Comprehensive Strategic Management Model

External and Internal Analyses

External
Audit

Environment

Chapter 3

Generate,
Evaluate,
Select
Strategies

Implement
Strategies:
Mgmt Issues

Implement
Strategies:
Marketing,
Fin/Acct,
R&D, CIS

Measure &
Evaluate
Performance

Chapter 2

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

al
ob
nt
Gl
me
on
vir
En

Internal
Audit

Industry
Environment

Competitor
Environment

Po
lit
En ical/L
vir
on egal
me
nt

Long-Term
Objectives

al
ner
Ge omic
on
Ec

Vision
&
Mission
Statements

Ge
n
De
mo eral
gra
ph
ic

Sociocultural

Technological

Chapter 4

By studying the external

environment, firms identify
what they might choose to do

Opportunities and threats

General
Ch 3 -1

External and Internal Analyses

By studying the internal
environment, firms identify
what they can do

Dr.Mustafa KILI

Ch 4-2

Nature of an Internal Audit

Basis for objectives & strategies:
Internal strengths/weaknesses
External opportunities/threats
Clear statement of mission

Unique resources,
capabilities, and core
competencies
(sustainable competitive
advantage)
Dr.Mustafa KILI

Ch 4-3

Dr.Mustafa KILI

Ch 4-5

Competencies vs. Core Competencies

vs. Distinctive Competencies

Key Internal Forces

A company competence is the product of

organizational learning and experience and
represents real proficiency in performing an
internal activity

Distinctive Competencies
A firms strengths that cannot be easily
matched or imitated by competitors
Building competitive advantage involves
taking advantage of distinctive competencies

A core competence is a well-performed internal

activity that is central (not peripheral or incidental)
to a companys competitiveness and profitability

Strategies designed in part to improve on a

firms weaknesses and turn to strengths

A distinctive competence is a competitively

valuable activity that a company performs better
than its rivals

Dr.Mustafa KILI

Ch 4-6

Dr.Mustafa KILI

Ch 4-7

Resource Based View (RBV)

Strategic Management
Principle

Approach to Competitive Advantage

A distinctive competence
Internal resources are more important
than external factors

empowers a company to
build competitive
advantage!
Dr.Mustafa KILI

Ch 4-8

Discovering Core
Competencies

Dr.Mustafa KILI

Discovering Core
Competencies

Resources
Tangible
Intangible

Resources are what a firm has

to work with--its assets-including its people and the
value of its brand name

Resources
Tangible
Intangible

Resources represent inputs into

a firms production process...
such as capital equipment, skills
of employees, brand names,
finances and talented managers

Dr.Mustafa KILI

Ch 4-10

Components of
Internal Analysis

Tangible Resources
Financial
Physical
Technological
Organizational

Intangible Resources
Human Resource
Innovation
Reputation

Dr.Mustafa KILI

Ch 4-11

Discovering Core
Competencies

Capabilities

Capabilities

Resources
Tangible
Intangible

Dr.Mustafa KILI

Ch 4-9

Capabilities are what a firm does, and represent the firms

capacity or ability to integrate individual firm resources to
achieve a desired objective

Ch 4-12

Dr.Mustafa KILI

Ch 4-13

Components of
Internal Analysis

Discovering Core
Competencies

Core
Competencies
Capabilities

Capabilities

Resources
Tangible
Intangible

Capabilities become important when they are combined

in unique combinations which create core competencies
which have strategic value and can lead to competitive
advantage

Dr.Mustafa KILI

Ch 4-14

Dr.Mustafa KILI

Ch 4-15

Components of
Internal Analysis

Discovering Core
Competencies

Core
Competencies
Core
Competencies

Discovering Core
Competencies

Capabilities
Four Criteria
of Sustainable
Advantages

Resources
Tangible
Intangible

Dr.Mustafa KILI

Ch 4-16

Valuable
Rare
Costly to Imitate
Nonsubstitutable

Support Activities

Four Criteria
of Sustainable
Advantages

Resources
Tangible
Intangible

Value
Chain
Analysis

Outsource

Ch 4-23

Dr.Mustafa KILI

Firm Infrastructure

Discovering Core
Competencies

Human Resource Mgmt.

