Internal Audit | Business Strategic Planning | Resource Based View | Functions Of Management |
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The document discusses performing an internal assessment to formulate strategies. It covers evaluating a company's management, marketing, finance, production, research and development, and information systems. Conducting an internal audit involves analyzing strengths and weaknesses in these areas. The results can be used to complete an Internal Factor Evaluation matrix to guide strategy formulation. Key factors that support competitive advantage are distinctive competencies, organizational culture, resources and capabilities.
Internal Audit | Business Strategic Planning | Resource Based View | Functions Of Management |
- 2. LEARNING OBJECTIVES 1. Describe the nature and role of an internal assessment in formulating strategies. 2. Discuss why organizational culture is so important in formulating strategies. 3. Identify the basic functions (activities) that make up management and their relevance in formulating strategies. 4. Identify the basic functions of marketing and their relevance in formulating strategies. 5. Discuss the nature and role of finance and accounting in formulating strategies. 4-2
- 3. LEARNING OBJECTIVES (CONT.)6. Discuss the nature and role of production/operations in formulating strategies. 7. Discuss the nature and role of research and development (R&D) in formulating strategies. 8. Discuss the nature and role of management information systems (MIS) in formulating strategies. 9. Explain value chain analysis and its relevance in formulating strategies. 10.Develop and use an Internal Factor Evaluation (IFE) Matrix. 4-3
- 4. A COMPREHENSIVE STRATEGIC- MANAGEMENT MODEL 4-4
- 5. 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. 4-5
- 6. THE PROCESS OF PERFORMING AN INTERNAL AUDIT • The internal audit • Requires gathering, assimilating, and prioritizing information about the firm's management, marketing, finance, accounting, production/operations, research and development (R&D), and management information systems operations • Provides more opportunity for participants to understand how their jobs, departments, and divisions fit into the whole firm 4-6
- 7. THE RESOURCE-BASED VIEW (RBV) • The Resource-Based View (RBV) Approach • contends that internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage 4-7
- 8. 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 • organizational resources 4-8
- 9. THE RESOURCE-BASED VIEW (RBV) • For a resource to be valuable, it must be either (1) rare, (2) hard to imitate, or (3) not easily substitutable. • These three characteristics of resources are called Empirical Indicators • These enable a firm to implement strategies that improve its efficiency and effectiveness and lead to a sustainable competitive advantage. 4-9
- 10. INTEGRATING STRATEGY AND CULTURE • Organizational culture significantly affects planning activities. • If strategies can capitalize on cultural strengths, such as a strong work ethic or highly ethical beliefs, then management often can swiftly and easily implement changes. 4-10
- 11. ORGANIZATIONAL CULTURE • Organizational culture is “a pattern of behavior that has been developed by an organization as it learns to cope with its problem of external adaptation and internal integration and that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think, and feel.” 4-11
- 12. CULTURAL PRODUCTS • Values • Beliefs • Rites • Rituals • Ceremonies • Myths • Stories • Legends • Sagas • Language • Metaphors • Symbols • Folktales • Heroes and heroines 4-12
- 14. MANAGEMENT The functions of management consist of five basic activities: • planning • organizing • motivating • staffing • controlling 4-14
- 15. THE BASIC FUNCTIONS OF MANAGEMENT • Planning: forecasting, establishing objectives, devising strategies, and developing policies • Organizing: organizational design, job specialization, job descriptions, span of control, coordination, job design, and job analysis • Motivating: leadership, communication, work groups, behavior modification, delegation of authority, job enrichment, job satisfaction, needs fulfillment, organizational change, employee morale, and managerial morale 4-15
- 16. THE BASIC FUNCTIONS OF MANAGEMENT • Staffing: wage and salary administration, employee benefits, interviewing, hiring, firing, training, management development, employee safety, equal employment opportunity, and union relations • Controlling: quality control, financial control, sales control, inventory control, expense control, analysis of variances, rewards, and sanctions 4-16
