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Chapter 5 The Internal Assessment

Chapter 5 The Internal Assessment. Strategic Management and Business Policy 11 th Edition Thomas L. Wheelen J. David Hunger. Internal Assessment.

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Chapter 5 The Internal Assessment

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  1. Chapter 5The Internal Assessment Strategic Management and Business Policy 11th Edition Thomas L. Wheelen J. David Hunger

  2. Internal Assessment The biggest levers you’ve got to change a company are strategy, structure, and culture. If I could pick two, I’d pick strategy and culture. –Wayne Leonard, CEO, Entergy Weak leadership can wreck the soundest strategy. – Sun Zi Internal Scanning: Organizational Analysis

  3. The Nature of an Internal Audit -- Strengths -- Weaknesses Functional Areas of Business Internal Scanning: Organizational Analysis

  4. Nature of an Internal Audit • Internal strengths/weaknesses • External opportunities/threats • Clear mission statement Basis for Objectives & Strategies Internal Scanning: Organizational Analysis

  5. Key Internal Forces Functional Business Areas: • Vary by organization • Divisions have differing strengths & weaknesses Internal Scanning: Organizational Analysis

  6. Key Internal Forces Competencies: Cross-functional integration and coordination of capabilities. Competencies could be Core Competencies or Distinctive Competencies. Internal Scanning: Organizational Analysis

  7. Key Internal Forces Core Competency: A collection of competencies that crosses divisional boundaries, i.e. widespread within the organization. Something that the corporation can do exceedingly well. Internal Scanning: Organizational Analysis

  8. Key Internal Forces Distinctive Competency: Firm’s strengths that cannot be easily matched or imitated by competitors Building competitive advantage involves taking advantage of distinctive competencies Internal Scanning: Organizational Analysis

  9. Key Internal Forces Distinctive Competency: Strategies are designed to improve on a firm’s weaknesses and turn them to strengths Internal Scanning: Organizational Analysis

  10. Example: Procter & Gamble’s Core Competence Superb marketing-distribution skills and R&D capabilities in five core technologies - fats, oils, skin chemistry, surfactants, emulsifiers Internal Scanning: Organizational Analysis

  11. Example: Sony’s Core Competence Expertise in electronic technology and ability to translate the expertise into innovative products —miniaturized radios and video cameras; TVs and MP3 players with unique features, attractively designed PCs Internal Scanning: Organizational Analysis

  12. Example: Honda’s Distinctive Competence Expertise in gasoline enginetechnology and small engine design Internal Scanning: Organizational Analysis

  13. Example: Intel’s Distinctive Competence Design of complex chipsfor personal computers Internal Scanning: Organizational Analysis

  14. 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 Internal Scanning: Organizational Analysis

  15. Internal Audit Key to Organizational Success Coordination & understanding among managers from all functional areas Internal Scanning: Organizational Analysis

  16. Internal Audit Functional Relationships Number and complexity increases relative to organization size Internal Scanning: Organizational Analysis

  17. Internal Audit Financial Ratio Analysis Exemplifies complexity of relationships among functional areas of the business Internal Scanning: Organizational Analysis

  18. Resource Based View (RBV) Using Resources to Gain Competitive Advantage Approach to Competitive Advantage RBV emerged as a way to make the core competence concept more focused and more measurable – creating a meaningful internal analysis. Internal Scanning: Organizational Analysis

  19. Resource Based View (RBV) Using Resources to Gain Competitive Advantage 3 All Encompassing Categories Tangible assets - Physical resources Intangible assets - Human resources Organizational capabilities – skills & abilities Internal Scanning: Organizational Analysis

  20. Resource Based View (RBV) Using Resources to Gain Competitive Advantage Criteria of Valuable Resources • Competitive superiority • Resource scarcity • Inimitability • Appropraitability • Durability • Sustainability Internal Scanning: Organizational Analysis

  21. Resource Based View (RBV) Using Resources to Gain Competitive Advantage VRIO empirical indicators to evaluate resources • Value • Rare • Imitability • Organized Internal Scanning: Organizational Analysis

  22. Value-Chain Analysis Internal Scanning: Organizational Analysis

  23. Value-Chain Analysis Porters’ Value-Chain Analysis; “Differences among competitors’ value chains are a key source of competitive advantage” Examination of the value-chain activities leads to a better understanding of an organizations’ strengths and weaknesses Internal Scanning: Organizational Analysis

  24. Integrating Strategy & Culture Organizational Culture Pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integration…is considered valid and taught to new members Internal Scanning: Organizational Analysis

  25. Integrating Strategy & Culture Organizational Culture • Resistant to change • May represent • Strength • Weakness Internal Scanning: Organizational Analysis

