Chapter 3

Internal Assessment
Strategic Management
Learning Objectives
• Describe the nature and role of an internal assessment
in formulating strategies.
• Discuss the nature and role of management in
formulating strategies.
• Discuss the nature and role of marketing in formulating
strategies.
• Discuss the nature and role of finance and accounting in
formulating strategies.
• Discuss management information systems (MIS) in terms
of formulating strategies.
• Explain how to develop and use an Internal Factor
Evaluation (IFE) Matrix
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 and 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
The Resource-Based View (RBV)

• Proponents of the RBV contend that

organizational performance will primarily be
determined by internal resources. These
resources can be grouped into
• Tangible
• Intangible
 The Resource-Based View (RBV)
For a resource to be valuable, it must be either:
i. rare.
ii. hard to imitate.
iii. 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.
 Management
The functions of management consist of five basic
activities:

i. Planning

ii. Organizing

iii. Motivating

iv. Staffing

v. 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
 The Basic Functions of Management
• Staffing: activities are centered on personnel or human resource
management. Included are wage and salary administration,
employee benefits, interviewing, hiring, firing, training,
management development, employee safety, equal employment
opportunity, union relations, career development, personnel
research, discipline policies, grievance procedures, and public
relations.
• Controlling: quality control, financial control, sales control, inventory
control, expense control, analysis of variances, rewards, and
sanctions
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.”
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.
Management Audit Checklist of Questions

• 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 job specifications clear?
• is employee morale high?
• Are employee turnover and absenteeism low?
• Are organizational reward and control mechanisms
effective?
Marketing

Marketing “ the process of defining, anticipating, creating, and

fulfilling customers’ needs and wants”

Five Basic Activities in Marketing

1. Marketing research and target market analysis

2. Product planning

3. Pricing products

4. Promoting products

5. Placing or distributing products

Marketing Research and Target Market
Analysis
• 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
• Target Market Analysis “ The examination and
evaluation of consumer needs and wants”
Product Planning
• Product 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
• Pricing to deciding the amount an individual
must exchange to receive a firm’s product
offering.
• Pricing strategies are often based on costs,
demand, the competition, or on customers’
needs.
Promotion
• Promotion Includes many marketing activities,
such as advertising, sales promotion, public
relations, personal selling, and direct marketing.
• Common promotional tools designed to inform
consumers about products include TV
advertising, magazine ads, billboards, websites,
and public relations, among others.
Distribution
• Channels of Distribution refers to various
intermediaries that take a product from a producer
to an end customer.
• These intermediaries have names such as
wholesalers, retailers, facilitators, agents, vendors, or
simply distributors.
 Marketing Audit Checklist of Questions

1. Are markets segmented effectively?

2. Is the organization positioned well among competitors?
3. Are present channels of distribution reliable and cost
effective?
4. Is the firm conducting and using market research effectively?
5. Are product quality and customer service good?
6. Are the firm's products and services priced appropriately?
7. Does the firm have an effective promotional strategy?
8. Is the firm's Internet presence excellent as compared to
rivals?
Finance/Accounting Functions

The functions of finance/accounting comprise

three decisions:
i. The investment decision
ii. The financing decision
iii. The dividend decision
Finance/Accounting Functions

• 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
Finance/Accounting Functions

• 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 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 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 excellent 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 and 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.
Production and operations
Research and Development

R&D in organizations can take two basic forms:

i. internal R&D, in which an organization
operates its own R&D department
ii. contract R&D, in which a firm hires
independent researchers or independent
agencies to develop specific products.
Research and Development

• Many companies use both approaches to

develop new products. A widely used approach
for obtain ing outside R&D assistance is to
pursue a joint venture with another firm.
• R&D strengths (capabilities) and weaknesses
(limitations) play a major role in strategy
formulation and strategy implementation
Management Information Systems
• Receives raw material from both external and
internal evaluation of an organization
• Improves the performance of an enterprise by
improving the quality of managerial decisions
• Collects, codes, stores, synthesizes, and presents
information in such a manner that it answers
important operating and strategic questions
 Management Information Systems

Strategic Phase MIS Contribution

Analyzes market trends, competitors,
Environmental Scanning
regulations
Provides data models, forecasting, and
Strategy Formulation
SWOT tools
Supports communication, workflow,
Strategy Implementation
and resource allocation
Offers dashboards, KPIs, and variance
Strategy Evaluation
analysis
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.