"Like a product or service, the planning process it self must be managed and shaped, if it is to serve executives as a vehicle for strategic decision-making." —Robert Lenz
"The difference between now and five years ago is that information systems had limited function. You weren’t betting your company on it. Now you are." —William Gruber
"Weak leadership can wreck the soundest strategy."
"A firm that continues to employ a previously successful strategy eventually and inevitably falls victim to a competitor." —William Cohen
"Great spirits have always encountered violent opposition from mediocre minds." —Albert Einstein
"The idea is to concentrate our strength against our competitor’s relative weakness." —Bruce Henderson
This chapter focuses on identifying and evaluating a firm’s strengths and weaknesses in the functional areas of business, including management, marketing, finance/accounting, production/operations, research and development, and management information systems. Relationships among these areas of business are examined. Strategic implications of important functional area concepts are examined. The process of performing an internal audit is described. The Resource-Based View (RBV) of strategic management is introduced as is the Value Chain Analysis (VCA) concept.
The Nature of an Internal Audit
All organizations have strengths and weaknesses in the functional areas of business. No enterprise is equally strong or weak in all areas. Maytag, for example, is known for excellent production and product design, whereas Procter & Gamble is known for superb marketing. Internal strengths/weaknesses, coupled with external opportunities/threats and a clear statement of mission, provide the basis for establishing objectives and strategies. Objectives and strategies are established with the intention of capitalizing upon internal strengths and overcoming weaknesses. The internal-audit part of the strategic-management process is illustrated in Figure 4-1.
Key Internal Forces
It is not possible in a strategic-management text to review in depth all the material presented in courses such as marketing, finance, accounting, management, management information systems, and production/operations; there are many subareas within these functions, such as customer service, warranties, advertising, packaging, and pricing under marketing. For different types of organizations, such as hospitals, universities, and government agencies, the functional business areas, of course, differ. In a hospital, for example, functional areas may include cardiology, hematology, nursing, maintenance, physician support, and receivables. Functional areas of a university can include athletic programs, placement services, housing, fund-raising, academic research, counseling, and intramural programs. Within large organizations, each division has certain strengths and weaknesses. A firm’s strengths that cannot be easily matched or imitated by competitors are called distinctive competencies. Building competitive advantages involves taking advantage of distinctive competencies. For example, 3M exploits its distinctive competence in research and development by producing a wide range of innovative products. Strategies are designed in part to improve on a firm’s weaknesses, turning them into strengths—and maybe even into distinctive competencies. Figure 4-2 illustrates that all firms should continually strive to improve on their weaknesses, turning them into strengths, and ultimately developing distinctive competencies that can provide the firm with competitive advantages over rival firms.
The Process of Performing an Internal Audit
The process of performing an internal audit closely parallels the process of performing an external audit. Representative managers and employees from throughout the firm need to be involved in determining a firm’s strengths and weaknesses. The internal audit requires gathering and...
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