  26. Integrating Strategy & Culture Values Beliefs Legends Heroes Rites Cultural Products Symbols Rituals Myths Internal Scanning: Organizational Analysis

  27. Integrating Strategy & Culture Organizational Culture Can Inhibit Strategic Management • Miss external changes due to strongly held beliefs • Natural tendency to “hold the course” even during times of strategic change Internal Scanning: Organizational Analysis

  28. Integrating Strategy & Culture Organizational Culture • Working with behavior alone is unlikely to produce any sustainable change. It is the drivers that influence behavior. • If you want to change behavior, change the drivers. • As a part of the strategic planning process, it is essential to understand how the organizational culture influences results today, and what limits it might put on your capacity to change the future. • There are two characteristics that have a big impact on culture: Fear and Freedom Internal Scanning: Organizational Analysis

  29. Integrating Strategy & Culture Organizational Culture - FEAR • To a greater or lesser extent we are all defined by our fear. • Add a little fear into an organization and people stop taking chances, spend more time diluting responsibility in meetings, and introduce lots of checking steps. • If the fear persists for years, then people become increasingly uncomfortable with even minor change. • Build an organization with low levels of fear, you will find creativity, limited use of hierarchy to get things done, all kinds of attempts to make changes, and probably some genuine breakthroughs. Internal Scanning: Organizational Analysis

  30. Integrating Strategy & Culture Organizational Culture - FEAR • How FEAR is FEAR? • Questions help measure the level of fear in any organization • What are people afraid of in this organization (losing their jobs, making mistakes, not getting pay increase, their managers. etc)? • How rational is that fear? • How does that fear affect behavior? • To what extent have the current managers developed this fear? Internal Scanning: Organizational Analysis

  31. Integrating Strategy & Culture Organizational Culture - FREEDOM • People need to have freedom to work within fairly broad guidelines so that they can get the required outcomes. • To be able to confer this freedom, an organization needs to be confident it has the right people, the right information systems to support their decision making process and the right feedback system to ensure that every thing does not go of the rails. • When people have this freedom, then the organization finds ways around day-to-day problems and it is able to cater for new challenges and opportunities. Internal Scanning: Organizational Analysis

  32. Internal Audit – Scanning Functional Resources Parallels process of external audit • Scanning provides information from; • Management • Marketing • Finance/accounting • Production/operations • Research & Development • Management information Systems Internal Scanning: Organizational Analysis

  33. Management Functions of Management Planning Organizing Motivating Staffing Controlling Internal Scanning: Organizational Analysis

  34. Management Stage When Most Important Function Planning Strategy Formulation Organizing Strategy Implementation Motivating Strategy Implementation Staffing Strategy Implementation Controlling Strategy Evaluation Internal Scanning: Organizational Analysis

  35. Management Planning • Beginning of management process • Bridge between present & future • Improves likelihood of attaining desired results Internal Scanning: Organizational Analysis

  36. Management Forecasting Establishing objectives Devising strategies Developing policies Setting goals Planning Internal Scanning: Organizational Analysis

  37. Management Organizing • Achieves coordinated effort • Defines task & authority relationships • Departmentalization • Delegation of authority Internal Scanning: Organizational Analysis

  38. Management Organizational design Job specialization Job descriptions Job specifications Span of control Unity of command Coordination Job design Job analysis Organizing Internal Scanning: Organizational Analysis

  39. Management Motivating • Influencing to accomplish specific objectives • Communication – major component Internal Scanning: Organizational Analysis

  40. Management Leadership Communication Work groups Job enrichment Job satisfaction Needs fulfillment Organizational change Morale Motivating Internal Scanning: Organizational Analysis

  41. Management Staffing • Personnel management • Human resources management Internal Scanning: Organizational Analysis

  42. Management Wage & salary admin. Employee benefits Interviewing Hiring Discharging Training Management development Affirmative Action EEO Labor relations Staffing Internal Scanning: Organizational Analysis

  43. Management Controlling • Establishing performance standards • Ensure actual operations conform to planned operations • Taking corrective actions Internal Scanning: Organizational Analysis

  44. Management Quality Financial Sales Inventory Expense Analysis of variance Rewards Sanctions Controlling Internal Scanning: Organizational Analysis

  45. 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? Internal Scanning: Organizational Analysis

  46. Management Audit Checklist • 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? Internal Scanning: Organizational Analysis

  47. Marketing Customer Needs/Wants for Products/Services Defining Anticipating Creating Fulfilling Internal Scanning: Organizational Analysis

  48. Marketing Marketing Functions Customer analysis Selling products/services Product & service planning Pricing Distribution Marketing research Opportunity analysis Internal Scanning: Organizational Analysis

  49. Marketing Customer surveys Consumer information Market positioning strategies Customer profiles Market segmentation strategies Customer Analysis Internal Scanning: Organizational Analysis

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