INTERNAL
ASSESSMENT
Chapter 4
Internal Assessment
“Great spirits have always encountered violent opposition from
mediocre minds.”
- Albert Einstein
“Weak leadership can wreck the soundest strategy.”
- Sun Tzu
Nature of an Internal Audit
■ Internal strengths/weaknesses
■ External opportunities/threats
■ Clear statement of mission
Key Internal Forces
■ Distinctive Competencies:
- Firm’s strengths that cannot be easily matched or imitated by
competitors
Key Internal Forces
■ Distinctive Competencies:
- Building competitive advantage involves taking advantage of
distinctive competencies
Internal Audit Process
■ Parallels process of external audit
Information gathered from:
- Management
- Marketing
- Finance/accounting
- Production/operations
- Research & development Management information systems
Internal Audit
■ Involvement in performing an internal strategic-
management audit provides a vehicle for understanding the
nature and effect of decisions in other functional business
areas of the firm
Internal Audit
■ Managers and employees from all areas provide information
■ A team of managers then selects 10 to 15 key
organizational strengths and weaknesses to focus on
Internal Audit
■ Financial Ratio Analysis
■ Exemplifies complexity of relationships among functional
areas of the business
Research Based View (RBC)
■ Approach to Competitive Advantage
■ Internal resources are more important than external factors
Resource Based View (RBV)
Three All-Encompassing Categories
1. Physical resources
2. Human resources
3. Organizational resources
Resource Based View (RBV)
Empirical Indicators:
Rare
Hard to imitate
Not easily substitutable
Integrating Strategy and Culture
Organizational Culture
Pattern of behavior developed by an organization as it learns
to cope with its problem of external adaptation and internal
integration... Is considered valid and taught to new members
as the correct way to perceive, think, and feel
Integrating Strategy and Culture
Organizational Culture
– Resistant to change
– May represent:
■ Strength
■ Weakness
Integrating Strategy and Culture
Organizational Culture Can Inhibit Strategic Management
– Miss external changes due to strongly held beliefs
– Natural tendency to “hold the course” even during times
of strategic change
Management
Functions of Management
1. Planning
2. Organizing
3. Motivating
4. Staffing
5. Controlling
Management
Planning
– Beginning of management process
– Bridge between present & future
– Improves likelihood of attaining desired results
Planning
Synergy
– Can develop through planning
– Exists when everyone pulls together as a team that
knows what it wants to achieve
Management
Organizing
– Achieves coordinated effort
– Defines task & authority relationships
– Determines who does what
– Determines who reports to whom
Management
Organizing
– Breaking down tasks into jobs
– Combining jobs to form departments
– Delegating authority
Management
Motivating
■ Influencing to accomplish specific objectives
■ Four components include:
– Leadership
– Group dynamics
– Communication
– Organizational change
Management
Staffing
– Personnel management
– Human resource management
Management
Controlling
– Establishing performance standards
– Ensure actual operations conform to planned operations
– Taking corrective actions
Management
Controlling
1. Establish performance standards
2. Measure individual and organizational performance
3. Compare actual performance to planned performance
standards
4. Take corrective action
Management Audit Checklist
■ Does the firm use strategic management concepts?
■ Are objectives/goals measurable? Well communicated?
■ Do managers at all levels plan effectively?
Management Audit Checklist
■ Do managers delegate well?
■ Is the organization’s structure appropriate?
■ Are job descriptions clear?
■ Are job specifications clear?
■ Is employee morale high?
Management Audit Checklist
■ Is employee absenteeism low?
■ Is employee turnover low?
■ Are the reward mechanisms effective?
■ Are the organization’s control mechanisms effective?
Marketing
Customer Needs or Wants for Products and Services
1. Defining
2. Anticipating
3. Creating
4. Fulfilling
Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
Marketing Audit
1. Are markets segmented effectively?
2. Is the organization positioned well among competitors?
3. Has the firm’s market share been increasing?
4. Are the distribution channels reliable & cost effective?
5. Is the sales force effective?
Marketing Audit
6. Does the firm conduct market research?
7. Are product quality & customer service good?
8. Are the firm’s products and services priced appropriately?
9. Does the firm have effective promotion, advertising, and
publicity strategies?
Marketing Audit
10. Are the 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
1. Investment decision (Capital budgeting)
2. Financing decision
3. Dividend decision
Finance/Accounting Audit
1. Where is the firm financially strong/weak as indicated by
financial ratio analysis?
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?
Finance/Accounting Audit
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 Functions
■ Process
■ Capacity
■ Inventory
■ Workforce
■ Quality
Production/Operations Audit
•Are suppliers of materials, parts, etc. Reliable and
reasonable?
•Are facilities, equipment, machinery, and offices in good
condition?
•Are inventory-control policies and procedures effective?
Production/Operations Audit
•Are quality-control policies & procedures effective?
•Are facilities, resources, and markets. Strategically located?
•Does the firm have technological competencies?
Research and Development Functions
■ Development of new products before competitors
■ Improving product quality
■ Improving manufacturing processes to reduce costs
■ These functions can be done internally or externally
Research and Development Audit
•Are the R&D facilities adequate?
•If R&D is outsourced, is it cost-effective?
•Are the R&D personnel well qualified?
•Are R&D resources allocated effectively?
Research and Development Audit
•Are MIS and computer systems adequate?
•Is communication between R&D and other organizational
units effective?
•Are present products technologically competitive?
Management Information Systems
Purpose
Improve performance of an enterprise by improving the quality
of managerial decisions
Management Information Systems
Audit
Do all managers use the information system to make
decisions?
Is there a CIO or Director of Information Systems position in
the firm?
Are data updated regularly?
Do managers from all functional areas contribute input to the
information system?
Are there effective passwords for entry into the firm’s
information system?
Management Information Systems
Audit
■ Are strategists of the firm familiar with the information
systems of rival firms?
■ Is the information system user-friendly?
■ Do all users understand the competitive advantages that
information can provide?
■ Are computer training workshops provided for users?
■ Is the firm’s system being improved?
Value Chain Analysis
The process whereby a firm determines the costs associated
with:
Purchasing raw materials
Manufacturing products
Marketing products
And compares them to the value chain of rival firms
Value Chain Analysis
Core competencies
Distinctive competencies
Benchmarking
Internal Factor Evaluation (IFE) Matrix
1. List key internal factors
2. Assign a weight ranging from 0.0 to 1.0
3. Assign a 1 to 4 rating to each factor
4. Multiply the weight times the rating
5. Sum the weighted scores
Thankyou
