NORTHERN MINDANAO COLLEGES

City of Cabadbaran
COLLEGE OF BUSINESS ADMINISTRATION

SUBJECT: (CBM 2) STRATEGIC MANAGEMENT

MODULE 5. THE INTERNAL ASSESSMENT

Title : The Nature of Internal Assessment

Overview : This chapter focuses on identifying and evaluating a firm’s strengths and weaknesses in the
functional areas of business, including management, marketing, finance/accounting, production/operations,
research and development, and management information systems. Relationships among these areas of
business are examined. Strategic implications of important functional area concepts are examined. The
process of performing an internal audit is described. The Resource-Based View (RBV) of strategic
management is introduced as is the Value Chain Analysis (VCA) concept.

Objectives: All organizations have strengths and weaknesses in the functional areas of business. No
enterprise is equally strong or weak in all areas. At the end of the lesson, the learners shall have:

1. Describe how to perform an internal strategic-management audit.

2. Discuss key interrelationships among the functional areas of business.
3. Identify the basic functions or activities that make up management, marketing, finance/accounting,
production/ operations, research and development, and management information systems.
4. Discuss the nature and role of management information systems in strategic management.

Discussion:
The Nature of an Internal Audit
Internal strengths/weaknesses, coupled with external opportunities/threats and a clear statement of mission,
provide the basis for establishing objectives and strategies. Objectives and strategies are established with the
intention of capitalizing upon internal strengths and overcoming weaknesses.
Key Internal Forces
It is not possible in a strategic-management text to review in depth all the material presented in
courses such as marketing, finance, accounting, management, management information systems, and
production/operations; there are many subareas within these functions, such as customer service, warranties,
advertising, packaging, and pricing under marketing.
For different types of organizations, such as hospitals, universities, and government agencies, the
functional business areas, of course, differ. In a hospital, for example, functional areas may include
cardiology, hematology, nursing, maintenance, physician support, and receivables. Functional areas of a
university can include athletic programs, placement services, housing, fund-raising, academic research,
counseling, and intramural programs. Within large organizations, each division has certain strengths and
weaknesses.
A firm’s strengths that cannot be easily matched or imitated by competitors are called distinctive
competencies. Building competitive advantages involves taking advantage of distinctive competencies. For
example, 3M exploits its distinctive competence in research and development by producing a wide range of
innovative products. Strategies are designed in part to improve on a firm’s weaknesses, turning them into
strengths—and maybe even into distinctive competencies.
Integrating Strategy and Culture
Relationships among a firm’s functional business activities perhaps can be exemplified best by focusing on
organizational culture, an internal phenomenon that permeates all departments and divisions of an
organization. Organizational culture can be defined as “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.
Organizational culture captures the subtle, elusive, and largely unconscious forces that shape a workplace.
Remarkably resistant to change, culture can represent a major strength or weakness for the firm. It can be an
underlying reason for strengths or weaknesses in any of the major business functions.

Organizational culture significantly affects business decisions and thus must be evaluated during an
internal strategic-management audit. 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. However, if
the firm’s culture is not supportive, strategic changes may be ineffective or even counterproductive. A firm’s
culture can become antagonistic to new strategies, with the result being confusion and disorientation.

Culture provides an explanation for the insuperable difficulties a firm -encounters when it attempts to
shift its strategic direction. Not only has the “right” culture become the essence and foundation of corporate
excellence, it is also claimed that success or failure of reforms hinges on management’s sagacity and ability
to change the firm’s driving culture in time and in time with required changes in strategies.
Management
The functions of management consist of five basic activities: planning, organizing, motivating, staffing, and
controlling.
Planning
The only thing certain about the future of any organization is change, and planning is the essential
bridge between the present and the future that increases the likelihood of achieving desired results. Planning
is the process by which one determines whether to attempt a task, works out the most effective way of
reaching desired objectives, and prepares to overcome unexpected difficulties with adequate resources.
Planning is the start of the process by which an individual or business may turn empty dreams into
achievements. Planning enables one to avoid the trap of working extremely hard but achieving little.
 Planning is an up-front investment in success.
 Planning helps a firm achieve maximum effect from a given effort. Planning enables a firm to take into
account relevant factors and focus on the critical ones.
 Planning helps ensure that the firm can be prepared for all reasonable eventualities and for all
changes that will be needed.
 Planning enables a firm to gather the resources needed and carry out tasks in the most efficient way
possible
 Planning enables a firm to conserve its own resources, avoid wasting ecological resources, make a
fair profit, and be seen as an effective, useful firm.
 Planning enables a firm to identify precisely what is to be achieved and to detail precisely the who,
what, when, where, why, and how needed to achieve desired objectives.
 Planning enables a firm to assess whether the effort, costs, and implications associated with achieving
desired objectives are warranted.
 Planning is the cornerstone of effective strategy formulation. But even though it is considered the
foundation of management, it is commonly the task that managers neglect most.
 Planning is essential for successful strategy implementation and strategy evaluation, largely because
organizing, motivating, staffing, and controlling activities depend upon good planning.
Organizing
The purpose of organizing is to achieve coordinated effort by defining task and authority relationships.
Organizing means determining who does what and who reports to whom. There are countless examples in
history of well-organized enterprises successfully competing against—and in some cases defeating—much
stronger but less-organized firms. A well-organized firm generally has motivated managers and employees
who are committed to seeing the organization succeed. Resources are allocated more effectively and used
more efficiently in a well-organized firm than in a disorganized firm.
Motivating
Motivating can be defined as the process of influencing people to accomplish specific objectives.12
Motivation explains why some people work hard and others do not. Objectives, strategies, and policies have
little chance of succeeding if employees and managers are not motivated to implement strategies once they
are formulated. The motivating function of management includes at least four major components: leadership,
group dynamics, communication, and organizational change.

