Lesson 3 Topic: Internal Assessment

 Internal Assessment
 Resource Based View (RBV)
 Integrating Strategy and Culture
 Management
 Marketing
 Finance/Accounting
 Production/Operations Functions
 Research and Development
 Management Information Systems

Why This Topic

Knowing the implications of changes in the external environment and preparing against them are detrimental
for organisations but to prepare and to build a competitive edge requires resources. In other words, organisations
must know their internal strengths and weaknesses to be able to withstand external challenges. This topic explores
the different types of resources that organisations have and discusses how they can become the basis for
competitiveness.

Internal Assessment

Location

Critical
Culture Success People
Factors

Structure

It is a process of an organisation examining its internal components to assess its resources and competitive
advantages. It has an internal audit, which forms the basis for objectives and strategies. It is done on the
functional areas of the business to identify the strengths and weaknesses.

© UNITAR International University 1

When applying to functional business areas, it varies depending on the organisation. Some firms may use
geography while others use products or functions to departmentalise their organisation. This is due to
departments or divisions having different competencies.

Competencies are strengths that cannot be easily matched or imitated by competitors. For example,
McDonald’s has exclusive rights to its logo. The firms build a competitive advantage using the competencies that
they have. The strategies are designed to take advantage of the competencies and improve on the weaknesses.

Internal assessment has an audit that is parallel to the external assessment. They gathered information from
business areas such as:
 Management
 Marketing
 Finance/Accounting
 Production/operations
 Research and development
 Management information systems

The audit process is involved in helping organisational members to understand the effect of decisions in other
functional business areas of the firm. To determine the business’ success, managers from all functional areas
should have understanding, coordination and cooperation. Relationships between departments and divisions
become complex as the firm’s size grows. The firm would resort to a financial ratio analysis to sort through the
complex relationship between departments.

Resource Based View (RBV)

Resource Based View (RBV) is a belief that internal resources are more important than external resources in
determining competitive advantage. The resources are classified into:
 Physical resources (raw materials, location, equipment)
 Human resources (skills and talents from the workforce)
 Organisational resources (innovative culture)

The role of the auditor is to look for uniqueness, difficulty to imitate and ease the substitution in the internal
resources of the firm.

Integrating Strategy and Culture

This refers to the organisational culture, where the pattern of behaviour is developed by an organisation. It learns
to cope with its problem of external adaption and internal integration. The organisational culture is considered
valid and is taught to new members of the firm.

In terms of culture, it can be both a strength and a weakness. Meaning, culture can create resistance to change,
hence preventing the strategic management process. The external changes can be missed because of strong
beliefs from the organisation. Culture has a natural tendency to “hold the course”, even during times of strategic
change.

However, there are cultural pitfalls that businesses experience which are seen in the table below.

Cultural Pitfalls that You Need to Know

© UNITAR International University 2

  Waving is a serious insult in Greece and Nigeria, particularly if the hand in near someone’s face.
 Making a “good-bye” wave in Europe can mean “No,” but it means “Come here in Peru.
 In China, last names are written first.
 A man named Carlos Lopez-Garcia should be addressed as Mr. Lopez in Latin America, but as Mr. Garcia
in Brazil.
 Breakfast meetings are considered uncivilized in most foreign countries.
 Latin Americans are on average 20 minutes late to business appointments.
 Direct eye contact is impolite in Japan.
 Don’t cross your legs in any Arab or many Asian countries – it’s rude to show the sole of your shoe.
 In Brazil, touching your thumb and first finger – an American “Okay” sign – is the equivalent of raising your
middle finger.
 Nodding or tossing your head back in southern Italy, Malta, Greece, and Tunisia means “No”. In India, this
body motion means “Yes”.
 Snapping your fingers is vulgar in France and Belgium.
 Folding your arms across your chest is a sign of annoyance in Finland.
 In China, leave some food on your plate to show that your host was so generous that you couldn’t finish.
 Do not eat with your left hand when dining with clients from Malaysia or India.
 One form of communication works the same worldwide. It’s the smile – so take that along wherever you
go.

