Chapter 4

The Internal Assessment

Strategic
Management:
Concepts & Cases
11th Edition
Fred David

Ch 4 -1
How frequently should we verify
strategies?

Ch 4 -2
Nature of an Internal Audit

Basis for Objectives & Strategies

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

Ch 4 -3
Internal Audit

Parallels process of external audit

•Information from:
•Management
•Marketing
•Finance/accounting
•Production/operations
•Research & Development
•Management Information Systems

Ch 4 -4
Resource Based View (RBV)

Approach to Competitive Advantage

Internal resources are more important

Ch 4 -5
Resource Based View (RBV)

Three All Encompassing Categories

1. Physical resources
2. Human resources
3. Organizational resources

Ch 4 -6
Resource Based View (RBV)

Empirical Indicators

 Rare
 Hard to imitate
 Not easily substitutable

Ch 4 -7
Integrating Strategy & Culture

Organizational Culture

Pattern of behavior developed by an

Ch 4 -8
Integrating Strategy & Culture

Values

Legends Beliefs

Heroes
Cultural Rites
Products

Symbols Rituals
Myths

Ch 4 -9
Ch 4 -10
Management
Stage When Most
Function Important
Planning Strategy Formulation

Organizing Strategy Implementation

Motivating Strategy Implementation

Staffing Strategy Implementation

Controlling Strategy Evaluation

Ch 4 -11
Marketing

Customer Needs/Wants for Products/Services

1. Defining
2. Anticipating
3. Creating
4. Fulfilling

Ch 4 -12
Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis

Ch 4 -13
Finance/Accounting
Finance/Accounting Functions

1. Investment decision (Capital budgeting)

Ch 4 -14
Production/Operations

Production/Operations Functions

 Process
 Capacity
 Inventory
 Workforce
 Quality

Ch 4 -15
Research & Development

Research & Development Functions

 Development of new products before

Ch 4 -16
Management Information
Systems

 Information Systems
 CIO/CTO
 Security
 User-friendly
 E-commerce

Ch 4 -17
Ch 4 -18
Ch 4 -19
Managerial Questions 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?
 Are job descriptions and specifications clear?
 Is employee morale high?
 Are employee turnover and absenteeism low?
 Are organizational reward and control mechanisms effective?

Ch 4 -20
Marketing Audit Checklist
 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?
 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?
Ch 4 -21
Accounting Audit Checklist
 Where is the firm financially 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?
 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?
Ch 4 -22
Accounting Ratios
 Liquidity ratios measure a firm’s ability to meet maturing short-term
obligations.
 Current ratio


 Quick (acid-test) ratio
Leverage ratios measure the extent to which a firm has been financed
by debt.
 How has each ratio



Debt-to-total-assets ratio
Debt-to-equity ratio changed over time?
 Long-term debt-to-equity ratio





Times-interest-earned (coverage) ratio
Activity ratios measure how effectively a firm is using its resources.
Inventory turnover
 2. How does each ratio



Fixed assets turnover
Total assets turnover compare to industry
Accounts receivable turnover
norms?


 Average collection period


Gross profit margin
Operating profit margin
 3. How does each ratio
 Net profit margin



Return on total assets
Return on stockholders’ equity
compare with key
competitors?
 Earnings per share
 Price-earnings ratio
 Growth ratios measure the firm’s ability to maintain its economic position
in the growth of the economy and industry.



Sales
Net income
 BNI
 Earnings per share
 Dividends per share

Ch 4 -23
Production/Operations Audit Checklist
 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?
 Are quality-control policies and procedures
effective?
 Are facilities, resources, and markets strategically
located?
 Does the firm have technological competencies?
Ch 4 -24
R&D Audit Checklist of Questions
 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?

Ch 4 -25
Information Systems Audit Checklist
 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?
 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?
Ch 4 -26