When managers and employees of a firm strive to achieve high levels of productivity, this indicates
that the firm’s strategists are good leaders. Good leaders establish rapport with subordinates, empathize with
their needs and concerns, set a good example, and are trustworthy and fair. Leadership includes developing a
vision of the firm’s future and inspiring people to work hard to achieve that vision. Kirkpatrick and Locke
reported that certain traits also characterize effective leaders: knowledge of the business, cognitive ability,
self-confidence, honesty, integrity, and drive.
Leadership is not a magnetic personality. That can just as well be demagoguery. It is not
“making friends and influencing people.” That is flattery. Leadership is the lifting of a person’s vision
to higher sights, the raising of a person’s performance to a higher standard, the building of a person’s
personality beyond its normal limitations.
Staffing
The management function of staffing, also called personnel management or human resource
management, includes activities such as recruiting, interviewing, testing, selecting, orienting, training,
developing, caring for, evaluating, rewarding, disciplining, promoting, transferring, demoting, and dismissing
employees, as well as managing union relations. Staffing activities play a major role in strategy-
implementation efforts, and for this reason, human resource managers are becoming more actively involved
in the strategic management process. It is important to identify strengths and weaknesses in the staffing area.
Controlling
The controlling function of management includes all of those activities undertaken to ensure that
actual operations conform to planned operations. All managers in an organization have controlling
responsibilities, such as conducting performance evaluations and taking necessary action to minimize
inefficiencies. The controlling function of management is particularly important for effective strategy
evaluation. Controlling consists of four basic steps:
1. Establishing performance standards
2. Measuring individual and organizational performance
3. Comparing actual performance to planned performance standards
4. Taking corrective actions
Measuring individual performance is often conducted ineffectively or not at all in organizations. Some reasons
for this shortcoming are that evaluations can create confrontations that most managers prefer to avoid, can
take more time than most managers are willing to give, and can require skills that many managers lack. No
single approach to measuring individual performance is without limitations.

Marketing

Marketing can be described as the process of defining, anticipating, creating, and fulfilling customers’
needs and wants for products and services. There are seven basic functions of marketing: (1) customer
analysis, (2) selling products/services, (3) product and service planning, (4) pricing, (5) distribution, (6)
marketing research, and (7) opportunity analysis.16 Understanding these functions helps strategists identify
and evaluate marketing strengths and weaknesses.

Production/Operations
The production/operations function of a business 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. A manufacturing operation transforms or converts inputs such as raw
materials, labor, capital, machines, and facilities into finished goods and services.

References:

Fred R. David. Strategic Management. Concepts and Cases 13th Edition

Francis Marion University. Florence, South Carolina. Prentice Hall

Research and Development
The fifth major area of internal operations that should be examined for specific strengths and weaknesses is
research and development (R&D). Many firms today conduct no R&D, and yet many other companies depend
on successful R&D activities for survival. Firms pursuing a product development strategy especially need to
have a strong R&D orientation.
Effective management of the R&D function requires a strategic and operational partnership between R&D and
the other vital business functions. A spirit of partnership and mutual trust between general and R&D
managers is evident in the best-managed firms today. Managers in these firms jointly explore; assess; and
decide the what, when, where, why, and how much of R&D. Priorities, costs, benefits, risks, and rewards
associated with R&D activities are discussed openly and shared. The overall mission of R&D thus has
become broad-based, including supporting existing businesses, helping launch new businesses, developing
new products, improving product quality, improving manufacturing efficiency, and deepening or broadening
the company’s technological capabilities.
Management Information Systems
Information ties all business functions together and provides the basis for all managerial decisions. It is the
cornerstone of all organizations. Information represents a major source of competitive management
advantage or disadvantage. Assessing a firm’s internal strengths and weaknesses in information systems is a
critical dimension of performing an internal audit.
A management information system’s purpose is to improve the performance of an enterprise by improving the
quality of managerial decisions. An effective information system thus collects, codes, stores, synthesizes, and
presents information in such a manner that it answers important operating and strategic questions. The heart
of an information system is a database containing the kinds of records and data important to managers.
A management information system receives raw material from both the external and internal evaluation of an
organization. It gathers data about marketing, finance, production, and personnel matters internally, and
social, cultural, demographic, environmental, economic, political, governmental, legal, technological, and
competitive factors externally. Data are integrated in ways needed to support managerial decision making.
Value Chain Analysis (VCA)
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. All firms
in a given industry have a similar value chain, which includes activities such as obtaining raw materials,
designing products, building manufacturing facilities, developing cooperative agreements, and providing
customer service. Firms should strive to understand not only their own value chain operations but also their
competitors’, suppliers’, and distributors’ value chains.
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. VCA aims to identify where low-cost advantages or disadvantages exist anywhere along the value
chain from raw material to customer service activities. VCA can enable a firm to better identify its own
strengths and weaknesses, especially as compared to competitors’ value chain analyses and their own data
examined over time.
 NORTHERN MINDANAO COLLEGES
City of Cabadbaran
COLLEGE OF BUSINESS ADMINISTRATION

Activity 1: REFLECTION. Briefly expressed your opinion 20 points.

Leadership is not a magnetic personality. That can just as well be demagoguery. It is

not “making friends and influencing people.” That is flattery. Leadership is the lifting of a person’s vision to

higher sights, the raising of a person’s performance to a higher standard, the building of a person’s

personality beyond its normal limitations.

Prepared by:

ANABEL R. MATA, MM
Instructress, CBA

Noted by:

ALFIE D. ROSARIO, DBA-CAR

Dean, CBA

STAY SAFE, GOB BLESS!!!