This addresses the question of whether or not all firms should ‘go global’.

Management

There are five functions of management that lead to the stage when it is most important in an organisation;
planning, organising, motivating, staffing, and controlling.

Planning Strategy Formulation

 Is the beginning of the management process

 Links between present and future
 Improves the likelihood of attaining desired results
 Examples: forecasting, establishing objectives, devising strategies, developing policies, setting goals

Strategy
Organising
Implementation

 Achieves coordinated effort

 Defines task and authority relationships
 Deparmentalisation
 Delegation of authority
 Examples: organisational design, job specialisation, job descriptions, job specifications, the span of
control, unity of command, coordination, job design, job analysis

© UNITAR International University 3

 Strategy
Motivating
Implementation

 Influence others to accomplish specific objectives

 Communication is key
 Examples: leadership communication, work groups, job enrichment, job satisfaction, need fulfillment,
organisational change, morale

Strategy
Staffing
Implementation

 Refers to personnel management

 Human resources management
 Examples: wage and salary admin, employee benefits, interviewing, hiring, discharging, training,
management development, affirmative action, EEO, labour relations

Strategy
Controlling
Implementation

 Establishing performance standards

 Ensure actual operations conform to planned operations
 Taking corrective actions
 Examples: quality, financial, sales, inventory, expense, analysis of variance, rewards, sanction

Management Audit Checklist

1. Does the firm use strategic management concepts?
2. Are objectives/goals measurable? Well communicated?
3. Do managers at all levels plan effectively?
4. Do managers delegate well?
5. Is the organisation’s structure appropriate?
6. Are job descriptions clear?
7. Are job specifications clear?
8. Is employee morale high?
9. Is employee absenteeism low?
10. Is employee turnover low?
11. Are the reward mechanisms effective?
12. Are the organisation’s control mechanisms effective?

Marketing

Marketing refers to satisfying the customer’s needs and wants for products/services. There are 4 traits of
marketing, and they are:
 Defining
 Anticipating
 Creating

© UNITAR International University 4

  Fulfilling

The table below shows the functions of marketing and its purposes.
Functions Purposes
Customer Analysis  Customer surveys
 Consumer information
 Market positioning strategies
 Customer profiles
 Market segmentation strategies
Selling products/services  Advertising
 Sales
 Promotion
 Publicity
 Sales force management
 Customer relations
 Dealer relations
Product and service planning  Test marketing
 Brand positioning
 Devising warranties
 Packaging
 Product features/options
 Product style
 Quality
Pricing  Forward integration
 Discounts
 Credit terms
 Condition of sale
 Markups
 Costs
 Unit pricing
Distribution  Warehousing
 Channels
 Coverage
 Retail site locations
 Sales territories
 Inventory levels
 Transportation
Marketing research  Data collection
 Data input
 Data analysis
 Support business functions
Opportunity analysis  Assessing costs
 Assessing benefits
 Assessing risks
 Cost/benefit/risk analysis

Marketing Audit Checklist

1. Are markets segmented effectively?

© UNITAR International University 5

 2. Is the organisation positioned well among competitors?
3. Has the firm’s market share been increasing?
4. Are the distribution channels reliable and cost-effective?
5. Is the sales force effective?
6. Does the firm conduct market research?
7. Are product quality and customer service good?
8. Are the firm’s products/services priced appropriately?
9. Does the firm have effective promotion, advertising and publicity strategies?
10. Are marketing planning and budgeting effective?
11. Do the firm’s marketing managers have adequate experience and training?

