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© 2001 Prentice HallCh. 4-1
Strategic ManagementStrategic ManagementConcepts & CasesConcepts & Cases
8th editionFred R. David
Chapter 4:The Internal Assessment
PowerPoint Slides By:
Anthony F. Chelte
Western New England College
© 2001 Prentice HallCh. 4-2
Comprehensive Strategic Management Comprehensive Strategic Management ModelModel
Vision &
Mission Statements
Chapter 2
ExternalAudit
Chapter 3
InternalAudit
Chapter 4
Long-TermObjectives
Chapter 5
Generate,Evaluate,
SelectStrategies
Chapter 6
ImplementStrategies:
Mgmt Issues
Chapter 7
ImplementStrategies:Marketing,Fin/Acct,R&D, CISChapter 8
Measure &Evaluate
Performance
Chapter 9
© 2001 Prentice HallCh. 4-3
Internal Assessment (Cont’d)Internal Assessment (Cont’d)
Internal Strategic Management AuditInternal Strategic Management Audit
• Functional areas of the businessStrengthsWeaknesses
© 2001 Prentice HallCh. 4-4
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Internal AuditInternal AuditGather & assimilate information from:
• Management• Marketing• Finance/accounting• Production/operations• Research & development• Management information systems
© 2001 Prentice HallCh. 4-5
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
ManagementManagement
• Planning• Organizing• Motivating• Staffing• Controlling
© 2001 Prentice HallCh. 4-6
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Planning
Forecasting
Establishing objectives
Devising strategies
Developing policies
Setting goals
Management
© 2001 Prentice HallCh. 4-7
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Organizing
Organizational design
Job specializationJob descriptions
Job specificationsSpan of control
Unity of commandCoordinationJob design
Job analysis
Management
© 2001 Prentice HallCh. 4-8
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Motivating
LeadershipCommunication
Work groupsJob enrichmentJob satisfaction
Needs fulfillmentOrganizational
changeMorale
Management
© 2001 Prentice HallCh. 4-9
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Staffing
Wage & salary adminEmployee benefits
InterviewingHiringFiring
TrainingManagement development
SafetyAffirmative action
EEOLabor relations
Career developmentDiscipline procedures
Management
© 2001 Prentice HallCh. 4-10
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Controlling
Quality controlFinancial control
Sales controlInventory controlExpense control
Analysis of variancesRewardsSanctions
Management
© 2001 Prentice HallCh. 4-11
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Management Audit ChecklistManagement 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?
© 2001 Prentice HallCh. 4-12
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Management Audit Checklist Management Audit Checklist (Cont’d)(Cont’d)
• Are job descriptions and job specifications clear?
• Is employee morale high?• Are employee turnover and absenteeism
low?• Are organizational reward and control
mechanisms effective?
© 2001 Prentice HallCh. 4-13
Internal Assessment Internal Assessment (Cont’d)(Cont’d)MarketingMarketing
• Customer analysis• Selling products/services• Product and service planning• Pricing• Distribution• Marketing research• Opportunity analysis
© 2001 Prentice HallCh. 4-14
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Customer analysis
Customer surveys
Consumer information
Market positioning strategies
Customer profiles
Market segmentation
strategies
Marketing
© 2001 Prentice HallCh. 4-15
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Selling Products/servic
es
Advertising
Sales
Promotion
Publicity
Sales force management
Customer relations
Dealer relations
Marketing
© 2001 Prentice HallCh. 4-16
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Product/service planning
Test marketing
Brand positioning
Devising warrantees
Packaging
Product features/options
Product style
Quality
Marketing
© 2001 Prentice HallCh. 4-17
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Pricing
Forward integration
Discounts
Credit terms
Condition of sale
Markups
Costs
Unit pricing
Marketing
© 2001 Prentice HallCh. 4-18
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Distribution
Warehousing
Channels
Coverage
Retail site locations
Sales territories
Inventory levels
Transportation
Marketing
© 2001 Prentice HallCh. 4-19
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Marketing research
Data collection
Data input
Data analysis
Support all business functions
Marketing
© 2001 Prentice HallCh. 4-20
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Opportunity analysis
Assessing costs
Assessing benefits
Assessing risks
Cost/benefit/risk analysis
Marketing
© 2001 Prentice HallCh. 4-21
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Marketing Audit ChecklistMarketing 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 force?
