2. Objectives of the lecture
After completion of this lecture students will be able to know:
1. Internal audit
2. Key forces
3. Internal Factors evaluation
4. Resource based theory
3. Outline of the lecture
Topic 1: Internal Audit
Topic 2: Key internal Forces
Topic 3: Management, Marketing, Accounting, Operations etc.
Topic 4: Internal Factors Evaluations.
Topic 5: Resource Based View
Topic 6: Value chain Analysis
4. Nature of Internal Audit
• All organizations have strengths and weaknesses in the functional
areas of business.
• No enterprise is equally strong or weak in all areas.
• Internal strengths and weaknesses, coupled with external
opportunities and threats and clear vision and mission statements,
provide the basis for establishing objectives and strategies.
• Capitalizing on internal strengths and overcoming weaknesses.
5. Key Internal Forces
• Includes; marketing, finance, accounting, management, management
information systems, and production and operations;
• Subareas; such as customer service, warranties, advertising, Mkg, etc.
• However, strategic planning must include a detailed assessment of how
the firm is doing in all internal areas.
• A complete internal assessment; assist to formulate, implement, and
evaluate strategies to gain and sustain competitive advantages.
6. The Process of Internal Audit
• Parallels the process of performing an external audit.
• Representative managers and employees need to participate in
determining a firm’s strengths and weaknesses.
• The internal audit requires gathering, assimilating, and prioritizing
information about the firm’s management, marketing, finance and
accounting, production and operations, R&D, and MIS operations to
reveal the firm’s most important strengths and most severe weaknesses.
7. Resource Base View
• Internal resources are more important for a firm than external factors
in achieving and sustaining competitive advantage.
• Internal resources - Three categories:
1. Physical resources,
2. Human resources, and
3. Organizational resources
• A resource can be; Rare, hard to imitate, or not easily substitutable
• Following are the major functions of marketing:
1. Customer analysis,
2. Selling products and services,
3. Product and service planning,
4. Pricing, Distribution,
5. Marketing research, and cost/benefit analysis.
• Strategists identify and evaluate marketing strengths and weaknesses
10. Finance and Accounting
• Single-best measure of a firm’s competitive position and overall
attractiveness to investors.
• Determining an organization’s financial strengths and weaknesses is
essential to effectively formulating strategies.
• A firm’s liquidity, leverage, working capital, profitability, asset utilization,
cash flow, and equity can eliminate some strategies.
• Financial factors often alter existing strategies and implementation.
11. Production and Operations
• Consists of all those activities that transform inputs into goods and services.
• Deals with inputs, transformations, and outputs that vary across industries
• A manufacturing operation transforms or converts inputs such as raw
materials, labor, capital, machines, and facilities into finished goods and
• The higher the capacity utilization, the better; otherwise, equipment may sit
12. Research and Development
• Specific strengths and weaknesses as input into formulating
strategies is research and development.
• Many firms today conduct no R&D, and yet many other companies
depend on successful R&D activities for survival.
• Firms pursuing a product-development strategy especially need to
have a strong R&D orientation.
• “First mover” or a “late follower”
13. Management Information System
• Information ties all business functions together and provides the
basis for all managerial decisions.
• It is the cornerstone of all organizations.
• Information represents a major source of competitive management
advantage or disadvantage.
• Assessing a firm’s internal strengths and weaknesses in information
systems is a critical dimension of performing an internal audit.
14. Value Chain Analysis
• Process - firm determines the costs associated with organizational
• purchasing raw materials - manufacturing product(s) - marketing
• low-cost advantages or dis-advantages exist anywhere along the value
chain from raw material to customer service a activities.
• Enable a firm to identify its own S&W, as compared to rivals value.
15. The Internal Factor Evaluation Matrix
A summary step in conducting an internal strategic-management audit is to
construct an Internal Factor Evaluation (IFE) Matrix.
1. List key internal factors as identified in the internal-audit process.
2. Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important)
to each factor. The sum of all weights must equal 1.0.
3. Assign a 1 to 4 rating to each factor
4. Multiply each factor’s weight by its rating to determine a weighted score for
5. Sum the weighted scores for each variable to determine the total weighted
score for the organization.
• Internal Audit
• Key internal Forces
• Management, Marketing, Accounting, Operations etc.
• Internal Factors Evaluations.
• Resource Based View
• Value chain Analysis
1. Strategic Management Concepts and Cases Sixteen Edition by
Fred R. David.
2. Fundamental of Business Management Process by Marlon
Dumas and Jan Mandelling.
Hinweis der Redaktion
Physical resources include all plant and equipment, location, technology, raw materials, and machines; human resources include all employees, training, experience, intelligence, knowledge, skills, and abilities; and organizational resources include firm structure, planning processes, information systems, patents, trademarks, copyrights, databases, and so on. A firm’s resources can be tangible, such as labor, capital, land, plant, and equipment, or resources can be intangible, such as culture, knowledge, brand equity, reputation, and intellectual property. Since tangible resources can more easily be bought and sold, intangible resources are often more important for gaining and sustaining competitive advantage.
List key internal factors as identified in the internal-audit process. Use a total of 20 internal factors, including both strengths and weaknesses. List strengths first and then weaknesses. Be as specific as possible, using percentages, ratios, and comparative numbers. Recall that Edward Deming said, “In God we trust. Everyone else bring data.” Include action- able factors that can provide insight regarding strategies to pursue. For example, the factor “Our Quick Ratio is 2.1 versus industry average of 1.8” is not actionable, whereas the factor “Our chocolate division’s ROI increased from 8 to 15 percent in South America” is actionable. Also, be as divisional as possible, because consolidated data oftentimes is not as revealing or useful in deciding among strategies as the underlying by-segment or division data. 2. Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to each factor. The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm’s industry. Regardless of whether a key factor is an internal strength or weakness, factors considered to have the greatest effect on organizational performance should be assigned the highest weights. The sum of all weights must equal 1.0. 3. Assign a 1 to 4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4). Note that strengths must receive a 3 or 4 rating and weaknesses must receive a 1 or 2 rating. Ratings are thus company-based, whereas the weights in step 2 are industry-based. 4. Multiply each factor’s weight by its rating to determine a weighted score for each variable. 5. Sum the weighted scores for each variable to determine the total weighted score for the organization