice Hall


Chapter 4 the internal assessment

Marketing

Advertising

Sales

Promotion

Publicity

Sales force management

Customer relations

Dealer relations

Selling Products/services

Fred R. David

Prentice Hall


Chapter 4 the internal assessment

Marketing

Test marketing

Brand positioning

Devising warrantees

Packaging

Product features/options

Product style

Quality

Product/service planning

Fred R. David

Prentice Hall


Chapter 4 the internal assessment

Marketing

Forward integration

Discounts

Credit terms

Condition of sale

Markups

Costs

Unit pricing

Pricing

Fred R. David

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Chapter 4 the internal assessment

Marketing

Warehousing

Channels

Coverage

Retail site locations

Sales territories

Inventory levels

Transportation

Distribution

Fred R. David

Prentice Hall


Chapter 4 the internal assessment

Marketing

Data collection

Data input

Data analysis

Support all business functions

Marketing research

Fred R. David

Prentice Hall


Chapter 4 the internal assessment

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


Chapter 4 the internal assessment

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


Chapter 4 the internal assessment

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


Chapter 4 the internal assessment

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


Chapter 4 the internal assessment

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


Chapter 4 the internal assessment

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


Chapter 4 the internal assessment

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

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Production operations2

Production/Operations

Forecasting

Facilities planning

Aggregate planning

Scheduling

Capacity planning

Queuing analysis

Capacity

Fred R. David

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Production operations3

Production/Operations

Raw material

Work in process

Finished goods

Materials handling

Inventory

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Production operations4

Production/Operations

Job design

Work measurement

Job enrichment

Work standards

Motivation techniques

Workforce

Fred R. David

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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

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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

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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

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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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