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

Key Internal Forces Functional Business Areas:  Vary by organization  Divisions have differing strengths & weaknesses

Key Internal Forces Distinctive Competencies:  Firm’s strengths that cannot be easily matched or imitated by competitors  Building competitive advantage involves taking advantage of distinctive competencies  Strategies designed to improve on a firm’s weaknesses and turn to strengths  Give Examples ?

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

Management: Functions of Management Planning Stage When Most Important Function Strategy Formulation Organizing Strategy Implementation Motivating Strategy Implementation Staffing Controlling Strategy Implementation Strategy Evaluation

Planning Forecasting Establishing objectives Devising strategies Developing policies Setting goals  Beginning of management process  Bridge between present & future  Improves likelihood of attaining desired results

Organizing Organizational design Job specialization Job descriptions Job specifications Span of control Unity of command Coordination Job design Job analysis  Achieves coordinated effort  Defines task & authority relationships  Departmentalization  Delegation of authority

Motivating Leadership Communication Work groups Job enrichment Job satisfaction Needs fulfillment Organizational change Morale Management: Motivation  Influencing to accomplish specific objectives  Communication – major component

Staffing Wage & salary admin. Employee benefits Interviewing Hiring Discharging Training Management development Affirmative Action EEO Labor relations Management: Staffing  Personnel management  Human resources management

Controlling Quality Financial Sales Inventory Expense Analysis of variance Rewards Sanctions  Establishing performance standards  Ensure actual operations conform to planned operations  Taking corrective actions

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? Does the firm use strategic management concepts? Are objectives/goals measurable? Well communicated? Do managers at all levels plan effectively? Do managers delegate well?

Management Audit Checklist Are job descriptions clear? 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? Are job descriptions clear? 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?

Marketing Opportunity Analysis: yes is strength,no is a weakness 1. Are markets segmented effectively? 2. Has the firm’s market share been increasing? 3. Are the distribution channels reliable & cost effective? 4. Does the firm conduct market research? 5. Are product quality & customer service good? 6. Do the firm’s marketing managers have adequate experience and training?

Finance/Accounting Audit Can the firm raise short-term capital as needed? Can the firm raise long-term 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? Can the firm raise short-term capital as needed? Can the firm raise long-term 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?

Effectiveness shown by returns on sales & investment Ratios Return on stockholders equity (ROE) Earnings per share Price-earnings ratio Basic Financial Ratios Profitability Ratios

Firm’s ability to maintain economic position Ratios Sales Net income Earnings per share Dividends per share Basic Financial Ratios Growth Ratios

Finance/Accounting Audit Effective Financial Analysis Requires: 1.Analysis of how the ratios have changed over time 2.How the ratios compare to industry norms 3.How the ratios compare with key competitors Effective Financial Analysis Requires: 1.Analysis of how the ratios have changed over time 2.How the ratios compare to industry norms 3.How the ratios compare with key competitors

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 quality-control policies & procedures effective? Are suppliers of materials, parts, etc. reliable and reasonable? Are facilities, equipment & machinery in good condition? Are inventory-control policies and procedures effective? Are quality-control policies & procedures effective?

Research & Development Audit Are the R&D facilities adequate? Are MIS and computer systems adequate? Is communication between R&D & other organizational units effective? Are present products technologically competitive? Are the R&D facilities adequate? Are MIS and computer systems adequate? Is communication between R&D & other organizational units effective? Are present products technologically competitive?

Management Information Systems Areas of interest to MIS: –Information Systems –Security –User-friendly –E-commerce  Purpose: Improve performance of an enterprise by improving the quality of managerial decisions.

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 there effective passwords for entry into the firm’s information system? Are strategists of the firm familiar with the information systems of rival firms? 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 there effective passwords for entry into the firm’s information system? Are strategists of the firm familiar with the information systems of rival firms?

Management Information Systems Audit Is the information system user-friendly? Do all users understand the competitive advantages that information can provide? Are computer training workshops provided for users? Is the firm’s system being improved? Is the information system user-friendly? Do all users understand the competitive advantages that information can provide? Are computer training workshops provided for users? Is the firm’s system being improved?

VCA Value Chain Analysis 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. 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. Firms determine whether its value chain activities are competitive compared to rivals. This entails measuring the costs of value chain activities across an industry to determine “best practices” among competing firms for the purpose of duplicating or improving upon those best practices. How can the industry value chain (value system) affect the organisational value chain? Suppliers, distributors

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

VCA example

Place the following in the appropriate part of the value chain; i.e. primary and support activities A All staff are trained to the highest industry standards. B. The hotel management team focus on goals set out in their strategic plan. C. All golf course fairways are trimmed and watered daily. D. Fresh fruit and vegetables are delivered and prepared every day. E. The hotel has an advanced room reservation system. F. Fen Side is promoted through magazines targeted at the weathly and influential. G. The whole experience is based upon high quality, professional service at every stage. H. Limousines are available to take guests to airports as they finish their stay. I. Fen Side has a series of contracts with suppliers of meat and fish

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.

Refer to the Internal Evaluation Matrix for Pepsi

Potential exam questions SM is both an art and a science: discuss how science, giving examples, can be used in accessing the current internal and external status of an organisation. Discuss how an internal evaluation should be performed: What information is required ; how the information is used; and what conclusions could be drawn from the evaluation. The internal evaluation matrix and the value chain analysis are two methods of analysing the efficiency an organisation: discuss the relationship between both types of analysis.