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•ER IKA S. N IC O L AS , M BA , R EB
CHAPTER OBJECTIVES
1. Describe how to perform an internal strategic-
management audit.
2. Discuss the Resource-Based View (RBV) in strategic
management.
3. Discuss key interrelationships among the functional
areas of business.
4. Identify the basic functions or activities that make up
management, marketing, finance/accounting,
production/ operations, research and development,
and management.
CHAPTER OBJECTIVES
5. Explain how to determine and prioritize a firm’s
internal strengths and weaknesses.
6. Explain the importance of financial ratio analysis.
7. Discuss the nature and role of management
information systems in strategic management.
8. Develop an Internal Factor Evaluation (IFE) Matrix.
9. Explain benchmarking as a strategic management
tool.
Internal Audit
Identify strengths and weaknesses in
Management
Marketing
Finance and accounting
Production and operations
Research and development
Management information systems
Nature of an Internal Audit
Basis for Objectives & Strategies
Internal strengths/weaknesses
External opportunities/threats
Clear statement of mission
Key Internal Forces
Distinctive Competencies:
STARBUCKS
Quality and variety of Coffee
Employee Friendly
Consistency
Location
Brand Image
HP
MBWA
Employee Friendly
DISTINCTIVE COMPETENCIES VS COMPETITIVE
ADVANTAGE
•DISTINCTIVE
COMPETENCY
Distinctive Competencies:
Exemplifies complexity of
relationships among functional areas
of the business
Integrating Strategy & 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 & Culture
Organizational Culture
Resistant to change
May represent:
Strength
Weakness
Integrating Strategy & Culture
Values
Legends Beliefs
Cultural
Heroes Rites
Products
Symbols Rituals
Myths
Integrating Strategy & 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
Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
Marketing
Customer surveys
Consumer information
Market positioning
Customer
strategies
Analysis
Customer profiles
Market segmentation
strategies
Finance/Accounting
3. Dividend decision
Basic Financial Ratios
Liquidity Ratios
Ratios
Current ratio
Quick (or acid test) ratio
Basic Financial Ratios
Ratios
Leverage Ratios
Debt-to-total assets
Debt-to-equity
Long-term debt-to-equity
Times-interest-earned
Basic Financial Ratios
Ratios
Activity Ratios
Inventory turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Basic Financial Ratios
Effectiveness shown by
returns on sales and
investment
Effectiveness shown by
returns on sales &
investment
Firm’s ability to
maintain economic
position
Ratios
Growth Ratios
Sales
Net Income
Earnings per share
Dividends per share
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
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?
• In a world where customer preferences are volatile,
the identity of customers is changing, and the
technologies for serving customer requirements are
continually formulating long-term strategy. When the
external environment is in a state of flux,the firm’s
own resources and capabilities may be a much more
stable basis on which to define its identity. Hence, a
definition of a business in terms of what it is capable
of doing may offer a more durable basis for strategy
than a definition based upon the needs which the
business seeks to satisfy.
•Robert Grant
RESOURCE-BASED VIEW
The Resource-Based View (RBV) approach to
competitive advantage contends that internal
resources are more important for a firm than
external factors in achieving and sustaining
competitive advantage.
RBV theory asserts that resources are
actually what helps a firm exploit opportunities and
neutralize threats.
RBV
RESOURCE-BASED VIEW