The Internal Assessment Overview: The external assessment uses an external audit that identifies and evaluates trends and events beyond the firms control. The focus is on the five e
Week 3 – Overview & Learning Objectives
Week 3 – Overview & Learning ObjectivesAttached Files:
- Chapter 3-The External Assessment.pptx Chapter 3-The External Assessment.pptx – Alternative Formats (1.082 MB)
- Chapter 4-The Internal Assessment.pptx Chapter 4-The Internal Assessment.pptx – Alternative Formats (939.806 KB)
Assigned Readings:Chapter 3. The External AssessmentChapter 4. The Internal AssessmentOverview:The external assessment uses an external audit that identifies and evaluates trends and events beyond the firm’s control. The focus is on the five external forces that shape the business environment (a) economic, (b) social, (c) political, (d) technological, and (e) competitive. The internal assessment examines how the company performs in all areas such as marketing, finance/accounting, overall management, IT, and production and operations.Chapter 3 The External AssessmentLearning Objectives:
- Describe the nature and purpose of an external assessment in formulating strategies.
- Identify and discuss 10 external forces that must be examined in formulating strategies: economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive.
- Explain Porter’s Five Forces Model and its relevance in formulating strategies.
- Describe key sources of information used for locating vital external information.
- Discuss forecasting tools and techniques.
- Explain how to develop and use an External Factor Evaluation (E F E) Matrix.
- Explain how to develop and use a Competitive Profile Matrix.
Chapter 4 The Internal Assessment Learning Objectives:
- Describe the nature and role of an internal assessment in formulating strategies.
- Discuss why organizational culture is so important in formulating strategies.
- Identify the basic functions (activities) that make up management and their relevance in formulating strategies.
- Identify the basic functions of marketing and their relevance in formulating strategies.
- Discuss the nature and role of finance and accounting in formulating strategies.
- Discuss the nature and role of production/operations in formulating strategies.
- Discuss the nature and role of research and development (R&D) in formulating strategies.
- Discuss the nature and role of management information systems (MIS) in formulating strategies.
- Explain value chain analysis and its relevance in formulating strategies.
- Develop and use an Internal Factor Evaluation (IFE) Matrix.
Discussion Forum Week 3
Discussion Forum Week 3Go to Chapter 3 and do Exercise 3B "Develop a Competitive Profile Matrix" for Coca-Cola. Develop an analysis of Coca-Cola utilizing this matrix in two to three pages. Then go to the end of Chapter 4 and do Exercise 4A "Perform a Financial Ratio Analysis for Coca-Cola" Step 1. After developing an analysis of Coca-Cola (two to three pages) and after completing the financial ratio analysis (one page minimum), submit them in the Discussion Forum for this week. Reply to at least two other students (200- word minimum each) and, as a class, refine the Competitive Profile Matrix analysis and the financial ratio analysis so that they are acceptable for Coca-Co
Strategic Management Concepts: A Competitive Advantage Approach
Sixteenth Edition
Chapter 4
The Internal Assessment
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Learning Objectives (1 of 2)
4.1 Describe the nature and role of an internal assessment in formulating strategies.
4.2 Discuss why organizational culture is so important in formulating strategies.
4.3 Identify the basic functions (activities) that make up management and their relevance in formulating strategies.
4.4 Identify the basic functions of marketing and their relevance in formulating strategies.
4.5 Discuss the nature and role of finance and accounting in formulating strategies.
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After studying this chapter, you should be able to do the following:
4-1. Describe the nature and role of an internal assessment in formulating strategies.
4-2. Discuss why organizational culture is so important in formulating strategies.
4-3. Identify the basic functions (activities) that make up management and their relevance
in formulating strategies.
4-4. Identify the basic functions of marketing and their relevance in formulating strategies.
4-5. Discuss the nature and role of finance/accounting in formulating strategies.
4-6. Discuss the nature and role of production/operations in formulating strategies.
4-7. Discuss the nature and role of research and development (R&D) in formulating
strategies.
4-8. Discuss the nature and role of management information systems (MIS) in formulating
strategies.
4-9. Explain value chain analysis and its relevance in formulating strategies.
4-10. Develop and use an Internal Factor Evaluation (IFE) Matrix.
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Learning Objectives (2 of 2)
4.6 Discuss the nature and role of production/operations in formulating strategies.
4.7 Discuss the nature and role of research and development (R&D) in formulating strategies.
4.8 Discuss the nature and role of management information systems (MIS) in formulating strategies.
4.9 Explain value chain analysis and its relevance in formulating strategies.
4.10 Develop and use an Internal Factor Evaluation (IFE) Matrix.
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Figure 4-1 A Comprehensive Strategic-Management Model
Source: Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40. Also, Ratnaningsih, Anik, and Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, “Balance Scorecard of David’s Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,” Journal of Mathematics and Technology, no. 4, (October 2010): 20.
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Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved
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.
Figure 4-2 The Process of Gaining Competitive Advantage in a Firm
Weaknesses → Strengths → Distinctive Competencies → Competitive Advantage
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Strategies are designed in part to improve on a firm’s weaknesses, turning them into strengths—and maybe even into distinctive competencies that can provide the firm with competitive advantages over rival firms.
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The Process of Performing an Internal Audit
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
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All organizations have strengths and weaknesses in the functional areas of business. No enterprise is equally strong or weak in all areas. Strategic planning is most successful when managers and employees from all functional areas work together to provide ideas and information.
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The Resource-Based View (R B V) (1 of 3)
The Resource-Based View (R B V) Approach
contends that internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage
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The Resource-Based View (R B V) (2 of 3)
Proponents of the R B V contend that organizational performance will primarily be determined by internal resources that can be grouped into three all-encompassing categories:
physical resources
human resources
organizational resources
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Physical resources include all plant and equipment, location, technology, raw materials, machines; human resources include all employees, training, experience, intelligence, knowledge, skills, abilities; and organizational resources include firm structure, planning processes, information systems, patents, trademarks, copyrights, databases, and so on.
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The Resource-Based View (R B V) (3 of 3)
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.
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The basic premise of the RBV is that the mix, type, amount, and nature of a firm’s internal resources should be considered first and foremost in devising strategies that can lead to sustainable competitive advantage.
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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.
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Every business entity has a unique organizational culture that impacts strategic-planning activities.
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Organizational Culture
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.”
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Remarkably resistant to change, culture can represent a major strength or weakness for any firm. It can be an underlying reason for strengths or weaknesses in any of the major business functions.
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Cultural Products
Values
Beliefs
Rites
Rituals
Ceremonies
Myths
Stories
Legends
Sagas
Language
Metaphors
Symbols
Folktales
Heroes and heroines
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These products or dimensions are levers that strategists can use to influence and direct strategy formulation, implementation, and evaluation activities.
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Table 4-2 Aspects of Organizational Culture
Dimension | Low | Degree | Degree | Degree | High |
1. Strong work ethic; arrive early and leave late | 1 | 2 | 3 | 4 | 5 |
2. High ethical beliefs; clear code of business ethics followed | 1 | 2 | 3 | 4 | 5 |
3. Formal dress; shirt and tie expected | 1 | 2 | 3 | 4 | 5 |
4. Informal dress; many casual dress days | 1 | 2 | 3 | 4 | 5 |
5. Socialize together outside of work | 1 | 2 | 3 | 4 | 5 |
6. Do not question supervisor’s decision | 1 | 2 | 3 | 4 | 5 |
7. Encourage whistle-blowing | 1 | 2 | 3 | 4 | 5 |
8. Be health conscious; have a wellness program | 1 | 2 | 3 | 4 | 5 |
9. Allow substantial “working from home” | 1 | 2 | 3 | 4 | 5 |
10. Encourage creativity, innovation, and open-mindedness | 1 | 2 | 3 | 4 | 5 |
11. Support women and minorities; no glass ceiling | 1 | 2 | 3 | 4 | 5 |
12. Be highly socially responsible; be philanthropic | 1 | 2 | 3 | 4 | 5 |
13. Have numerous meetings | 1 | 2 | 3 | 4 | 5 |
14. Have a participative management style | 1 | 2 | 3 | 4 | 5 |
15. Preserve the natural environment; have a sustainability program | 1 | 2 | 3 | 4 | 5 |
Fifteen Example (Possible) Aspects of an Organization’s Culture
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Table 4-2 provides some example (possible) aspects of an organization’s culture. Note that you might want to ask employees and managers to rate the degree that the dimension characterizes the firm.
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Management
The functions of management consist of five basic activities:
planning
organizing
motivating
staffing
controlling
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These activities are important to assess in strategic planning because an organization should continually capitalize on its management strengths and improve on its management weaknesses.
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The Basic Functions of Management (1 of 2)
Planning: forecasting, establishing objectives, devising strategies, and developing policies
Organizing: organizational design, job specialization, job descriptions, span of control, coordination, job design, and job analysis
Motivating: leadership, communication, work groups, behavior modification, delegation of authority, job enrichment, job satisfaction, needs fulfillment, organizational change, employee morale, and managerial morale
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Planning consists of all those managerial activities related to preparing for the future.
Organizing includes all those managerial activities that result in a structure of task and authority relationships.
Motivating involves efforts directed toward shaping human behavior.
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The Basic Functions of Management (2 of 2)
Staffing: wage and salary administration, employee benefits, interviewing, hiring, firing, training, management development, employee safety, equal employment opportunity, and union relations
Controlling: quality control, financial control, sales control, inventory control, expense control, analysis of variances, rewards, and sanctions
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Staffing refers to human resource (HR) activities.
Controlling refers to all those managerial activities directed toward ensuring that actual results are consistent with planned results.
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Management Audit Checklist of Questions (1 of 2)
Does the firm use strategic-management concepts?
Are company objectives and goals measurable and well communicated?
Do managers at all hierarchical levels plan effectively?
Do managers delegate authority well?
Is the organization's structure appropriate?
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This checklist of questions can help determine specific strengths and weaknesses in the functional area of business. An answer of no to any question could indicate a potential weakness. Positive or yes answers to the checklist questions suggest potential areas of strength.
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Management Audit Checklist of Questions (2 of 2)
Are job descriptions and job specifications clear?
Is employee morale high?
Are employee turnover and absenteeism low?
Are organizational reward and control mechanisms effective?
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Marketing
Marketing
the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services
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Marketing can be described as the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for products and services.
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Functions of Marketing
Customer analysis
Selling products and services
Product and service planning
Pricing
Distribution
Marketing research
Cost/ benefit analysis
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These are the seven basic functions of marketing. Each will be described on the following slides.
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Customer Analysis
Customer Analysis
the examination and evaluation of consumer needs, desires, and wants
involves administering customer surveys, analyzing consumer information, evaluating market positioning strategies, developing customer profiles, and determining optimal market segmentation strategies
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Customer analysis is the first function of marketing.
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Selling Products and Services
Selling
includes many marketing activities, such as advertising, sales promotion, publicity, personal selling, sales force management, customer relations, and dealer relations
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Selling products and services is the second function of marketing. Successful strategy implementation generally rests on the ability of an organization to sell some product or service.
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Product and Service Planning
Product and Service 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
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Product and service planning is the third function of marketing.
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Pricing
Pricing
Five major stakeholders affect pricing decisions: consumers, governments, suppliers, distributors, and competitors
Sometimes an organization will pursue a forward integration strategy primarily to gain better control over prices charged to consumers.
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Pricing is the fourth function of marketing.
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Distribution
Distribution
includes warehousing, distribution channels, distribution coverage, retail site locations, sales territories, inventory levels and location, transportation carriers, wholesaling, and retailing
especially important when a firm is striving to implement a market development or forward integration strategy
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Distribution is the fifth function of marketing.
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Marketing Research
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
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Marketing research is the sixth function of marketing.
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Cost/Benefit Analysis
Cost/Benefit Analysis
Three steps are required:
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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Cost/benefit analysis is the seventh function of marketing.
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Marketing Audit Checklist of Questions (1 of 2)
Are markets segmented effectively?
Is the organization positioned well among competitors?
Has the firm’s market share been increasing?
Are present channels of distribution reliable and cost effective?
Does the firm have an effective sales organization?
Does the firm conduct market research?
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These questions about marketing must be examined in strategic planning.
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Marketing Audit Checklist of Questions (2 of 2)
Are product quality and customer service good?
Are the firm's products and services priced appropriately?
Does the firm have an effective promotion, advertising, and publicity strategy?
Are marketing, planning, and budgeting effective?
Do the firm's marketing managers have adequate experience and training?
Is the firm's Internet presence excellent as compared to rivals?
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Finance/Accounting Functions (1 of 4)
The functions of finance/accounting comprise three decisions:
The investment decision
The financing decision
The dividend decision
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According to James Van Horne, the functions of finance/accounting comprise three decisions: the investment decision, the financing decision, and the dividend decision.
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Finance/Accounting Functions (2 of 4)
Investment Decision (Capital Budgeting)
the allocation and reallocation of capital and resources to projects, products, assets, and divisions of an organization
Financing Decision
determines the best capital structure for the firm and includes examining various methods by which the firm can raise capital
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After strategies are formulated, capital budgeting decisions are required to successfully implement strategies.
Firms may raise capital by, for example, issuing stock, increasing debt, selling assets, or using a combination of these approaches.
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Finance/Accounting Functions (3 of 4)
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
determine the amount of funds that are retained in a firm compared to the amount paid out to stockholders
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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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Finance/Accounting Functions (4 of 4)
How has each ratio changed over time?
How does each ratio compare to industry norms?
How does each ratio compare with key competitors?
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Financial ratios are computed from an organization’s income statement and balance sheet. Computing financial ratios is like taking a photograph—the results reflect a situation at just one point in time. Comparing ratios over time and to industry averages is more likely to result in meaningful statistics that can be used to identify and evaluate strengths and weaknesses.
Financial ratio analysis should be conducted on three separate fronts.
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Table 4-4 A Summary of Key Financial Ratios (1 of 4)
Ratio | How Calculated | What it measures |
Liquidity Ratios
Current Ratio | Current assets over Current liabilities | The extent to which a firm can meet its short-term obligations |
Quick Ratio | Current assets minus inventory over Current liabilities | The extent to which a firm can meet its short-term obligations without relying on the sale of its inventories |
Leverage Ratios
Debt-to-Total-Assets Ratio | Total debt over Total assets | The percentage of total funds provided by creditors |
Debt-to-Equity Ratio | Total debt over Total stockholders’ equity | The percentage of total funds provided by creditors versus by owners |
Long-Term Debt-to-Equity Ratio | Long-term debt over Total stockholders’ equity | The balance between debt and equity in a firm’s long-term capital structure |
Times-Interest-Earned Ratio | Profits before interest and taxes over Total interest charges | the extent to which earnings can decline without the firm becoming unable to meet its annual interest costs |
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