Internal Assessment “Great spirits have always encountered violent opposition from mediocre minds.”–Albert Einstein “Weak leadership can wreck the soundest strategy.” –Sun Tzu
Internal Audit • Identify strengths and weaknesses in • Management • Marketing • Finance and accounting • Production and operations • Research and development • Management information systems
Nature of an Internal Audit • Internal strengths/weaknesses • External opportunities/threats • Clear statement of mission Basis for Objectives & Strategies
Key Internal Forces Distinctive Competencies: • Firm’s strengths that cannot be easily matched or imitated by competitors
Key Internal Forces Distinctive Competencies: • Building competitive advantage involves taking advantage of distinctive competencies
Internal Audit Process Parallels process of external audit • Information gathered from: • Management • Marketing • Finance/accounting • Production/operations • Research & development • Management information systems
Internal Audit Involvement in performing an internal strategic-management audit provides a vehicle for understanding the nature and effect of decisions in other functional business areas of the firm
Internal Audit • Managers and employees from all areas provide information • A team of managers then selects 10 to 15 key organizational strengths and weaknesses to focus on
Internal Audit Financial Ratio Analysis Exemplifies complexity of relationships among functional areas of the business
Resource Based View (RBV) Approach to Competitive Advantage Internal resources are more important than external factors
Resource Based View (RBV) Three All-Encompassing Categories • Physical resources • Human resources • Organizational resources
Resource Based View (RBV) Empirical Indicators • Rare • Hard to imitate • Not easily substitutable
Integrating Strategy & 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 as the correct way to perceive, think, and feel
Integrating Strategy & Culture Organizational Culture • Resistant to change • May represent: • Strength • Weakness
Integrating Strategy & Culture Values Beliefs Legends Heroes Rites Cultural Products Symbols Rituals Myths
Integrating Strategy & Culture Organizational Culture Can Inhibit Strategic Management • Miss external changes due to strongly held beliefs • Natural tendency to “hold the course” even during times of strategic change
Management Functions of Management • Planning • Organizing • Motivating • Staffing • Controlling
Management Stage When Most Important Function Planning Strategy Formulation Organizing Strategy Implementation Motivating Strategy Implementation Staffing Strategy Implementation Controlling Strategy Evaluation
Management Planning • Beginning of management process • Bridge between present & future • Improves likelihood of attaining desired results
Management Developing a mission Forecasting future events and trends Establishing objectives Choosing strategies to pursue Planning
Planning • Synergy • Can develop through planning • Exists when everyone pulls together as a team that knows what it wants to achieve
Management Organizing • Achieves coordinated effort • Defines task & authority relationships • Determines who does what • Determines who reports to whom
Management • Organizing • Breaking down tasks into jobs • Combining jobs to form departments • Delegating authority
Management Motivating • Influencing to accomplish specific objectives • Four components include: • Leadership • Group dynamics • Communication • Organizational change
Management Staffing • Personnel management • Human resource management
Recruiting Interviewing Testing Selecting Orienting Training Developing Caring for Evaluating Rewarding Disciplining Promoting Transferring Demoting Dismissing Management Staffing
Management Controlling • Establishing performance standards • Ensure actual operations conform to planned operations • Taking corrective actions
Management Controlling • Establish performance standards • Measure individual and organizational performance • Compare actual performance to planned performance standards • Take corrective action
Management Audit Checklist • Does the firm use strategic management concepts? • Are objectives/goals measurable? Well communicated? • Do managers at all levels plan effectively?
Management Audit Checklist • Do managers delegate well? • Is the organization’s structure appropriate? • Are job descriptions clear? • Are job specifications clear? • Is employee morale high?
Management Audit Checklist • Is employee absenteeism low? • Is employee turnover low? • Are the reward mechanisms effective? • Are the organization’s control mechanisms effective?
Marketing Customer Needs or Wants for Products and Services • Defining • Anticipating • Creating • Fulfilling
Marketing Marketing Functions • Customer analysis • Selling products/services • Product & service planning • Pricing • Distribution • Marketing research • Opportunity analysis
Marketing Customer surveys Consumer information Market positioning strategies Customer profiles Market segmentation strategies Customer Analysis
Marketing Advertising Sales Promotion Publicity Personal Selling Sales force management Customer relations Dealer relations Selling Products/Services
Marketing Test marketing Brand positioning Devising warranties Packaging Product features/options Product style Quality Deleting old products Providing for customer service Product/Service Planning
Marketing Consumers Governments Suppliers Distributors Competitors Pricing Major Stakeholders
Marketing Warehousing Distribution channels Retail site locations Sales territories Inventory levels Transportation Wholesaling Retailing Distribution
Marketing Gather data Record data Analyze data Marketing Research
Marketing Assessing costs Assessing benefits Assessing risks Cost/Benefit Analysis
Marketing Audit • Are markets segmented effectively? • Is the organization positioned well among competitors? • Has the firm’s market share been increasing? • Are the distribution channels reliable & cost effective? • Is the sales force effective?
Marketing Audit • Does the firm conduct market research? • Are product quality & customer service good? • Are the firm’s products and services priced appropriately? • Does the firm have effective promotion, advertising, and publicity strategies?
Marketing Audit • Are the 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?
Finance/Accounting • Investment decision (Capital budgeting) • Financing decision • Dividend decision
Basic Financial Ratios Firm’s ability to meet its short-term obligations Ratios Current ratio Quick (or acid test) ratio Liquidity Ratios
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