© 2001 Prentice HallCh. 4-22
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Marketing Audit Checklist Marketing Audit Checklist (Cont’d)(Cont’d)
• 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?
© 2001 Prentice HallCh. 4-23
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Marketing Audit Checklist Marketing Audit Checklist (Cont’d)(Cont’d)
• Are marketing planning and budgeting effective?
• Do the firm’s marketing mangers have adequate experience and training?
© 2001 Prentice HallCh. 4-24
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Finance/AccountingFinance/Accounting
• Investment decision (Capital budgeting)
• Financing decision• Dividend decision
© 2001 Prentice HallCh. 4-25
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Liquidity ratios
• Firm’s ability to meet its short-term obligations
Ratios
Current ratio
Quick (or acid-test)
ratio
Financial ratios
© 2001 Prentice HallCh. 4-26
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Leverage ratios
• Extent of debt financing
Ratios
Debt-to-total-assets
Debt-to-equity
Long-term debt-to-equity
Times-interest earned
Financial ratios
© 2001 Prentice HallCh. 4-27
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Activity ratios
• Effective use of firm’s resources
RatiosInventory-turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Financial ratios
© 2001 Prentice HallCh. 4-28
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Profitability ratios
• Effectiveness shown by returns on sales and investment
RatiosGross profit margin
Operating profit margin
Net profit margin
Return on total assets (ROA)
Financial ratios
© 2001 Prentice HallCh. 4-29
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Profitability ratios
(continued)
• Effectiveness shown by returns on sales and investment
RatiosReturn on stockholders’
equity (ROE)
Earnings per share
Price-earnings ratio
Financial ratios
© 2001 Prentice HallCh. 4-30
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Growth ratios
• Firm’s ability to maintain economic position
RatiosSales
Net income
Earnings per share
Dividends per share
Financial ratios
© 2001 Prentice HallCh. 4-31
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Finance/Accounting Audit Checklist Finance/Accounting Audit Checklist (Cont’d)(Cont’d)
• 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?
© 2001 Prentice HallCh. 4-32
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Finance/Accounting Audit ChecklistFinance/Accounting Audit Checklist
• 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?
© 2001 Prentice HallCh. 4-33
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Production/OperationsProduction/Operations
• Process• Capacity• Inventory• Workforce• Quality
© 2001 Prentice HallCh. 4-34
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Process
Design of facility
Choice of technology
Facility layout
Process flow analysis
Facility location
Line balancing
Process control
Production/Operations
© 2001 Prentice HallCh. 4-35
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Capacity
Forecasting
Facilities planning
Aggregate planning
Scheduling
Capacity planning
Queuing analysis
Production/Operations
© 2001 Prentice HallCh. 4-36
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Inventory
Raw material
Work in process
Finished goods
Materials handling
Production/Operations
© 2001 Prentice HallCh. 4-37
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Workforce
Job design
Work measurement
Job enrichment
Work standards
Motivation techniques
Production/Operations
© 2001 Prentice HallCh. 4-38
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Quality
Quality control
Sampling
Testing
Quality assurance
Cost control
Production/Operations
© 2001 Prentice HallCh. 4-39
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Production/Operations Audit ChecklistProduction/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?
© 2001 Prentice HallCh. 4-40
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Production/Operations Audit Checklist Production/Operations Audit Checklist (Cont’d)(Cont’d)
• Are quality-control policies and procedures effective?
• Are facilities, resources, and markets strategically located?
• Does the firm have technological competencies?
