STRATEGIC MANAGEMENT Chapter 4: The Internal Assessment

1. STRATEGIC MANAGEMENTChapter 4: The Internal Assessment DR. KHADIJAH OMAR UMT

2. Contents • Nature of an internal audit • The resource-based view (RBV) • Integrating strategy and culture • Functional areas • Management • Marketing • Finance/accounting • Production/operations • Research and development • Management information system • Value chain analysis • The Internal Factor evaluation (IFE) Matrix

3. 1. Nature of an Internal Audit • All organizations have strengths and weaknesses in the functional areas of business. No enterprise is equally strong and weak in all areas. • To keep survived and competitive, firms need to identify its strengths and weaknesses in their functional areas like management, marketing, finance, production, research and development and management information system • Firms may be differ in terms of their functional areas.

4. Key Internal Forces • A firm’s strengths that cannot be easily matched or imitated by competitors are called distinctive competencies. • Some researchers emphasize the importance of the internal audit part of the strategic management process by comparing it to the external audit.

5. The process of performing an internal audit • Representative managers and employees from throughout the firm need to be involved. • Performing an internal audit provides more opportunity for participants to understand how their jobs, departments, and divisions fit into the whole organization. • Internal audit requires gathering, assimilating, and evaluating information about the firm’s operation.

6. 2. The Resource-based View (RBV) • RBV contends that internal resources are more important for a firm to achieve and sustain competitive advantage. • categories of internal resources : physical resources, human resources, financial and organizational resources.

7. Physical resources • Plant, equipment, location, technology, raw materials • Human resources • Employees, training, knowledge, skills, abilities, intelligence • Organizational resources • Firm structure, planning, process, trade mark, copy right, data base, information system

8. For resources to be valuable, they must be: • Rare • Hard to imitate • Not easily substitutable

9. 3. Integrating Strategy and Culture • The strategic management process take place largely within an organization’s culture. Successful companies are emotionally committed to the firm’s culture. • If strategies can capitalize on cultural strengths such as strong work ethics and highly ethical beliefs, then management easily and swiftly implement changes. • Go to page 130 (Table 4-2) eg of possible aspects of organizational culture

10. Functional area 1: Management • Functions of management consists of five basic activities: • Planning • Organizing • Motivating • Staffing • Controlling

11. Planning • To determine an attempt for tasks work out the most effectively to reach desired goals/objectives • Planning enables firm to avoid trap of working extremely hard but achieving little. • Planning also allows firm to adapt to changing markets and to shape its own destiny.

12. Organizing • To achieve coordinated effort by defining task and authority relationship. • Organizing determine who does what and who reports to whom.

13. Motivating • The process of influencing people to accomplish specific objectives. • The motivating function of management includes leadership, group dynamics, communication, and organizational changes.

14. Staffing • Also called personal management or human resource management which includes recruiting, interviewing, testing, selecting, orienting, training, career development, rewarding, disciplining, etc • Strategists are becoming increasingly aware of how important human resources are to effective strategic management

15. Controlling • To ensure that actual operation operations conform to planned operations.

16. Management audit checklist • Does the firm use strategic management concepts? • Company objectives and goals measurable and well communicated? • Managers at all levels of hierarchy plan effectively? • Delegation of authority? • Organizational structure appropriate? • Employee morale high? • Rewards and control mechanisms?...etc

17. Functional area 2: Marketing • There are 7 basic functions of marketing: • Customer analysis • Selling products/services • Product and service planning • Pricing • Distribution • Marketing research • Opportunity analysis

18. Customer analysis • The examination and evaluation of consumer needs, desires and wants • The information generated by the customer analysis can be essential in developing an effective mission statement.

19. Selling product/services • Successful strategy implementation generally rests upon the ability of organization to sell some products of services. Selling includes marketing activities such as advertisement, sales promotion, publicity, personal selling, customer relation, etc

20. Product and services planning • Includes activities like product and brand positioning, warranties, packaging , product features, product styles, quality, customer services • These test market allow organization to test alternative marketing plans and to forecast future sales of new products

21. Pricing • Five major stakeholders that can affect pricing: • Consumers, government, suppliers, distributors and competitors • Strategist should view price from both a short run and long run perspective because competitors can copy price changes with relative ease.

22. Distribution • Distribution includes warehousing, distribution channels, distribution coverage, retail site location, sales territories, inventory levels and location, transportation , wholesaling and retailing. • Successful organizations identify and evaluate alternative ways to reach their ultimate market.

23. Marketing research • Involves gathering, recording and analyzing of data about problems relating to the marketing of goods and services.

24. Opportunity analysis • Involves assessing the costs, benefits and risks associated with marketing decisions.

25. Functional area 3: Finance/Accounting • This function often considered the single best measure of a firm’s competitive position and overall attractiveness to investors. • A firm’s liquidity, leverage, working capital, profitability, asset utilization, cash flow and equity can eliminate some strategies as being feasible alternatives.

26. The functions of finance/accounting: investment decisions, financing decision and dividend decision • Investment decision (capital budgeting) – allocation and reallocation of capital and resources • Financing decision – determine the best capital structure for the firm • Dividend decision –percentage of earnings paid to stockholders, the stability of dividends paid over time and the repurchase or issuance of stock.

27. Key financial ratios • Liquidity ratio • Leverage ratio • Activity ratio • Profitability ratio • Growth ratio

28. Functional area 4: Production/Operation • Consists of all activities that transform inputs into goods and services. • Five functions or decision areas: process, capacity, inventory , workforce, and quality • Production capabilities and policies can also greatly affect strategies.

29. Functional area 5: Research and Development • Firms pursuing product development strategy need to have strong R & D orientation. • R&D can take 2 basic forms: • Internal R&D : organization operates it own R&D department • External/Contract R&D : firm hires independent researcher or independent agencies to develop specific product

30. Functional area 6: Management Information System • Information represents a major source of competitive management advantage or disadvantage. • The purpose of MIS is to improve the performance of organization by improving the quality of managerial decisions • Data are integrated in ways needed to support managerial decision making. Data becomes information only when they are evaluated, filtered, condensed, analyzed and organized for a specific purpose, problem, individual or time.

31. Value Chain Analysis (VCA) • VCA refers to the process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing products and marketing those products. • Firms should determine where cost advantages and disadvantages in their value chain occur relative to the value chain of rival firms.

32. Five steps in performing IFE • List the key factors (strengths and weaknesses) • Assign weight for each from 0 to 1 ( weight indicates the relative importance and the total must equal to 1) • Assign rating from 1-4 (to indicate how effective the firm responds to the factor; 1-the response is poor; 4-the response is superior) • Multiply the weight and rating to get weighted score • Sum the weighted score (the maximum score is 4) • See page 153-154

33. REFER TO PAGE 153-154

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35. The End TQ