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Maryam University

Bachelor of Business Administration


Department of Business Administration

Subject: Strategic Management


Lecture# Fourth
Lecturer: Attaullah Hazrat

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Outline of the lecture
Topic 1: The internal assessment
Topic 2: The nature of an internal audit
Topic 4: Key internal forces
Topic 5: Management
Topic 6: Marketing
Topic 7: Finance

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Objectives of the lecture
After completion of this lecture students will be able to know:
1. Define the Internal assessment
2. The nature or Internal audit

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The Internal Assessment

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The Internal Assessment
The internal assessment focuses on identifying and evaluating a firm's
strengths and weaknesses in the functional areas of business,
including management, marketing, finance/accounting,
production/operations, research and development, and computer
information systems.

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The Nature of an Internal Audit

All organizations have strengths and weaknesses in the functional areas of


business. No enterprise is equally strong or weak in all areas.

For example, Maytag is known for excellent production and product design,
whereas Procter & Gamble is known for superb marketing.

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Key Internal Forces

A firm’s strengths that cannot be easily matched or imitated by competitors are


called distinctive competencies.

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The Process of Performing an Internal Audit

The process of performing an internal audit provides more opportunity for


participants to understand how their jobs, departments, and divisions fit into the
whole organization.

The internal audit requires gathering and assimilating information about the
firm’s management, marketing, finance/accounting, production/operations,
research and development (R&D), and management information systems
operations.

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A) Management

The functions of management consist of five basic activities:

o Planning,

o Organizing,

o Motivating,

o Staffing,

o Controlling.

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1. Planning

o Planning is the start of the process by which an individual or business may turn
empty dreams into achievements.

o Planning is the essential bridge between the present and the future that
increases the likelihood of achieving desired results.

o Planning allows an organization to identify and take advantage of external


opportunities as well as minimize the impact of external threats.

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2. Organizing

o The purpose of organizing is to achieve coordinated effort by defining task and


authority relationships.

o Organizing means determining who does what, and who reports to whom.

o The organizing function of management can be viewed as consisting of three


sequential activities:
o Work specialization,
o Departmentalization,
o Delegating authority.
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3. Motivating

Motivating can be defined as the process of influencing people to accomplish


specific objectives.
o Influencing people to accomplish specific objectives
o Communication is a major component

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4. Staffing
o Staffing activities play a major role in strategy-implementation efforts.

o The management function of staffing, also called personnel management or


human resource management.

o Staffing includes activities such as recruiting, interviewing, testing, selecting,


orienting, training, developing, evaluating, rewarding, disciplining, promoting,
transferring, demoting, and dismissing employees, and managing union relations.

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5. Controlling

The controlling function of management includes all those activities undertaken


to ensure that actual operations conform to planned operations. The controlling
function important for effective strategy evaluation.
Controlling consists of four basic steps:
1. Establishing performance standards
2. Measuring individual and organizational performance
3. Comparing actual performance to planned performance standards
4. Taking corrective actions

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B) Marketing

Marketing can be described as the process of defining, anticipating, creating, and


fulfilling customers’ needs and wants for products and services.

o There are seven basic functions of marketing: (1) customer analysis, (2) selling
products/services, (3) product and service planning, (4) pricing, (5) distribution, (6)
marketing research, and (7) opportunity analysis.

o Understanding these functions helps strategists identify and evaluate marketing


strengths and weaknesses.

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1. Customer Analysis

o Examination and evaluation of consumer needs, desires, and wants.

o Buyers, sellers, distributors, salespeople, managers, wholesalers, retailers,


suppliers, and creditors can all participate in gathering information to identify
customers' needs and wants successfully.

o Successful organizations continually monitor present and potential customers'


buying patterns.

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2. Selling Product/Service

o Selling includes many marketing activities such as advertising,


sales promotion, publicity, personal selling, sales force management,
customer relations, and dealer relations.

o These activities are especially critical when a firm pursues a market


penetration strategy.

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3. Product and Service Planning

o Product and service planning includes activities such as product


and brand positioning; devising warranties; packaging; product
features, product style, product quality; deleting old products; and
providing for customer service.

o Product and service planning is particularly important when a


company is pursuing product development or diversification.