- 17. MANAGEMENT AUDIT CHECKLIST OF QUESTIONS 1. Does the firm use strategic-management concepts? 2. Are company objectives and goals measurable and well communicated? 3. Do managers at all hierarchical levels plan effectively? 4. Do managers delegate authority well? 5. Is the organization's structure appropriate? 4-17
- 18. MANAGEMENT AUDIT CHECKLIST OF QUESTIONS (CONT.) 6. Are job descriptions and job specifications clear? 7. Is employee morale high? 8. Are employee turnover and absenteeism low? 9. Are organizational reward and control mechanisms effective? 4-18
- 19. MARKETING Marketing the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services 4-19
- 20. FUNCTIONS OF MARKETING Customer analysis Selling products and services Product and service planning Pricing Distribution Marketing research Cost/benefit analysis 4-20
- 21. 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 4-21
- 22. SELLING PRODUCTS AND SERVICES •Selling •includes many marketing activities, such as advertising, sales promotion, publicity, personal selling, sales force management, customer relations, and dealer relations 4-22
- 23. PRODUCT AND SERVICE PLANNING • 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 4-23
- 24. PRICING • Pricing • 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. 4-24
- 25. 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 4-25
- 26. 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 4-26
- 27. COST/BENEFIT ANALYSIS •Cost/Benefit Analysis •Three steps are required: 1. compute the total costs associated with a decision 2. estimate the total benefits from the decision 3. compare the total costs with the total benefits 4-27
- 28. MARKETING AUDIT CHECKLIST OF QUESTIONS 1. Are markets segmented effectively? 2. Is the organization positioned well among competitors? 3. Has the firm’s market share been increasing? 4. Are present channels of distribution reliable and cost effective? 5. Does the firm have an effective sales organization? 6. Does the firm conduct market research? 4-28
- 29. MARKETING AUDIT CHECKLIST OF QUESTIONS (CONT.) 7. Are product quality and customer service good? 8. Are the firm's products and services priced appropriately? 9. Does the firm have an effective promotion, advertising, and publicity strategy? 10. Are marketing, planning, and budgeting effective? 11. Do the firm's marketing managers have adequate experience and training? 12. Is the firm's Internet presence excellent as compared to rivals? 4-29
- 30. FINANCE/ACCOUNTING FUNCTIONS The functions of finance/accounting comprise three decisions: 1. the investment decision 2. the financing decision 3. the dividend decision 4-30
- 31. FINANCE/ACCOUNTING FUNCTIONS • Investment Decision (Capital Budgeting) • 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 4-31
- 32. 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 4-32
- 33. FINANCE/ACCOUNTING FUNCTIONS 1. How has each ratio changed over time? 2. How does each ratio compare to industry norms? 3. How does each ratio compare with key competitors? 4-33
- 34. A SUMMARY OF KEY FINANCIAL RATIOS 4-34
- 35. A SUMMARY OF KEY FINANCIAL RATIOS 4-35
- 36. A SUMMARY OF KEY FINANCIAL RATIOS 4-36
- 37. A SUMMARY OF KEY FINANCIAL RATIOS 4-37
- 38. FINANCE/ACCOUNTING AUDIT CHECKLIST 1. Where is the firm financially strong and weak as indicated by financial ratio analyses? 2. Can the firm raise needed short-term capital? 3. Can the firm raise needed long-term capital through debt and/or equity? 4. Does the firm have sufficient working capital? 5. Are capital budgeting procedures effective? 4-38
- 39. FINANCE/ACCOUNTING AUDIT CHECKLIST (CONT.) 6. Are dividend payout policies reasonable? 7. Does the firm have good relations with its investors and stockholders? 8. Are the firm's financial managers experienced and well trained? 9. Is the firm's debt situation excellent? 4-39
- 40. PRODUCTION/OPERATIONS • Production/operations function • consists of all those activities that transform inputs into goods and services • Production/operations management deals with inputs, transformations, and outputs that vary across industries and markets. 4-40
- 41. THE BASIC FUNCTIONS (DECISIONS) WITHIN PRODUCTION/OPERATIONS 4-41
- 42. IMPLICATIONS OF VARIOUS STRATEGIES ON PRODUCTION/OPERATIONS 4-42
- 43. PRODUCTION/OPERATIONS AUDIT CHECKLIST 1. Are supplies of raw materials, parts, and subassemblies reliable and reasonable? 2. Are facilities, equipment, machinery, and offices in good condition? 3. Are inventory-control policies and procedures effective? 4. Are quality-control policies and procedures effective? 5. Are facilities, resources, and markets strategically located? 6. Does the firm have technological competencies? 4-43
