Chapter 4

The Internal Assessment

Strategic Management:
Concepts & Cases
13th Edition
Fred David

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Internal Audit
 The purpose of internal audit is to
Identify strengths and weaknesses in
 Management
 Marketing

 Finance and accounting

 Production and operations

 Research and development

 Management information systems

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Nature of an Internal Audit

Basis for Objectives & Strategies

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

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Key Internal Forces

Distinctive Competencies:
Firm’s strengths that cannot be
easily matched or imitated by
competitors
Buildingcompetitive advantage involves
taking advantage of distinctive
competencies

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Internal Audit Process

Parallels process of external audit

1- Information gathered from:

 Management – Marketing -Finance/accounting
 Production/operations –R &D - MIS
•Managers and employees from all
areas provide information
2- A team of managers then selects 10 to
15 key organizational strengths and
weaknesses toCopyright
focus on
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 Resource Based View (RBV)
Approach to Competitive Advantage
- Internal resources are more important than
external factors
- Three All-Encompassing Categories
•Physical resources
•Human resources
•Organizational resources
-Empirical Indicators
•Rare
•Hard to imitate
•Not easily substitutable
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Management

Functions of Management

1. Planning
2. Organizing
3. Motivating
4. Staffing
5. Controlling
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Management
Stage When Most
Function Important
Planning Strategy Formulation

Organizing Strategy Implementation

Motivating Strategy Implementation

Staffing Strategy Implementation

Controlling Strategy Evaluation

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Management Audit Checklist

 Does the firm use strategic management

concepts?
 Are objectives/goals measurable? Well
communicated?
 Do managers at all levels plan effectively?
 Do managers delegate well?
 Is the organization’s structure appropriate?
 Are job descriptions clear?
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 Are job specifications clear?
 Is employee morale high?
 Is employee absenteeism low?
 Is employee turnover low?
 Are the reward mechanisms effective?
 Are the organization’s control
mechanisms effective?

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Marketing

Customer Needs or Wants for Products

and Services

1. Defining

2. Anticipating

3. Creating

4. Fulfilling
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 Marketing Audit
1. Are markets segmented effectively?
2. Is the organization positioned well among competitors?
3. Has the firm’s market share been increasing?
4. Are the distribution channels reliable & cost effective?
5. Is the sales force effective?
6. Does the firm conduct market research?
7. Are product quality & customer service good?
8. Are the firm’s products and services priced appropriately?

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9. Does the firm have effective

promotion, advertising, and publicity
strategies?
10. Are the marketing, planning, and
budgeting effective?
11. Do the firm’s marketing managers
have adequate experience and
training?
12. Is the firm’s Internet presence
excellent as compared to rivals?
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Finance/Accounting

1. Investment decision (Capital

budgeting)
2. Financing decision

3. Dividend decision

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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?

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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?

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Production/Operations

Production/Operations Functions

 Process
 Capacity
 Inventory
 Workforce
 Quality

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Production/Operations Audit
•Are suppliers of materials, parts, etc. reliable and
reasonable?
•Are facilities, equipment, machinery, and offices in
good condition?
•Are inventory-control policies and procedures
effective?
•Are quality-control policies & procedures
effective?
•Are facilities, resources, and markets strategically
located?
•Does the firm have technological competencies?

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Internal Factor Evaluation (IFE) Matrix

1. List key internal factors

2. Assign a weight ranging from 0.0 to 1.0
3. Assign a 1 to 4 rating to each factor
4. Multiply the weight times the rating
5. Sum the weighted scores

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