Strategic Management Framework Develop Mission & Vision Perform Situational Analysis Product Leadership Set Objectives & Craft Strategies Feedback Value Customer Operational Intimacy Excellence Implement Strategy Assess Value Creation & Provide Feedback

The Internal Audit Process Step 1- Assessment of Performance Financial & Non-financial measure Step 2- Analysis of value chain activities Step 4- Determine Strength & Weaknesses Evaluate activities In the Value chain Evaluate linkage between organization and Supply chain partners Apply test of Competitive relevance Use strength/weaknesses To inform strategic choice Refer to the New Balance Profile Step 3- Understanding Core Competencies Identify special skills or capabilities

Assessment Tools for Stage 1 Revenue analysis Growth rate, source of revenues Earnings analysis Growth rate of profits, source of profits Return on Equity After tax profit for each $ of stockholder investment Change in market share Cause-effect for changes Employee turnover Ability to retain talent Employee & customer Degree of satisfaction, commitment, surveys loyalty All of these metric can be done relative to your peer group, thus analog metrics. Historical data is required, but trends must also be forecasted. Best-in-Class metrics Supplemental Reading Figure 6.7

The Value Chain Primary Infrastructure Human Resources Secondary Technology & Development Procurement Profit Margin Note that Value is measured by Margin $’s Items in the chain can vary by company depending on the type of business. The model on page 84 of the Wheelen/Hunger text is different than Porter’s. These are guidelines as to where value is usually created. As in the Starbucks case study the key is to gain insight as to where value is created and craft the value chain accordingly. Important to compare the value chain of partners, potential acquisitions, competitors Provide example of how PC makers tried to get into networking. Identify the concept of value leverage. It’s important to weight the value propositions according to importance as perceived by the customer. I.e. test SW example Marketing & Sales Inbound Logistics Outbound Logistics Operations Primary Service M.E. Porter-Competitive Advantage Wheelen/Hunger p. 86 Figure 4-3

Barriers to Entry Economies of Scale Cost due to larger size Product differentiation Customer loyalty to brand Capital requirements Too expensive to enter Disadvantages other than size Learning and experience curve Distribution channels Access to sales channels Regulation and/or licensing Special approvals needed Look at the value chain on page 86 figure 4-3. Evaluate each category relative to the above barriers. Supplemental Reading Figure 5.2 & 7.2 Source: M.E. Poter The Competitive Advantage of Nations

Areas of Distinctive Competence Commonly Found Quality Service Location Filling a special niche Flexibility and adaptability Strong consumer orientation Reputation and image Personnel Refer to the Kultur example Profile Don’t underestimate any of these Develop plans to sustain competence Sustaining is the difference between opportunistic actions and strategic actions. Supplemental reading Figure 6.1

Resource Allocation Helpful metrics to assess resource allocation; FOM = Margin $’s over three years Development cost ($) Refer to “Giving up Your Best Customer” Profile Best –in –Class metrics Assessment can be done by organizational area, i.e. for some products/services, marketing may be the dominant expense.

Culture Are the company values practiced? -Employee surveys Are we organized efficiently for the task at hand? – There are tradeoffs to all org structures, prioritize the issue matrix. Are we setting aggressive yet realistic expectations? Analog metrics can provide insight. Often difficult to upper management to assess Sometimes outsourced to a 3rd party for objectivity HR usually owns Any org structure has trade-offs. Org structures need to focus on strategic priorities Often internal audit requires external metrics.