- 44. RESEARCH AND DEVELOPMENT AUDIT 1. Does the firm have R&D facilities? Are they adequate? 2. If outside R&D firms are used, are they cost-effective? 3. Are the organization's R&D personnel well qualified? 4. Are R&D resources allocated effectively? 5. Are management information and computer systems adequate? 6. Is communication between R&D and other organizational units effective? 7. Are present products technologically competitive? 4-44
- 45. MANAGEMENT INFORMATION SYSTEMS • Management Information System • Receives raw material from both external and internal evaluation of an organization • Improves the performance of an enterprise by improving the quality of managerial decisions • Collects, codes, stores, synthesizes, and presents information in such a manner that it answers important operating and strategic questions 4-45
- 46. MANAGEMENT INFORMATION SYSTEMS AUDIT 1. Do all managers in the firm use the information system to make decisions? 2. Is there a chief information officer or director of information systems position in the firm? 3. Are data in the information system updated regularly? 4. Do managers from all functional areas of the firm contribute input to the information system? 5. Are there effective passwords for entry into the firm's information system? 4-46
- 47. MANAGEMENT INFORMATION SYSTEMS AUDIT (CONT.) 6. Are strategists of the firm familiar with the information systems of rival firms? 7. Is the information system user-friendly? 8. Do all users of the information system understand the competitive advantages that information can provide firms? 9. Are computer training workshops provided for users of the information system? 10.Is the firm’s information system continually being improved in content- and user-friendliness? 4-47
- 48. VALUE CHAIN ANALYSIS (VCA) • Value Chain Analysis (VCA) • refers to the process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing product(s) to marketing those products • aims to identify where low-cost advantages or disadvantages exist anywhere along the value chain from raw material to customer service activities 4-48
- 49. TRANSFORMING VALUE CHAIN ACTIVITIES INTO SUSTAINED COMPETITIVE ADVANTAGE 4-49
- 50. BENCHMARKING • Benchmarking • an analytical tool used to determine whether a firm's value chain activities are competitive compared to rivals and thus conducive to winning in the marketplace • entails measuring costs of value chain activities across an industry to determine “best practices” 4-50
- 51. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX 1. List key internal factors as identified in the internal-audit process. 2. Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to each factor. 3. Assign a 1-to-4 rating to each factor to indicate whether that factor represents a strength or weakness. 4. Multiply each factor's weight by its rating to determine a weighted score for each variable. 5. Sum the weighted scores for each variable to determine the total weighted score for the organization. 4-51
- 52. A SAMPLE INTERNAL FACTOR EVALUATION MATRIX FOR A RETAIL COMPUTER STORE 4-52
Editor's Notes
- #3: After studying this chapter, you should be able to do the following: 4-1. Describe the nature and role of an internal assessment in formulating strategies. 4-2. Discuss why organizational culture is so important in formulating strategies. 4-3. Identify the basic functions (activities) that make up management and their relevance in formulating strategies. 4-4. Identify the basic functions of marketing and their relevance in formulating strategies. 4-5. Discuss the nature and role of finance/accounting in formulating strategies. 4-6. Discuss the nature and role of production/operations in formulating strategies. 4-7. Discuss the nature and role of research and development (R&D) in formulating strategies. 4-8. Discuss the nature and role of management information systems (MIS) in formulating strategies. 4-9. Explain value chain analysis and its relevance in formulating strategies. 4-10. Develop and use an Internal Factor Evaluation (IFE) Matrix.
- #6: Strategies are designed in part to improve on a firm’s weaknesses, turning them into strengths—and maybe even into distinctive competencies that can provide the firm with competitive advantages over rival firms.
- #7: All organizations have strengths and weaknesses in the functional areas of business. No enterprise is equally strong or weak in all areas. Strategic planning is most successful when managers and employees from all functional areas work together to provide ideas and information.
- #9: 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.
- #10: The basic premise of the RBV is that the mix, type, amount, and nature of a firm’s internal resources should be considered first and foremost in devising strategies that can lead to sustainable competitive advantage.
- #11: Every business entity has a unique organizational culture that impacts strategic-planning activities.
