David12e 04

Chapter Outline
The Nature of an Internal Audit
The Resource-Based View (RBV)
Integrating Strategy & Culture
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall
Ch 4-1
Chapter Outline (contd)

Management
Marketing
Opportunity Analysis
Ch 4-2

Finance/Accounting
Production/Operations
Research & Development
Ch 4-3
Management Information Systems
The Internal Factor Evaluation (IFE) Matrix
Ch 4-4
Internal Assessment
Great
spirits have always encountered violent opposition from mediocre minds. Albert Einstein
Weak leadership can wreck the soundest
strategy. Sun Tzu
Ch 4-5
Nature of an Internal Audit
Functional Areas of Business Strengths

Weaknesses
Ch 4-6
Ch 4-7
Nature of an Internal Audit

Basis for Objectives & Strategies
Internal strengths/weaknesses External opportunities/threats Clear statement of mission
Ch 4-8
Key Internal Forces

Functional Business Areas:
Vary by organization
Divisions have differing strengths & weaknesses
Ch 4-9
Key Internal Forces

Distinctive Competencies:
Firms strengths that cannot be easily matched or imitated by competitors
Ch 4-10
Key Internal Forces

Building competitive advantage involves taking advantage of distinctive competencies
Ch 4-11
Key Internal Forces

Strategies designed to improve on a firms weaknesses and turn to strengths
Ch 4-12
Internal Audit
Parallels process of external audit
Information from:
Management Marketing Finance/accounting Production/operations Research & development Management information systems
Ch 4-13
Internal Audit
Involvement in performing an internal strategic-management audit provides vehicle for understanding nature and effect of decisions in other functional business areas of the firm
Ch 4-14
Internal Audit
Key to Organizational Success Coordination & understanding among managers from all functional areas
Ch 4-15
Internal Audit
Functional Relationships Number and complexity increases relative to organization size
Ch 4-16
Internal Audit
Financial Ratio Analysis Exemplifies complexity of relationships among functional areas of the business
Ch 4-17
Resource Based View (RBV)

Approach to Competitive Advantage
Internal resources are more important than external factors
Ch 4-18

Three All-Encompassing Categories
1. Physical resources
2. Human resources
3. Organizational resources
Ch 4-19

Empirical Indicators
Rare
Hard to imitate
Not easily substitutable
Ch 4-20

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
Ch 4-21

Resistant to change
May represent:
Strength Weakness
Ch 4-22

Values Legends Beliefs
Heroes
Cultural Products
Rites
Symbols
Myths
Rituals
Ch 4-23

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
Ch 4-24
U.S. Versus Foreign Cultures
To successfully compete in world markets, U.S. managers must obtain a better knowledge of historical, cultural, and religious forces that motivate and drive people in other countries.
Ch 4-25
Ch 4-26
Management
Functions of Management
1. Planning 2. Organizing
3. Motivating
4. Staffing
5. Controlling
Ch 4-27
Management
Function Planning Organizing Motivating Staffing Controlling
Stage When Most Important

Strategy Formulation
Strategy Implementation
Strategy Evaluation
Ch 4-28
Management
Planning
Beginning of management process Bridge between present & future
Improves likelihood of attaining desired results
Ch 4-29
Management
Forecasting
Establishing objectives
Planning
Devising strategies
Developing policies
Setting goals
Ch 4-30
Management
Organizing
Achieves coordinated effort Defines task & authority relationships Departmentalization Delegation of authority
Ch 4-31
Management
Organizing
Organizational design Job specialization Job descriptions Job specifications Span of control Unity of command Coordination Job design Job analysis
Ch 4-32
Management
Motivating
Influencing to accomplish specific objectives
Communication major component
Ch 4-33
Management
Motivating
Leadership Communication Work groups Job enrichment Job satisfaction Needs fulfillment Organizational change Morale
Ch 4-34
Management
Staffing
Personnel management Human resource management
Ch 4-35
Management
Wage & salary admin. Employee benefits Interviewing Hiring Discharging Training Management development Affirmative action EEO Labor relations
Staffing
Ch 4-36
Management
Controlling
Establishing performance standards Ensure actual operations conform to planned operations Taking corrective actions
Ch 4-37
Management
Controlling
Quality Financial Sales Inventory Expense Analysis of variance Rewards Sanctions
Ch 4-38
Management Audit Checklist

