Strategic formulation Strategy Formulation Vision & Mission External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection

Internal Audit Information from: Parallels process of external audit Management Marketing/sales Finance/accounting Production/operations Research & Development Management information Systems

Management Audit Checklist: a yes is a strength a no is a weakness for all the checklists Does the firm use strategic management concepts? Are objectives/goals measurable? Well communicated? Do managers at all levels plan effectively? Do managers delegate well?

Marketing/sales Opportunity Analysis: yes is strength ,no is a weakness Are markets segmented effectively? Has the firm’s market share been increasing? Does the firm conduct market research? Are product quality & customer service good?

Finance/Accounting Audit Can the firm raise capital as needed? through debt (assets that are owned) and/or equity (assets minus liabilities)? Does the firm have sufficient working capital (goods that are already produced)? Are the firm’s financial managers experienced & well trained?

Production/Operations Audit Are suppliers of materials, parts, etc. reliable and reasonable? Are facilities, equipment & machinery in good condition? Are inventory-control policies and procedures effective? Are facilities, resources, and markets strategically located? Copyright 2007 Prentice Hall

Research & Development Audit Are the R&D facilities adequate? If R&D is outsourced, is it cost effective? Are R&D resources allocated effectively? Is communication between R&D & other organizational units effective? Are present products technologically competitive? Copyright 2007 Prentice Hall

Management Information Systems Audit Do managers use the information system to make decisions? Is data updated regularly? Do managers from all functional areas contribute input to the information system? Are strategists of the firm familiar with the information systems of rival firms? Is the firm’s system being improved (is IT evolution ideal)?

Internal (factor) evaluation matrix The IEM is a summary of the internal audit Summaries internal strength and weaknesses within the functional area’s of the business. Identifies and evaluates cross-functional relationships; e.g. marketing and finance.

Internal factor evaluation (IFE) List key internal factors as identified in the internal-audit process. Use a total from ten to twenty internal factors including both strengths and weaknesses. Assign a weight ranging from 0 (not important) to 1.0 (very important). The weight indicates the relative importance of the factor to being successful in the firm’s industry. The sum of all the weights must equal 1.0. Assign a 1-4 rating to each factor to indicate whether that factor represents a major weakness (1), minor weakness (2), minor strength (3), or major strength (4). Multiply each factor’s weight by its rating to determine a weighted score for each variable. Sum the weighted scores for each variable to determine the total weighted score for the organization. Total weighted scores of below 2.5 indicate an internally weak organization.

Ryanair Internal Evaluation matrix

Ryanair Internal Evaluation matrix

An alternative internal evaluation Porter’s Value Chain Analysis (VCA) refers to the process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing products to marketing those products. Highlights specific activities in a business where competitive strategies can best be applied and indicate where information systems are likely to have a strategic impact Moreover the VCA will focus on analysis your company against competitors (benchmarking) and so adopt industrial “best practices”

Value chain Analysis Determines cost associated with organisation activities Can help a firm to Identify strengths and weaknesses. A generic example of activities is provided in below.

Information systems in the VCA Laudon and Laudon “essentials of management information systems” tenth edition chapter 3 Adopted Laudon and Laudon (2012)

VCA All firms should use value chain analysis to develop and nurture a core competence and develop this competence into a distinctive competence. 1. A core competence is a value chain activity that a firm performs especially well. 2. When a core competence evolves into a major competitive advantage, it is called a distinctive competence. (e.g. manufacturing system; marketing analysis ) Firms determine whether its value chain activities are competitive compared to rivals. This entails measuring the costs of value chain activities, if possible, across an industry to determine “best practices” among competing firms for the purpose of duplicating or improving upon those best practices. VCA (really a business process model), firms achieve competitive advantages by being more efficient.

Extending the chain: The Industrial value chain This is the link between firms, in a particular industry, going from raw materials to consumer. Supplier’s suppliers, Suppliers, logistics partners , and distributors including retailers. But in the Internet age, this kind of dependence and co-ordination takes place much more broadly (geographical area) and continuously (24/7).

Industrial Value “web” The chain can be seen to have developed into a web (a more flexible chain) Collection of independent firms that use information technology to coordinate their value chains to produce a product collectively The customer receives a single product or service which was co-produced by many firms working together closely. Value webs are flexible and adapt to changes in supply and demand

The industrial value “web” The value web is a networked system that can synchronize the value chains of business partners within an industry to respond rapidly to changes in supply and demand. Laudon and Laudon “essentials of management information systems” tenth edition chapter 3 Adopted Laudon and Laudon (2012)

Potential exam questions An Internal Factor Evaluation Matrix can be used for evaluation of an organisation: How would you construct an internal evaluation matrix (8 marks) What conclusions could be drawn from using the matrix. (3 marks) Value chain analysis is a method of performing an internal analysis. Describe, using a suitable example, how to perform a VCA (within a firm and within the industry). (8 marks) How can it improve the organisation’s competitive advantage (3 marks) Distinguish between both approaches to determining the internal environment of an organisation. (8 marks)

Potential exam questions Describe 5 questions that can be asked to develop an internal evaluation matrix (5 marks) Given a set of an organisations the strengths and weaknesses. Explain how to use a Internal evaluation matrix to perform an internal evaluation. (8 marks) Describe, using a suitable example how you would use porter’s model to perform an internal evaluation. (10 marks) Discuss which model you consider to be the most effective in formulating effective strategies (7 marks)