ar
M

Capabilities

Dr.Mustafa KILI

Dr.Mustafa KILI

The Basic
Value Chain

Components of
Internal Analysis
Core
Competencies

Valuable
Rare
Costly to Imitate
Nonsubstitutable

Ch 4-17

M
ar

gin

gin

Service
Marketing & Sales
Procurement

Core competencies distinguish a company competitively

and make it distinctive

Technological Development

Core competencies are resources and capabilities that serve

as a source of competitive advantage over rivals

Outbound Logistics
Operations
Inbound Logistics
Primary Activities

Ch 4-24

Components of
Internal Analysis

Outsourcing
M
ar
gi

Core
Competencies

Service
Marketing & Sales

Inbound Logistics
Dr.Mustafa KILI

ua
b
Ra le?
re
?
Co
stl
y
t
N
on o I m
su
bs itate
tit
ut ?
ab
le

V
al

Average Returns

Yes/
No

Temporary Competitive Advantage

Above Average to
Average Returns

Yes Yes Yes Yes

Sustainable Competitive Advantage

Above Average
Returns

Yes No

Yes Yes No

Dr.Mustafa KILI

No

Yes/
No No

Outsource

Ch 4-26

Competitive Advantage
Distinctive Organizational
Capabilities
Organizational
Resources
Financial assets
Physical assets
Human resources
Intangible assets
Structural-cultural
assets
Ch 4-28

Organizational
Capabilities

Core
Competencies

Organizational processes
and routines
Accumulated knowledge
Actual work activities

Dr.Mustafa KILI

Key Internal Forces

Ch 4-29

Internal Audit

Functional business areas (Avtivity Areas):

Parallels process of external audit

Gather & assimilate information from:

Vary by organization
Divisions have differing strengths and
weaknesses

Dr.Mustafa KILI

Valuable
Rare
Costly to Imitate
Nonsubstitutable

A Quick Review of Organizational Resources

Performance
Implications

Competitive
Parity

No

Value
Chain
Analysis

Strategic
Competitiveness

Below Average
Returns

No

Operations

Competitive
Disadvantage

No

Four Criteria
of Sustainable
Advantages

Resources
Tangible
Intangible

Performance Implications
Competitive
Consequences

Competitive
Advantage

Outbound Logistics

Ch 4-25
Primary Activities

Dr.Mustafa KILI

Discovering Core
Competencies

Capabilities

Procurement

Technological Development

Human Resource Mgmt.

Firm Infrastructure

Usually this is
because the specialty
supplier can provide
these functions more
efficiently

gi
ar
M

Support Activities

Outsourcing is the
purchase of some or
all of a valuecreating activity
from an external
supplier

Strategic
Competitiveness

Ch 4-30

Management
Marketing
Finance/accounting
Production/operations
Research & development
Management information systems

Dr.Mustafa KILI

Ch 4-31

Internal Audit

Internal Audit

Involvement in performing an internal

strategic-management audit provides
vehicle for understanding nature and
effect of decisions in other functional
business areas of the firm.

Dr.Mustafa KILI

Key to organizational success:

Coordination and understanding among
managers from all functional areas

Ch 4-32

Integrating Strategy and Culture

Dr.Mustafa KILI

Integrating Strategy and Culture

Organizational Culture

Cultural products
Values
beliefs
rites
rituals
ceremonies
myths

Pattern of behavior developed by an

organization as it learns to cope with
its problem of external adaptation and
internal integrationis considered
valid and taught to new members

Dr.Mustafa KILI

Ch 4-33

Ch 4-34

Integrating Strategy and Culture

stories
legends
sagas
language
symbols
heroes

Dr.Mustafa KILI

Ch 4-35

Functions of Management

Organizational Culture- Five basic activities

Resistant to change

May represent a strength or weakness

of the firm

Dr.Mustafa KILI

Ch 4-36

Planning
Organizing
Motivating
Staffing
Controlling

Dr.Mustafa KILI

Ch 4-37

Functions of Management

Functions of Management

Function

Stage When Most

Important

Planning

Strategy Formulation

Organizing

Strategy Implementation

Planning

Staffing

Strategy Implementation

Motivating

Strategy Implementation

Controlling

Strategy Evaluation

Dr.Mustafa KILI

Ch 4-38

Dr.Mustafa KILI

Ch 4-39

Functions of Management

Planning

Organizing

Forecasting
Establishing objectives

Devising strategies

Planning

Start of the process

Bridge between present and future
Increases likelihood of achieving desired
results

Developing policies

Achieve coordinated effort

Defining task and authority relationships
Departmentalization
Delegation of authority

Setting goals
Dr.Mustafa KILI

Ch 4-40

Dr.Mustafa KILI

Organizing

What Determines
the Best Org. Structure?
Strategy
Size

Organizing

Technology
Environment
Dr.Mustafa KILI

Ch 4-41

Ch 4-42

Dr.Mustafa KILI

Organizational design
Job specialization
Job descriptions
Job specifications
Span of control
Unity of command
Coordination
Job design
Job analysis
Ch 4-43

Motivating

Motivating

Staffing
Management

Leadership
Communication
Work groups
Job enrichment
Job satisfaction
Needs fulfillment
Organizational
change
Morale

Dr.Mustafa KILI

Staffing

Ch 4-45

Dr.Mustafa KILI

Controlling

Quality control
Financial control
Sales control
Inventory control
Expense control
Analysis of variances
Rewards
Sanctions

Dr.Mustafa KILI

Ch 4-49

Does the firm use strategicmanagement concepts?