Does the firm use strategic management concepts? Are objectives/goals measurable? Well communicated? Do managers at all levels plan effectively?
Ch 4-39

Do managers delegate well? Is the organizations structure appropriate? Are job descriptions clear? Are job specifications clear? Is employee morale high?
Ch 4-40

Is employee absenteeism low? Is employee turnover low? Are the reward mechanisms effective? Are the organizations control mechanisms effective?
Ch 4-41
Marketing
Customer Needs/Wants for Products/Services
1. Defining 2. Anticipating
3. Creating
4. Fulfilling
Ch 4-42
Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services 3. Product & service planning
4. Pricing
5. Distribution 6. Marketing research 7. Opportunity analysis
Ch 4-43
Marketing
Customer surveys Consumer information Customer Analysis Market positioning strategies Customer profiles
Market segmentation strategies

Ch 4-44
Marketing
Selling Products/Services
Advertising Sales Promotion Publicity Sales force management Customer relations Dealer relations
Ch 4-45
Ch 4-46
Marketing
Planning Product/Service
Test marketing Brand positioning Devising warrantees Packaging Product features/options Product style Quality
Ch 4-47
Marketing
Pricing
Forward integration Discounts Credit terms Condition of sale Markups Costs Unit pricing
Ch 4-48
Marketing
Distribution
Warehousing Channels Coverage Retail site locations Sales territories Inventory levels Transportation
Ch 4-49
Marketing
Marketing Research
Data collection Data input Data analysis Support business functions
Ch 4-50
Marketing
Assessing costs Assessing benefits

Assessing risks Cost/benefit/risk analysis
Ch 4-51
Marketing
1. Are markets segmented effectively?
2. Is the organization positioned well among competitors? 3. Has the firms market share been increasing? 4. Are the distribution channels reliable & cost effective? 5. Is the sales force effective?
Ch 4-52
Marketing
6. Does the firm conduct market research?
7. Are product quality & customer service good? 8. Are the firms products/services priced appropriately? 9. Does the firm have effective promotion, advertising, and publicity strategies?
Ch 4-53
Marketing
10. Are the marketing, planning, and budgeting effective? 11. Do the firms marketing managers have adequate experience and training?
Ch 4-54
Finance/Accounting
Determining financial strengths & weaknesses key to strategy formation
Ch 4-55
Finance/Accounting
Finance/Accounting Functions
1. Investment decision (Capital budgeting) 2. Financing decision 3. Dividend decision
Ch 4-56
Basic Financial Ratios
Firms ability to meet its short-term obligations

Liquidity Ratios
Ratios
Current ratio Quick (or acid test) ratio
Ch 4-57
Extent of debt financing
Ratios
Leverage Ratios
Debt-to-total-assets Debt-to-equity Long-term debt-to-equity Times-interest-earned
Ch 4-58
Effective use of firms resources

Activity Ratios
Ratios
Inventory turnover Fixed assets turnover Total assets turnover Accounts receivable turnover Average collection period
Ch 4-59
Effectiveness shown by returns on sales & investment

Profitability Ratios
Ratios
Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA)
Ch 4-60
Effectiveness shown by returns on sales & investment

Profitability Ratios (contd)
Ratios
Return on stockholders equity (ROE) Earnings per share Price-earnings ratio
Ch 4-61
Firms ability to maintain economic position

Growth Ratios
Ratios
Sales Net income Earnings per share Dividends per share
Ch 4-62
Natural Environment Perspective

