Business Management 3A
COBMA3
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Week 4
Lesson 7: The Internal Assessment (Chapter 4)
Introduction
By the end of this lesson, you should be able to identify and evaluate a firm’s
strengths and weaknesses in the functional areas of business, including
management, marketing, finance, accounting, production/operations, research and
development (R&D), and management information systems (MIS). Relationships
among these areas of business are examined. Also, strategic implications of
important functional area concepts are explained. In addition, this chapter
describes the process of performing an internal audit. The resource-based view
(RBV) of strategic management is introduced, as is value chain analysis (VCA)
and benchmarking.
Learning Outcome:
6. Understand and analyse the internal audit
Assessment Criteria:
6.1. Describe the nature and role of an internal assessment and organisational
culture in formulating strategies.
6.2. Identify and analyse the basic functions (activities) that make up management,
marketing, and financial accounting with their relevance in formulating strategies.
6.3. Discuss the nature and role of production/operations, research and
development (R&D), and management information systems (MIS) in formulating
strategies.
6.4. Explain how to develop and use an Internal Factor Evaluation (IFE) Matrix.
What will be covered
in today’s lesson?
The Internal Assessment Phase of
Strategy Formulation
Management
Week 4
Lesson 7 Marketing
Finance and Accounting
Management Information Systems
(MIS)
The Internal Factor Evaluation (IFE)
Matrix
The Internal Assessment Phase of Strategy
Formulation
• 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.
EXEMPLARY STRATEGIST SHOWCASED: Elon Musk, CEO and Cofounder of
Tesla, Inc. and Space Exploration Technologies Corporation (Space X) (p. 124)
The Internal Assessment Phase of Strategy
Formulation
Resource-Based View (RBV)
• 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. These resources can be grouped into:
‒ Tangible
‒ Intangible
The Internal Assessment Phase of Strategy
Formulation
• 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.
The Internal Assessment Phase of Strategy
Formulation
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.
ETHICS CAPSULE 4: The Sagebrush Lizard versus the Big Oil Man (p. 126)
Management
• The functions of management consist of four basic activities:
‒ Planning
‒ Organizing
‒ Motivating
‒ Controlling
Table 4-1: The Basics Functions of Management (p. 126)
Table 4-2: Six Ways Human Resource Management Can Provide a Competitive
Advantage (p. 128)
Management
• 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.
Table 4-3: The Basics Decisions Areas Within Production/Operations (p. 129)
Management
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 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.”
Table 4-4: Aspects of an Organization’s Culture (p. 130)
Management
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.
• These are the 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
Table 4-5: Companies that Lead Their Industries in Customer Satisfaction According
to the 2017 American Customer Satisfaction Index (p. 131)
Marketing
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.
Table 4-6: The Marketing Mix Component Variables (p. 132)
Marketing
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.
Marketing
Pricing
• Refers 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.
GLOBAL CAPSULE 4 – Bitcoin: The New Global Currency (p. 134)
Marketing
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 T V advertising, magazine ads, billboards, websites, and public relations,
among others.
Marketing
Channels of Distribution
• This is a term that refers to various intermediaries that take a product from a
producer to an end customer.
• These intermediaries have names such as wholesalers, retailers, brokers,
facilitators, agents, vendors, or simply distributors.
Marketing
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 and Accounting Functions
Finance and Accounting
• The functions of finance/accounting comprise three decisions:
1. The investment decision: The allocation and reallocation of capital and
resources to projects, products, assets, and divisions of an organization.
2. The financing decision: Determines the best capital structure for the firm and
includes examining various methods by which the firm can raise capital.
3. The dividend decision: determine the amount of funds that are retained in a
firm compared to the amount paid out to stockholders.
Table 4-7: A Sampling of Top Companies for Financial Strength (p. 135)
Finance and Accounting Functions
Financial Ratios
• Financial ratios are computed from the income statement and balance sheet.
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?
Figure 4-2: Financial Trend Analysis (p. 137)
Table 4-8: Excellent Website to Obtain Strategic Information (Including Financial
Ratios) on Companies and Industries (p. 138)
Table 4-9: A Summary of Key Financial Ratios (p. 139)
Finance and Accounting Functions
Finance and 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?
Management Information Systems (MIS)
• 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.
Business Analytics
• A business technique that involves using software to mine huge volumes of data
to help executives make decisions.
• Also called predictive analytics, machine learning, or data mining.
The Internal Factor Evaluation (IFE) Matrix
The Actionable-Quantitative-Comparative-Divisional (AQCD) test
• When identifying and prioritizing key internal factors in strategic planning, make
sure the factors selected meet the following four criteria to the extent possible:
1. Actionable (i.e., meaningful and helpful in ultimately deciding what actions or
strategies a firm should consider pursuing)
2. Quantitative (i.e., include percentages, ratios, dollars, and numbers to the
extent possible)
3. Comparative (i.e., reveals changes over time)
4. Divisional (relates to the firm’s products and/or regions (rather than
consolidated) so inferences can be drawn regarding what products and
regions are doing well or not)
The Internal Factor Evaluation (IFE) Matrix
Steps in Developing an IFE Matrix
Step 1: • Develop a Full and Narrow List of Key Internal Factors
Step 2: • Assign Weights to Key Internal Factors
Step 3: • Assign Ratings to Key Internal Factors
Step 4: • Obtain Weighted Scores
Step 5: • Obtain Total Weighted Score
Table 4-10: Guidelines for Developing and IFE Matrix (p. 143)
The Internal Factor Evaluation (IFE) Matrix
An Example 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.
Table 4-11: Sample Internal Factor Evaluation Matrix for a Retail Computer Store
(p. 144)
Implications for Strategists
Figure 4-3: How to Gain and Sustain Competitive Advantages (p. 145)
Implications for Students
Issues for Review and Discussion
• Students must work through questions 4-1 to 4-52 for revision.
End of Chapter Case Study
The Cohesion Case: Coca-Cola Company 2018 (p. 56-65)
Also do an additional internet search for more information by
searching the term: Company Profile: Coca-Cola
Application of Theory Activity:
Set 1: Strategic planning for Coca-Cola
• Exercise 4A, Steps 1 (p. 149)
• Exercise 4B, Steps 1-3 (p. 149)
Source: David, F. R., David, F. R. & David, M. E. 2023. Strategic
Management: A Competitive Advantage Approach: Concepts and
Cases. 17th ed. Pearson
Practice Quiz
• Please complete the Practice Quiz on myLMS:
Week 4 – Lesson 7
Practice Activity
• Please complete the Practice Activity on myLMS:
Week 4 – Lesson 7
What Happens Next?
• Lesson 8: The External Assessment
‒ Learning outcome 7: Understand and analyse the external audit