Finance/Accounting

Finance/accounting is used to determine the financial strengths and weaknesses of strategy formation. Its
functions are:
 Investment decision (capital budgeting)
 Financing decision
 Dividend decision

The table below shows the purpose and types of ratios for each of the basic financial ratios.
Basic Financial Ratio Purpose Types of Ratios
Liquidity Ratios Firm’s ability to meet its  Current ratio
short-term obligations  Quick (or acid test)
ratio
Leverage Ratios Extent of debt financing  Debt-to-total assets
 Debt-to-equity
 Long-term debt-to-
equity
 Times-interest earned
Activity Ratios Effective use of the firm’s  Inventory-turnover
resources  Fixed assets turnover
 Total assets turnover
 Accounts receivable
turnover
 Average collection
period
Profitability Ratios Effectiveness shown by  Gross profit margin
returns on sales and  Operating profit
investment margin
 Net profit margin
 Return on total assets
(ROA)
 Return on
stockholders’ equity
(ROE)
 Earnings per share
 Price-earnings ratio

© UNITAR International University 6

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

Finance/Accounting Audit Checklist

1. Where is the firm strong/weak as indicated by financial ratio analysis?
2. Can the firm raise short-term capital as needed?
3. Can the firm raise long-term capital as needed through debt and/or equity?
4. Does the firm have sufficient working capital?
5. Are capital budgeting procedures effective?
6. Are dividend payout policies reasonable?
7. Are the firm’s financial managers experienced and well-trained?

Effective financial analysis requires:

1. Analysis of how ratios have changed over time
2. How the ratios compare to industry norms
3. How the ratios compare with key competitors

Production/Operations Functions

The table below shows the functions of production/operations.

Functions Used For
Process  Facility design
 Technology selection
 Facility layout
 Process flow analysis
 Facility location
 Line balancing
 Process control
Capacity  Forecasting
 Facilities planning
 Aggregate planning
 Scheduling
 Capacity planning
 Queuing analysis
Inventory  Raw materials
 Work in process
 Finished goods
 Materials handling
Workforce  Job design
 Work measurement
 Job enrichment
 Work standards
 Motivation techniques
Quality  Quality control
 Sampling
 Testing

© UNITAR International University 7

  Quality assurance
 Cost control

Production/Operations Audit Checklist

1. Are suppliers of materials, parts, etc. reliable and reasonable?
2. Are facilities, equipment and machinery in good condition?
3. Are inventory-control policies and procedures effective?
4. Are quality-control policies and procedures effective?
5. Are facilities, resources, and markets strategically located?
6. Does the firm have technological competencies?

Research and Development

Research and development refer to a process that allows a company to develop its industry knowledge. Their
functions are:
 Development of new products before competitors
 Improving product quality
 Improving manufacturing processes to reduce costs

In order to develop, research and development have budgets. The types of budgeting used are:
 Financing as many projects as possible
 Use the percent-of-sales method
 Budgeting relative to competitors
 How many successful new products are needed

Research and Development Audit Checklist

1. Are the R and D facilities adequate?
2. If R and D are outsourced, is it cost-effective?
3. Are the R and D personnel well qualified?
4. Are R and D resources allocated effectively?
5. Are MIS and computer systems adequate?
6. Is communication between R&D and other organisational units effective?
7. Are present products technologically competitive?

Management Information Systems

The management information systems’ purpose is to improve the performance of an enterprise by improving the
quality of managerial decisions. The managerial decisions include:
 Information systems
 CIO/CTO
 Security
 User-friendly
 E-commerce

Management Information Systems Checklist

1. Do managers use the information system to make decisions?
2. Is there a CIO or Director of Information Systems position in the firm?
3. Is data updated regularly?

© UNITAR International University 8

 4. Do managers from all functional areas contribute input to the information system?
5. Are there effective passwords for entry into the firm’s information system?
6. Are strategists of the firm familiar with the information systems of rival firms?
7. Is the information system user-friendly?
8. Do all users understand the competitive advantages that information can provide?
9. Are computer training workshops provided for users?
10. Is the firm’s system being improved?

- end of content –

© UNITAR International University 9