Are company objectives and goals
measurable and well communicated?
Do managers at all hierarchical levels
plan effectively?
Do managers delegate authority well?
Is the organizations structure
appropriate?

Dr.Mustafa KILI

Are job descriptions and job

specifications clear?
Is employee morale high?
Are employee turnover and
absenteeism low?
Are organizational reward and control
mechanisms effective?

1.
2.
3.
4.
5.
6.
7.

Dr.Mustafa KILI

Ch 4-50

Marketing

Management Audit Checklist

Ch 4-47

Management Audit Checklist

Management

Controlling

Wage & salary admin

Employee benefits
Interviewing
Hiring
Firing
Training
Management development
Safety
Affirmative action
EEO
Labor relations
Career development
Discipline procedures

Ch 4-51

Customer analysis
Selling products/services
Product and service planning
Pricing
Distribution
Marketing research
Opportunity analysis

Dr.Mustafa KILI

Ch 4-53

Marketing Audit

Marketing Audit

Are markets segmented effectively?

Is the organization positioned well among
competitors?
Has the firms market share been increasing?
Are present channels of distribution reliable
and cost effective?
Does the firm have an effective sales force?

Dr.Mustafa KILI

Ch 4-61

Does the firm conduct market research?

Are product quality and customer
service good?
Are the firm's products/services priced
appropriately?
Does the firm have an effective
promotion, advertising, and publicity
strategy?

Dr.Mustafa KILI

Finance/Accounting

Marketing Audit

Are marketing planning and budgeting

effective?
Do the firms marketing mangers have
adequate experience and training

Dr.Mustafa KILI

Ch 4-62

Ch 4-63

Determining financial strengths and

weaknesses key to strategy formulation
Investment decision (Capital budgeting)
Financing decision
Dividend decision

Dr.Mustafa KILI

Ch 4-64

Basic Financial Ratios

Finance/Accounting

Firms ability to meet

its short-term
obligations

Functions of Finance/Accounting

Ratios

Investment decision (Capital budgeting)

Financing decision
3. Dividend decision
1.

Liquidity ratios
Current ratio

2.

Dr.Mustafa KILI

Ch 4-65

Quick
(or acid-test)
ratio
Dr.Mustafa KILI

Ch 4-66

Basic Financial Ratios

Basic Financial Ratios

Effective use of firms
resources

Extent of debt
financing

Ratios

Ratios
Debt-to-total-assets

Leverage ratios

Inventory-turnover

Activity ratios

Fixed assets turnover

Debt-to-equity

Total assets turnover

Long-term debt-to-equity
Accounts receivable turnover

Times-interest earned
Dr.Mustafa KILI

Ch 4-67

Average collection period

Dr.Mustafa KILI

Basic Financial Ratios

Basic Financial Ratios

Effectiveness shown
by returns on sales
and investment

Ratios
Profitability ratios

Operating profit margin

Return on stockholders equity

(ROE)

Net profit margin

Earnings per share

Price-earnings ratio

Return on total assets (ROA)

Dr.Mustafa KILI

Ch 4-69

Dr.Mustafa KILI

Basic Financial Ratios

Sales

Net income

Earnings per share

Dividends per share

Dr.Mustafa KILI

Ch 4-70

Finance/Accounting Audit

Firms ability to
maintain economic
position
Ratios

Growth ratios

Effectiveness shown
by returns on sales
and investment
Ratios

Profitability ratios
(continued)

Gross profit margin

Ch 4-68

Ch 4-71

Where is the firm strong and weak as

indicated by financial ratio analysis?
Can the firm raise needed short-term capital?
Can the firm raise needed long-term capital
through debt and/or equity?
Does the firm have sufficient working capital?
Are capital budgeting procedures effective?

Dr.Mustafa KILI

Ch 4-72

Finance/Accounting Audit

Production/Operations

Are dividend payout policies reasonable?

