CHAPTER 4: THE INTERNAL ASSESMENT

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.

The Process of Gaining Advantage in A Firm

Weakness- Strengths- Distinctive Competencies- Competitive Advantage

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

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

 Proponents of the RBV contend that organizational performance will

primarily be determined by internal resources that can be grouped into
three all-encompassing categories:

o physical resources

o human resources
 o organizational resources

 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.

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.

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.”

EXAMPLE OF CULTURAL PRODUCTS

 Values

 Beliefs

 Rites

 Rituals

 Ceremonies

 Myths
  Stories

 Legends

 Sagas

 Language

 Metaphors

 Symbols

 Folktales

 Heroes and heroines

THE MANAGEMENT

The functions of management consist of five basic activities:

◦ planning
◦ organizing
◦ motivating
◦ staffing
◦ controlling

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

 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

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?

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?

MARKETING

the process of defining, anticipating, creating, and fulfilling customers’ needs

and wants for products and services

FUNCTIONS OF MARKETING

 CUSTOMER ANALYSIS

 SELLING PRODUCTS AND SERVICES

  PRODUCT AND SERVICE PLANNING

 PRICING

 DISTRIBUTION

 MARKETING RESEARCH

 COST/BENEFIT ANALYSIS

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

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

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

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.

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

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

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

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?

 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?

FINANCE/ACCOUNTING FUNCTIONS

The functions of finance/accounting comprise three decisions:

1. the investment decision

2. the financing decision
3. the dividend decision

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

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

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?

A SUMMARY OF KEY FINANCIAL RATIOS

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?

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?

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.
 THE BASIC FUNCTIONS (DECISIONS) WITHIN
PRODUCTION/OPERATIONS

IMPLICATIONS OF VARIOUS STRATEGIES ON

PRODUCTION/OPEARTIONS

PRODUCTION/OPERATIONS AUDIT CHECLIST

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?

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?

MANAGEMENT INFORMATION SYSTEMS

Management Information System

o Receives raw material from both external and internal evaluation of an

organization

o Improves the performance of an enterprise by improving the quality of

managerial decisions

o Collects, codes, stores, synthesizes, and presents information in such a

manner that it answers important operating and strategic questions

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?

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?

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

TRANSFORMING VALUE CHAIN ACTIVITIES INTO SUSTAINED

COMPETITIVE ADVANTAGE
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”

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.