© 2001 Prentice HallCh. 4-41
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Research & DevelopmentResearch & Development
• Development of new products before competition
• Improving product quality• Improving manufacturing
processes to reduce costs
© 2001 Prentice HallCh. 4-42
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
R&D budgets
Financing as many projects as
possible
Use percentage-of-sales method
Budgeting relative to competitors
Deciding how many successful new products are
needed
Research & Development
© 2001 Prentice HallCh. 4-43
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Research & Development Audit Research & Development Audit ChecklistChecklist
• 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?
© 2001 Prentice HallCh. 4-44
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Research & Development Audit Research & Development Audit Checklist Checklist (Cont’d)(Cont’d)
• Are management information and computer systems adequate?
• Is communication between R&D and other organizational units effective?
• Are present products technologically competitive?
© 2001 Prentice HallCh. 4-45
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Computer Information SystemsComputer Information Systems
• Information Systems• CIO/CTO• Security• User-friendly• E-commerce
© 2001 Prentice HallCh. 4-46
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Computer Information SystemsComputer Information Systems Audit ChecklistAudit 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?
© 2001 Prentice HallCh. 4-47
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Computer Information SystemsComputer Information Systems Audit Checklist Audit Checklist (Cont’d)(Cont’d)
• 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?
© 2001 Prentice HallCh. 4-48
Internal Assessment Internal Assessment (Cont’d)(Cont’d)
Computer Information SystemsComputer Information Systems Audit Checklist Audit Checklist (Cont’d)(Cont’d)
• 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?
HOW TO INTERPRET RESPONSES
• All questions with answer of “YES” will be considered strengths that can be intensified or maintained
• All questions with answer of “NO” will be considered weaknesses that can be addressed and improved– Weaknesses are usually the sources of
problem statements for applied research
© 2001 Prentice HallCh. 4-49
© 2001 Prentice HallCh. 4-50
Internal Analysis (IFE)Internal Analysis (IFE)Five-Step Process:Five-Step Process:
• List key internal factors (10-20)Strengths & weaknesses
• Assign weight to each (0 to 1.0) with 0=not important to 1.0=all important. Consultation with the owner/decision maker is required.
• Sum of all weights = 1.0
© 2001 Prentice HallCh. 4-51
Internal Analysis (IFE) Internal Analysis (IFE) (Cont’d)(Cont’d)
Five-Step Process: Five-Step Process: (Cont’d)(Cont’d)
• Assign 1-4 rating to each factorFirm’s current strategies response to
the factor1=major weakness; 2=minor weakness 3=minor strength; 4=major strength
• Multiply each factor’s weight by its ratingProduces a weighted score
© 2001 Prentice HallCh. 4-52
Internal Analysis (IFE) Internal Analysis (IFE) (Cont’d)(Cont’d)
Five-Step Process: Five-Step Process: (Cont’d)(Cont’d)
• Sum the weighted scores for eachDetermines the total weighted score
for the organization
Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5
© 2001 Prentice HallCh. 4-53
.153.05 Financial ratios
.153.05 Strong reputation in the gaming industry
.204.05 Long-range planning
.153.05 Highly motivated staff
.153.05 Buffets at most facilities
.153.05 Strong management team
.604.15 Owns sizeable real estate property
.153.05 Increasing free cash flows
.404.10 Room occupancy rates over 95%
.204.05 One of the largest casinos in the country
Weighted
scoreRatingWeightSolaire Resort & Casino
Manila Internal Strengths
© 2001 Prentice HallCh. 4-54
2.751.0TOTAL (including Strengths)
.101.10Recent loss of joint ventures
.101.10No foreign affiliation
.102.05Only known among high rollers
.102.05Little diversification
.051.05Only one finished property
Weighted
scoreRatingWeight
Solaire Resort & Casino ManilaInternal Weaknesses
© 2001 Prentice HallCh. 4-55
Internal Analysis (IFE) Internal Analysis (IFE) (Cont’d)(Cont’d)
Solaire Resort & Casino Manila (in the previous example), has a total weighted score of 2.75 indicating that the firm is above average in its overall internal strength