Does the firm have good relations with its
investors and stockholders?
Are the firms financial managers experienced
and well trained?

Dr.Mustafa KILI

Ch 4-73

Dr.Mustafa KILI

Production/Operations Audit

Ch 4-80

Research and Development

Ch 4-74

Production/Operations Audit

Are suppliers of raw materials, parts, and

subassemblies reliable and reasonable?
Are facilities, equipment, machinery, and
offices in good condition?
Are inventory-control policies and procedures
effective?

Dr.Mustafa KILI

Process
Capacity
Inventory
Workforce
Quality

Are quality-control policies and procedures

effective?
Are facilities, resources, and markets
strategically located?
Does the firm have technological
competencies?

Dr.Mustafa KILI

Ch 4-81

Research and Development

Development of new products before

competition
Improving product quality
Improving manufacturing processes to
reduce costs

Financing as many
projects as possible
Use percentage-of-sales
method
R&D budgets

Budgeting relative to
competitors
Deciding how many
successful new
products are needed

Dr.Mustafa KILI

Ch 4-82

Dr.Mustafa KILI

Ch 4-83

10

Research and Development Audit

Does the firm have R&D facilities? Are

they adequate?
If outside R&D firms are used, are they
cost effective?
Are the organizations R&D personnel
well qualified?
Are R&D resources allocated
effectively?

Dr.Mustafa KILI

Ch 4-84

Research and Development Audit

Dr.Mustafa KILI

Management Information
Systems

Improve performance of an enterprise by

improving the quality of managerial
decisions.

Dr.Mustafa KILI

Ch 4-86

Ch 4-87

Management Information
Systems Audit

Do all managers in the firm use the

information system to make decisions?
Is there a chief information officer or
director of information systems position
in the firm?
Are data in the information system
updated regularly?

Dr.Mustafa KILI

Information Systems
CIO/CTO
Security
User-friendly
E-commerce

Dr.Mustafa KILI

Management Information
Systems Audit

Ch 4-85

Management Information
Systems

Purpose

Are management information and computer

systems adequate?
Is communication between R&D and other
organizational units effective?
Are present products technologically
competitive?

Ch 4-88

Do managers from all functional areas

of the firm contribute input to the
information system?
Are there effective passwords for entry
into the firms information system?
Are strategists of the firm familiar with
the information systems of rival firms?

Dr.Mustafa KILI

Ch 4-89

11

Management Information
Systems Audit

Internal Analysis (IFE)

Is the information system user-friendly?

Do all users of the information system
understand the competitive advantages
that information can provide firms?
Are computer training workshops
provided for users?
Is the firms system being improved?

Dr.Mustafa KILI

Ch 4-90

Five

Step Process:

List key internal factors (10

- 20)
Strengths

& weaknesses

Assign weight to each (0 to 1.0)

Sum

of all weights = 1.0

Dr.Mustafa KILI

Internal Analysis (IFE)

Ch 4-91

Internal Analysis (IFE)

Assign 1-4 rating to each factor

Firms

current strategies response to the

factor

Sum the weighted scores for each

Determines

the total weighted score for the

organization

Multiply each factors weight by its rating

Produces

a weighted score

Dr.Mustafa KILI

Ch 4-92

Highest

possible weighted score for the

organization is 4.0; the lowest, 1.0.
Average = 2.5

Dr.Mustafa KILI

Internal Analysis (IFE)

Internal Analysis (IFE)

Mandalay Bay

Weight

Rating

Weighted
score

Largest casino company in world

.05

.20

Room occupancy rates over 95%

.10

.40

Increasing free cash flows

.05

.15

Owns 1 mile on Las Vegas strip

.15

Strong management team

.05

Buffets at most facilities

Internal Strengths

Ch 4-93

Mandalay Bay

Weight

Rating

Weighted
score

Most properties located in Las Vegas

.05

.05

Little diversification

.05

.10

.60

Family reputation, not high rollers

.05

.10

.15

Laughlin properties

.10

.10

.05

.15

Recent loss of joint ventures

.10

.10

Minimal comps provided

.05

.15

Long-range planning

.05

.20

Reputation as family-friendly

.05

.15

TOTAL (including Strengths)

1.0

Financial ratios

.05

.15

Dr.Mustafa KILI

Ch 4-94

Internal Weaknesses

Dr.Mustafa KILI

2.75

Ch 4-95

12

Internal Analysis (IFE)

Mandalay Bay (in the previous

example), has a total weighted
score of 2.75 indicating that the firm
is above average in its overall
internal strength

Dr.Mustafa KILI

Ch 4-96

13