Internal Strategic Management Audit

Study Notes

Objective: Gather and interpret information about the company's management, marketing, finance/accounting, production/operations, research and development, and management information systems.
Purpose: Provide an understanding of how each department contributes to the overall organization.

Core principle: Internal resources are more crucial than external factors in achieving and sustaining competitive advantage.
Key resource categories: Physical resources, human resources, and organizational resources.
Resource criteria for value: Rare, hard to imitate, not easily substitutable.

Definition: The process of understanding and meeting customer needs and wants for products and services.
Functions:
- Customer analysis: evaluating consumer needs and desires through surveys, market positioning analysis, and customer profiling.
- Product and service planning: activities like testing, positioning, warranties, packaging, quality control, and customer service.
- Pricing: setting competitive prices considering consumer, government, supplier, distributor, and competitor influences.
- Distribution : managing warehousing, channels, coverage, retail locations, inventory levels, transportation, and sales territories.
- Marketing research: Gathering, recording, and analyzing data related to the marketing of goods and services.

Application: Assessing the costs, benefits, and risks associated with marketing decisions.
Process:
1. Calculate total costs.
2. Estimate total benefits.
3. Compare total costs with total benefits.

Core decisions:
- Investment: Allocating and reallocating capital and resources.
- Financing: Determining the best capital structure for raising capital.
- Dividend: Deciding the percentage of earnings paid to stockholders, the stability of dividends, and stock repurchase or issuance.

Definition: Activities transforming inputs into goods and services.
Management focus: Inputs, transformations, outputs across industries and markets.

Purpose: Investing to develop superior products or services to achieve "first mover" or "late mover" advantages.
Forms: Internal R&D and external R&D.

Definition: An analytical tool comparing a firm's value chain activities against competitors to identify best practices and areas for improvement.
Process: Measuring costs of value chain activities across an industry.

Purpose: Evaluate the company's internal strengths and weaknesses.
Steps:
1. List key internal factors identified during the internal audit.
2. Assign weights from 0.0 (not important) to 1.0 (most important).
3. Assign ratings from 1 (major weakness) to 4 (major strength).
4. Multiply each factor's weight by its rating to get a weighted score.
5. Sum the weighted scores for each variable to get the total weighted score.
Interpretation:
- Total weighted score below 2.5 indicates a weak internal position.
- Total weighted score above 2.5 suggests a strong internal position.