- #12: Remarkably resistant to change, culture can represent a major strength or weakness for any firm. It can be an underlying reason for strengths or weaknesses in any of the major business functions.
- #13: These products or dimensions are levers that strategists can use to influence and direct strategy formulation, implementation, and evaluation activities.
- #14: Table 4-2 provides some example (possible) aspects of an organization’s culture. Note that you might want to ask employees and managers to rate the degree that the dimension characterizes the firm.
- #15: These activities are important to assess in strategic planning because an organization should continually capitalize on its management strengths and improve on its management weaknesses.
- #16: Planning consists of all those managerial activities related to preparing for the future. Organizing includes all those managerial activities that result in a structure of task and authority relationships. Motivating involves efforts directed toward shaping human behavior.
- #17: Staffing refers to human resource (HR) activities. Controlling refers to all those managerial activities directed toward ensuring that actual results are consistent with planned results.
- #18: This checklist of questions can help determine specific strengths and weaknesses in the functional area of business. An answer of no to any question could indicate a potential weakness. Positive or yes answers to the checklist questions suggest potential areas of strength.
- #20: Marketing can be described as the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services.
- #21: These are the seven basic functions of marketing. Each will be described on the following slides.
- #22: Customer analysis is the first function of marketing.
- #23: Selling products and services is the second function of marketing. Successful strategy implementation generally rests on the ability of an organization to sell some product or service.
- #24: Product and service planning is the third function of marketing.
- #25: Pricing is the fourth function of marketing.
- #26: Distribution is the fifth function of marketing.
- #27: Marketing research is the sixth function of marketing.
- #28: Cost/benefit analysis is the seventh function of marketing.
- #29: These questions about marketing must be examined in strategic planning.
- #31: According to James Van Horne, the functions of finance/accounting comprise three decisions: the investment decision, the financing decision, and the dividend decision.
- #32: After strategies are formulated, capital budgeting decisions are required to successfully implement strategies. Firms may raise capital by, for example, issuing stock, increasing debt, selling assets, or using a combination of these approaches.
- #33: Three financial ratios that are helpful in evaluating a firm’s dividend decisions are the earnings-per-share ratio, the dividends-per-share ratio, and the price-earnings ratio.
- #34: Financial ratios are computed from an organization’s income statement and balance sheet. Computing financial ratios is like taking a photograph—the results reflect a situation at just one point in time. Comparing ratios over time and to industry averages is more likely to result in meaningful statistics that can be used to identify and evaluate strengths and weaknesses. Financial ratio analysis should be conducted on three separate fronts.
- #35: Financial ratios such as those on the next several slides are used in determining appropriate strategies for an organization.
- #39: Some finance and accounting questions that should be examined in any strategic analysis of the firm are given here.
- #41: Production and operations activities often represent the largest part of an organization’s human and capital assets.
- #42: Roger Schroeder suggests that production and operations management comprises five functions or decision areas: process, capacity, inventory, workforce, and quality.
- #43: James Dilworth has outlined implications of several types of strategic decisions a company might make.
- #44: Questions such as these should be examined during the analysis of production and operations.
- #45: Organizations invest in R&D because they believe that such an investment will lead to a superior product or service and will give them competitive advantages.
- #46: The heart of an information system is a database containing the kinds of records and data important to managers.
- #47: Questions such as these should be asked when conducting an MIS audit.
- #49: According to Porter, the business of a firm can best be described as a value chain, in which total revenues minus total costs of all activities undertaken to develop and market a product or service yields value.
- #50: More and more companies are using VCA to gain and sustain competitive advantage by being especially efficient and effective along various parts of the value chain.
- #51: Benchmarking enables a firm to take action to improve its competitiveness by identifying (and improving on) value chain activities where rival firms have comparative advantages in cost, service, reputation, or operation.
- #52: A summary step in conducting an internal strategic-management audit is to construct an Internal Factor Evaluation (IFE) Matrix.
- #53: The table reveals that the two most important factors to be successful in the retail computer store business are “Revenues from repair/service in the store” and “Employee morale.” Note that the store is doing best on “Average customer purchase” amount and “In-store technical support.” The store is having major problems with its carpet, bathroom, paint, and checkout procedures. Note also that the matrix contains substantial quantitative data rather than vague statements.