EU Countries Impose Curbs on Use of Chemicals
Tough new laws start in 2008 Use of some 30,000 chemicals need to be documented Cease using 1,500 of the most dangerous chemicals EU countries need to cut emissions
Ch 4-63
Finance/Accounting Audit
Does the firm have sufficient working capital? Are capital budgeting procedures effective? Are dividend payout policies reasonable? Are the firms financial managers experienced & well trained?
Ch 4-64
Finance/Accounting Audit
Effective Financial Analysis Requires: 1. Analysis of how the ratios have changed over time 2. How the ratios compare to industry norms 3. How the ratios compare with key competitors
Ch 4-65
Production/Operations Functions
Process Capacity
Inventory
Workforce Quality
Ch 4-66
Ch 4-67
Global Perspective
Auto Industry Work Week and Hourly Pay Variation
Germany U.S. Canada Japan France S. Korea
$44.05 $33.95 $29.17 $27.38 $26.34 $15.82
Mexico
$ 3.50
Ch 4-68
Process
Facility design Technology selection Facility layout Process flow analysis Facility location Line balancing Process control
Ch 4-69
Capacity
Forecasting Facilities planning Aggregate planning Scheduling Capacity planning Queuing analysis
Ch 4-70
Inventory
Raw materials Work in process Finished goods Materials handling
Ch 4-71
Workforce
Job design Work measurement Job enrichment Work standards Motivation techniques
Ch 4-72
Quality
Quality control Sampling Testing Quality assurance Cost control
Ch 4-73
Production/Operations Audit
Are suppliers of materials, parts, etc. reliable and reasonable? Are facilities, equipment, and machinery in good condition? Are inventory-control policies and procedures effective?
Ch 4-74
Production/Operations Audit
Are quality-control policies & procedures effective? Are facilities, resources, and markets strategically located? Does the firm have technological competencies?
Ch 4-75

Research & Development Functions
Development of new products before competitors Improving product quality Improving manufacturing processes to reduce costs
Ch 4-76

Financing as many projects as possible Use percent-of-sales method
R&D Budgets
Budgeting relative to competitors

How many successful new products are needed
Ch 4-77
Research & 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?
Ch 4-78
Research & Development Audit

Are MIS and computer systems adequate? Is communication between R&D and other organizational units effective? Are present products technologically competitive?
Ch 4-79

Purpose
Improve performance of an enterprise by improving the quality of managerial decisions
Ch 4-80

Information Systems CIO/CTO Security User-friendly E-commerce
Ch 4-81
Management Information Systems Audit

Do managers use the information system to make decisions? Is there a CIO or Director of Information Systems position in the firm? Is data updated regularly?
Ch 4-82

Do managers from all functional areas contribute input to the information system? Are there effective passwords for entry into the firms information system? Are strategists of the firm familiar with the information systems of rival firms?
Ch 4-83

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 firms system being improved?
Ch 4-84
Ch 4-85
Ch 4-86
For Review (Chapter 4)

Key Terms & Concepts
Activity Ratios Cost/Benefit Analysis
Capital Budgeting
Cultural Products
Communication
Distinctive Competencies
Controlling
Distribution
Ch 4-87

Dividend Decision Functions of Finance/Accounting
Empirical Indicators
Functions of Management
Financial Ratio Analysis
Functions of Marketing Functions of Production/ Operations
Financing Decision
Ch 4-88

Growth Ratios Human Resource Management Internal Audit Internal Factor Evaluation (IFE) Matrix
Investment Decision
Leverage Ratios
Liquidity Ratios Management Information Systems
Ch 4-89

Motivating Personnel Management
Planning
Pricing Product & Service Planning
Organizing
Ch 4-90

Production/Operations Functions Selling
Profitability Ratios
Staffing
Research & Development Resource Based View (RBV)

Synergy
Test Marketing
Ch 4-91

Value Chain Analysis (VCA)
Ch 4-92

David12e 04

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Chapter Outline

The Nature of an Internal Audit

The Resource-Based View (RBV)

Integrating Strategy & Culture

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Chapter Outline (contd)

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Chapter Outline (contd)

Research & Development

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Chapter Outline (contd)

Management Information Systems

The Internal Factor Evaluation (IFE) Matrix

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Weak leadership can wreck the soundest

strategy. Sun Tzu

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Nature of an Internal Audit

Functional Areas of Business Strengths

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Nature of an Internal Audit

Internal strengths/weaknesses External opportunities/threats Clear statement of mission

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Key Internal Forces

Divisions have differing strengths & weaknesses

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Key Internal Forces

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Key Internal Forces

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Key Internal Forces

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Resource Based View (RBV)

Internal resources are more important than external factors

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Resource Based View (RBV)

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Resource Based View (RBV)

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Strategy & Culture

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Strategy & Culture

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Strategy & Culture

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Integrating Strategy & Culture

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

U.S. Versus Foreign Cultures

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Stage When Most Important

Beginning of management process Bridge between present & future

Improves likelihood of attaining desired results

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall