INTERNAL ASSESSMENT

 All organizations have strengths and weaknesses in the functional areas of

business. No enterprise is equally strong or weak in all areas
 Internal strengths/weaknesses, coupled with external opportunities/threats
and a clear statement of mission, provide the basis for establishing
objectives and strategies
 Objectives and strategies are established with the intention of capitalizing
upon internal strengths and overcoming weaknesses

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

called distinctive competencies. Building competitive advantages involves
taking advantage of distinctive competencies.

Weakness - Strength - Distinctive Competency - Competitive Advantage

The process of performing an internal audit closely parallels the process of

performing an external audit.
Representative managers and employees from throughout the firm need to be
involved in determining a firm’s strengths and weaknesses.
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. (Core Operations)

Compared to the external 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.

Communication may be the most important word in management.

A key to organizational success is effective coordination and understanding

among managers from all functional business areas

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.

Internal resources that can be grouped into three all-encompassing categories:

physical resources, human resources, and organizational resources

RBV theory asserts that resources are actually what helps a firm exploit
opportunities and neutralize threats.

The theory asserts that it is advantageous for a firm to pursue a strategy that is
not currently being implemented by any competing firm.

RESOURCE TO BE VALUABLE: RARE,DIFFICULT TO IMITATE,

SUBSTITUTABILITY
They improve a firms efficiency and effectiveness and lead to a sustainable
competitive advantage.

These are called Empirical Indicators.

Rare Resources - Something that is unique that only you can offer and neither
of your competitors.

Difficult to imitate - If firms cannot easily gain the resources, then those
resources will lead to a competitive advantage more so than resources easily
imitable.

Substitutability - If a competing firm cannot perfectly imitate a firm’s resource,

it can still obtain a sustainable competitive advantage of its own by obtaining
resource substitutes.

UNDER MANAGEMENT:

Planning - Planning consists of all those managerial activities related to

preparing for the future. Specific tasks include forecasting, establishing
objectives, devising strategies, developing policies, and setting goals.
Strategy Formulation

Organizing - Organizing includes all those managerial activities that result in a

structure of task and authority relationships. Specific areas include
organizational design, job specialization, job descriptions, job specifications,
span of control, unity of command, coordination, job design, and job analysis.
Strategy Implementation

Motivating - Motivating involves efforts directed toward shaping human

behavior. Specific topics include leadership, communication, work groups,
behavior modification, delegation of authority, job enrichment, job satisfaction,
needs fulfillment, organizational change, employee morale, and managerial
morale.
Strategy Implementation

Staffing - Staffing activities are centered on personnel or human resource

management. Included are wage and salary administration, employee benefits,
interviewing, hiring, firing, training, management development, employee
safety, affirmative action, equal employment opportunity, union relations,
career development, personnel research, discipline policies, grievance
procedures, and public relations. Strategy Implementation

Controlling - Controlling refers to all those managerial activities directed

toward ensuring that actual results are consistent with planned results. Key
areas of concern include quality control, financial control, sales control,
inventory control, expense control, analysis of variances, rewards, and
sanctions. Strategy Evaluation

UNDER MARKETING:
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.

Selling Products/Services
Successful strategy implementation generally rests upon the ability of an
organization to sell some product or service. Selling includes many marketing
activities, such as advertising, sales promotion, publicity, personal selling,
sales force management, customer relations, and dealer relations.

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. Product and service planning is particularly
important when a company is pursuing product development or diversification.

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. Governments can impose constraints on price fixing, price
discrimination, minimum prices, unit pricing, price advertising, and price
controls.

Distribution includes warehousing, distribution channels, distribution

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

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

data about problems relating to the marketing of goods and services.
Marketing research can uncover critical strengths and weaknesses, and
marketing researchers employ numerous scales, instruments, procedures,
concepts, and techniques to gather information

The seventh function of marketing is cost/benefit analysis, which involves

assessing the costs, benefits, and risks associated with marketing decisions.
Three steps are required to perform a cost/benefit analysis: (1) compute the
total costs associated with a decision, (2) estimate the total benefits from the
decision, and (3) compare the total costs with the total benefits.

UNDER FINANCE/ACCOUNTING:

The investment decision, also called capital budgeting, is the allocation and
reallocation of capital and resources to projects, products, assets, and
divisions of an organization. Once strategies are formulated, capital budgeting
decisions are required to successfully implement strategies.
The financing decision determines 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). The financing decision must consider both
short-term and long-term needs for working capital. Two key financial ratios
that indicate whether a firm’s financing decisions have been effective are the
debt-to-equity ratio and the debt-to-total-assets ratio.

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. Dividend decisions determine the amount of funds that are
retained in a firm compared to the amount paid out to stockholders.

1. Liquidity ratios measure a firm’s ability to meet maturing short-term

obligations.
 Current ratio
 Quick (or acid-test) ratio
2. Leverage ratios measure the extent to which a firm has been financed by
debt.
 Debt-to-total-assets ratio
 Debt-to-equity ratio
 Long-term debt-to-equity ratio
 Times-interest-earned (or coverage) ratio
3. Activity ratios measure how effectively a firm is using its resources.
 Inventory turnover
 Fixed assets turnover
 Total assets turnover
 Accounts receivable turnover
 Average collection period
4. Profitability ratios measure management’s overall effectiveness as shown
by the
returns generated on sales and investment.
 Gross profit margin
 Operating profit margin
 Net profit margin
 Return on total assets (ROA)
 Return on stockholders’ equity (ROE)
 Earnings per share (EPS)
5. 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
Production/Operations
The production/operations function of a business 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 4-7 The Basic Functions (Decisions) Within
Production/Operations
Decision Areas Example Decisions
1. Process - These decisions include choice of technology, facility layout,
process flow analysis, facility location, line balancing, process control, and
transportation analysis. Distances from raw materials to production sites to
customers are a major consideration.
2.Capacity - These decisions include forecasting, facilities planning,
aggregate planning, scheduling, capacity planning, and queuing analysis.
Capacity utilization is a major consideration.
3.Inventory - These decisions involve managing the level of raw materials,
work-in-process, and finished goods, especially considering what to order,
when to order, how much to order, and materials handling.
4. Workforce These decisions involve managing the skilled, unskilled, clerical,
and managerial employees by caring for job design, work measurement, job
enrichment, work standards, and motivation techniques.
5. Quality - These decisions are aimed at ensuring that high-quality goods and
services are produced by caring for quality control, sampling, testing, quality
assurance, and cost control.

Research and Development

The fifth major area of internal operations that should be examined for specific
strengths and weaknesses is research and development (R&D). Many firms
today conduct no R&D, and yet many other companies depend on successful
R&D activities for survival.Firms pursuing a product development strategy
especially need to have a strong R&D orientation.

Internal and External R&D

(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

STRATEGIC-PLANNING SOFTWARE
to improve the performance of an enterprise by improving the quality of
managerial decisions

The Internal Analysis of strengths and weaknesses focuses on internal

factors that give an organization certain advantages and disadvantages in
meeting the needs of its target market. Internal Analysis: Understanding a
business in depth is the goal of internal analysis. This analysis is based on
resources and capabilities of the firm.

Strengths refer to core competencies that give the firm an advantage in

meeting the needs of its target markets. Any analysis of company strengths
should be market oriented/customer focused because strengths are only
meaningful when they assist the firm in meeting customer needs. . Only those
strengths that relate to satisfying a customer need should be considered true
core competencies.

Weaknesses refer to any limitations a company faces in developing or

implementing a strategy. Weaknesses should also be examined from a
customer perspective because customers often perceive weaknesses that a
company cannot see. Being market focused when analyzing strengths and
weaknesses does not mean that non-market oriented strengths and
weaknesses should be forgotten. Rather, it suggests that all firms should tie
their strengths and weaknesses to customer requirements

The following area analyses are used to look at all internal factors affecting a
company:
Resources: Profitability, sales, product quality brand associations, existing
overall brand, relative cost of this new product, employee capability, product
portfolio analysis
Capabilities: Goal: To identify internal strategic strengths, weaknesses,
problems, constraints and uncertainties
Resources: A good starting point to identify company resources is to look at
tangible, intangible and human resources.

Tangible resources are the easiest to identify and evaluate: financial

resources and physical assets are identified and valued in the firm’s financial
statements.

Intangible resources are largely invisible, but over time become more
important to the firm than tangible assets because they can be a main source
for a competitive advantage. Such intangible resources include reputational
assets (brands, image, etc.) and technological assets (proprietary technology
and know-how).

Human resources or human capital are the productive services human

beings offer the firm in terms of their skills, knowledge, reasoning, and
decision-making abilities.

TANGIBLE

RESOURCE MAIN CHARACTERISTICS KEY INDICATORS

The firm’s borrowing capacity and Debt-to-equity ratio

it
internal funds generation determin Ration of net cash t
FINANCIAL
esits capacity to weather fluctuatio o capital expenses
ns in demand and profits overtim
es. Credit rating
 Resale value of
assets
The physical resources related to
PHYSICAL Age of capital
plan, equipment, assets, technolo
equipment
gy, raw materials.
Flexibility of PPE

HUMAN RESOURCES
Training and expertise of employees determine the skills available to the firm.
Adaptability of employees determines key aspects of strategic flexibility of the
firm. Commitment and loyalty of employees determines the capacity of the firm
to attain and maintain competitive advantage.

INTANGIBLE

KEY INDICATO
RESOURCE MAIN CHARACTERISTICS
RS

Stock of technology in the form of pro

prietary technology (copyright, patent
TECHNOLOGIC
s, trade secrets) and expertise in the
AL
application of technology (know-how)
.
 Brand

recognition

Price premium
Reputation with customers through th
e ownership of brands, established r over competing
elationships with customers, reputati brands
REPUTATION
on of the firm’s products and services
. Reputation of the company with sup Percent of
pliers, employees, etc. repeat buying

Level and consi

stency of comp
anyperformanc
e

Capabilities
Resources are not productive on their own. The most productive tasks require
that resources collaborate closely together within teams. The term
organizational capabilities is used to refer to a firm’s capacity for undertaking a
particular productive activity. Our interest is not in capabilities per se, but in
capabilities relative to other firms. To identify the firm’s capabilities we will use
the functional classification approach. A functional classification identifies
organizational capabilities in relation to each of the principal functional areas.

Functional Area Capability

Financial management

Expertise in strategic control

Effectiveness in motivating and coordinating busines

CORPORATE s units

Management of partnerships

Overall company management/ resource manageme

nt
INFORMATION
Comprehensive and effective information system tha
MANAGEMENT t can be used for managerial decision making

RESEARCH &
Capability in basic research
DEVELOPMENT

PRODUCT DESI
Design capability
GN

Brand management and promotion

MARKETING Promotion and exploiting reputation for quality

Understand of and responsiveness to market trends

Effectiveness in promoting and executing sales

SALES AND
Efficiency and speed of fulfillment
FULFILLMENT
Quality and effectiveness of customer service

SWOT
Represent an organization's core competencies & identify opportunities
The SWOT analysis framework has gained widespread acceptance because
of its simplicity and power in developing strategy.
The SWOT Matrix helps visualize the analysis. Also, when executing this
analysis it is important to understand how these elements work together. When
an organization matches internal strengths to external opportunities, it creates
core competencies in meeting the needs of its customers. In addition, an
organization should act to convert internal weaknesses into strengths and
external threats into opportunities.
Focus on your strengths. Shore up your weaknesses. Capitalize on your
opportunities. Recognize your threats.

Financial ratio analysis is the most widely used method for determining an
organization’s strengths and weaknesses in the investment, financing, and
dividend areas.
Financial ratios are computed from an organization’s income statement and
balance sheet.

How has each ratio changed over time? This information provides a means
of evaluating historical trends. It is important to note whether each ratio has
been historically increasing, decreasing, or nearly constant. For example, a 10
percent profit margin could be bad if the trend has been down 20 percent each
of the last three years. But a 10 percent profit margin could be excellent if the
trend has been up, up, up. Therefore, calculate the percentage change in each
ratio from one year to the next to assess historical financial performance on
that dimension. Identify and examine large percent changes in a financial ratio
from one year to the next.

How does each ratio compare to industry norms? A firm’s inventory

turnover ratio may appear impressive at first glance but may pale when
compared to industry standards or norms. Industries can differ dramatically on
certain ratios. For example grocery companies, such as Kroger, have a high
inventory turnover whereas automobile dealerships have a lower turnover.
Therefore, comparison of a firm’s ratios within its particular industry can be
essential in determining strength/weakness.

How does each ratio compare with key competitors? Oftentimes

competition is more intense between several competitors in a given industry or
location than across all rival firms in the industry. When this is true, financial
ratio analysis should include comparison to those key competitors. For
example, if a firm’s profitability ratio is trending up over time and compares
favorably to the industry average, but it is trending down relative to its leading
competitor, there may be reason for concern.

Trend analysis, is a useful technique that incorporates both the time and
industry average dimensions of financial ratios.
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.

MIS
In order for an information system to be effective, it must collect, code, store,
synthesize, and present information in such a manner that it answers important
operating and strategic questions

Raw Materials
External Factors - Social, Cultural, Demographic, Environmental, Economic,
Political, Governmental, Legal, Technological, Competitive
Internal Factors - Marketing, Finance, Production, Personal Matters

Data become information only when they are evaluated, filtered, condensed,
analyzed, and organized for a specific purpose, problem, individual, or time.

Outputs include:
1. Computer printouts
2. Written reports
3. Tables
4. Charts
5. Graphs
6. Checks
7. Purchase Orders
8. Invoices
9. Inventory records
10. Payroll accounts
Information systems are a major strategic resource, monitoring internal and
external issues and trends, identifying competitive threats, and assisting in the
implementation, evaluation, and control of strategy.
Low-cost manufacturing and good customer service, for example, can depend
on a good information system.

Regardless of how many factors are included in an IFE Matrix, the total
weighted score can range from a low of 1.0 to a high of 4.0, with the average
score being 2.5. Total weighted scores well below 2.5 characterize
organizations that are weak internally, whereas scores significantly above 2.5
indicate a strong internal position.

When a key internal factor is both a strength and a weakness, the factor
should be included twice in the IFE Matrix, and a weight and rating should be
assigned to each statement.

Cost/Benefit Analysis
involves assessing the costs, benefits, and risks associated with marketing
decisions
VCA aims to identify where low-cost advantages or disadvantages exist
anywhere along the value chain from raw material to customer service
activities. VCA can enable a firm to better identify its own strengths and
weaknesses, especially as compared to competitors value chain analyses and
their own data examined over time.

The overall goal of value chain analysis it to identify areas and activities that
will benefit from change in order to improve profitability and efficiency.

Inbound logistics refers to the transport, storage and delivery of goods

coming into a business.
Operations is concerned with designing and controlling the process of
production and redesigning business operations in the production of goods or
services
Outbound logistics refers to the same for goods going out of a business.
Marketing and sales are operations and activities involved in promoting and
selling goods or services
Service is the actual transaction.
Cost Drivers - factors that can impact the cost of an activity
An organization can aim to control these cost drivers in order to improve
efficiency, add value, and differentiate.

 Economies of scale
 Learning and spillovers
 Pattern of capacity utilization
 Linkages
 Interrelationships
 Integration
 Timing
 Organization policies
 Location
 Institutional factors
TYPES OF BENCHMARKING
 Internal benchmarking is a comparison of a business process to a similar
process inside the organization.
 Competitive benchmarking is a direct competitor-to-competitor
comparison of a product, service, process, or method.
 Functional benchmarking is a comparison to similar or identical
practices within the same or similar functions outside the immediate
industry.
 Generic benchmarking broadly conceptualizes unrelated business
processes or functions that can be practiced in the same or similar ways
regardless of the industry