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4. Pricing

Five major stakeholders affect pricing decisions:


o Consumers,
o Governments,
o Suppliers,
o Distributors,
o Competitors.
Sometimes organizations pursue a forward integration strategy primarily to gain
better control over prices charged to consumers.

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5. Distribution

o Distribution includes warehousing, distribution channels, distribution coverage,


retail site locations, sales territories, inventory levels and location, transportation
carriers, wholesaling, and retailing.

o Distribution becomes especially important when a firm is striving to implement


a market development or forward integration strategy.

o Successful organizations identify and evaluate alternative ways to reach their


ultimate market.

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6. Marketing Research

o Marketing research is the systematic gathering, recording, and analyzing of


data about problems relating to the marketing of goods and services.

o Organizations that possess excellent marketing research skills have a definite


strength in pursuing generic strategies.

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7. Opportunity Analysis

Opportunity analysis involves assessing the costs, benefits, and risks associated
with marketing decisions.

Three steps are required to perform a cost/benefit analysis:

 Compute the total costs associated with a decision,

 Estimate the total benefits from the decision,

 Compare the total costs with the total benefits.

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C) Finance / Accounting

o Financial condition is often considered the single best measure of a firm's


competitive position and overall attractiveness to investors.

o Determining an organization's financial strengths and weaknesses is essential to


formulating strategies effectively.

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1) Finance / Accounting Functions

According to James Van Horne, the functions of finance/accounting comprise


three decisions:

 Investment decision,

 Financing decision,

 Dividend decision,

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a) Investment Decision

The investment decision, also called capital budgeting.

Investment decision is the allocation of capital and resources to projects,


products, assets, and divisions of an organization. Once strategies are formulated,
capital budgeting decisions are required to implement strategies successfully.

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b) Financing Decision

The financing decision concerns determining the best capital structure for the
firm and includes examining various methods by which the firm can raise capital
(for example, by issuing stock, increasing debt, selling assets, or using a
combination of these approaches).

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c) Dividend Decision

o 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.
o Dividend decisions determine the amount of funds that are retained in a firm
compared to the amount paid out to stockholders.
o Three financial ratios that are helpful in evaluating a firm's dividend decisions
are the earnings-per-share ratio, the dividends-per-share ratio, and the price-
earnings ratio.

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2) Basic Types of Financial Ratios

Financial ratios are computed from an organization's income statement and


balance sheet.
Key financial ratios can be classified into the following five types:
o Liquidity ratios
o Leverage ratios
o Activity ratios
o Profitability ratios
o Growth ratios

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Basic Types of Financial…

Liquidity ratios measure a firm's ability to meet maturing short-term obligations.


It includes:
• Current ratio
• Quick (or acid-test) ratio
Leverage ratios measure the extent to which a firm has been financed by debt.
• Debt-to-total-assets ratio
Activity ratios measure how effectively a firm is using its resources.
• Inventory-turnover

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Basic Types of Financial…

Profitability ratios measure management's overall effectiveness as shown by the


returns generated on sales and investment.
• Earnings per share
Growth ratios measure the firm's ability to maintain its economic position in the
growth of the economy and industry.
• Sales
• Net income
• Earnings per share
• Dividends per share

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D) Production/Operations

The production/operations function of a business consists of all those activities


that transform inputs into goods and services.
Production/operations management comprises five functions or decision areas:
• Process,
• Capacity,
• Inventory,
• Workforce,
• Quality,

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Production/Operations…

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E) Research and Development

The purpose of research and development are as follows:

 Development of new products before competition.

 Improving product quality.

 Improving manufacturing processes to reduce costs.

Organizations invest in R&D because they believe that such investment will lead
to superior product or services and give them competitive advantages.

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Research and Development…
R&D in organizations can take two basic forms:

1. Internal R&D, in which an organization operates its own R&D department.

2. Contract R&D, in which a firm hires independent researchers or independent


agencies to develop specific products.

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F) Management Information Systems

o Information is the lifeblood of the company.

o A management information system’s purpose is to improve the performance of


an enterprise by improving the quality of managerial decisions.

o An effective information system is like a library, collecting, categorizing, and


filing data for use by managers throughout the organization.

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References
1. Strategic Management Concepts and Cases Sixteen Edition by Fred R.
David, 11th Edition.

2. Fundamental of Business Management Process by Marlon Dumas and Jan


Mandelling.

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