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Assessing The Firm
Assessing The Firm
To aid in control, firms will occasionally perform audits to ensure that certain aspects of
their operations are in order. Such audit may includeoperational audits (assessing the
firm's operating health) and strategic audits (assessing the firm's strategic health).
Are the financial policies with respect to investment dividends and financing
consistent with opportunities likely to be available?
Has the company defined the market segments in which it intends to operate
sufficiently specifically with respect to both product lines and market segments?
Has it clearly defined the key capabilities needed for success?
Does the company have a viable plan for developing a significant and defensible
superiority over competition with respect to these capabilities?
Will the business segments in which the company operates provide adequate
opportunities for achieving corporate objectives? Do they appear as attractive as
to make it likely that an excessive amount of investment will be drawn to the
market from other companies? Is adequate provision being made to develop
attractive new investment opportunities?
Are the management, financial, technical and other resources of the company
really adequate to justify an expectation of maintaining superiority over
competition in the key areas of capability?
Has the company selected business that can reinforce each other by contributing
jointly to the development of key capabilities? Or are there competitors that have
combinations of operations which provide them with an opportunity to gain
superiority in the key resource areas? Can the company's scope of operations be
revised so as to improve its position vis--vis competition?
To the extent that operations are diversified, has the company recognized and
provided for the special management and control systems required?
Are the financial policies with respect to investment dividends and financing
consistent with opportunities likely to be available?
Has the company defined the market segments in which it intends to operate
sufficiently specifically with respect to both product lines and market segments?
Has it clearly defined the key capabilities needed for success?
Does the company have a viable plan for developing a significant and defensible
superiority over competition with respect to these capabilities?
Will the business segments in which the company operates provide adequate
opportunities for achieving corporate objectives? Do they appear as attractive as
to make it likely that an excessive amount of investment will be drawn to the
market from other companies? Is adequate provision being made to develop
attractive new investment opportunities?
Are the management, financial, technical and other resources of the company
really adequate to justify an expectation of maintaining superiority over
competition in the key areas of capability?
Has the company selected business that can reinforce each other by contributing
jointly to the development of key capabilities? Or are there competitors that have
combinations of operations which provide them with an opportunity to gain
superiority in the key resource areas? Can the company's scope of operations be
revised so as to improve its position vis--vis competition?
To the extent that operations are diversified, has the company recognized and
provided for the special management and control systems required?
suppliers, customers) - whether the really make sense with respect to what is
going on outside.
3. Is the strategy appropriate in view of available resources? Resources are those
things that company is or has and that help it to achieve its corporate objectives.
Included are money, competence, facilities and other. Without appropriate
resources, organization simply cannot make strategic work.
4. Does the strategy involve an acceptable degree of risk? Strategy and resources,
taken together, determine the degree of risk which the company is undertaken.
Each company must determine the amount of risk it wishes to incur. This is a
critical managerial choice. In attempting to assess the degree of risk associated
with a particular strategy, management must assess such issues as the total
amount of resources a strategy requires, the proportion of the organization's
resources that a strategy will consume, and the amount of time that must be
committed.
5. Does the strategy have an appropriate time horizon? A significant part of every
strategy is the time horizon on which it is based. For example, a new product
developed, a plant put on stream, a degree of market penetration, become
significant strategic objectives only if accomplished by a certain time.
Management must ensure that the time necessary to implement the strategy is
consistent. Inconsistency between these two variables can make it impossible to
reach goals in a satisfactory way.
6. Is the strategy workable?
7. Marker share
8. Earnings per share
The list is long and many other factors could be included. The objective of all of these
endeavors is financial control.
But financial control is only part of the total strategic management control process. Much
of the activity affects financial performance in non financial nature. This include
consideration of labor efficiency and productivity; production quantity turnover, and
tardiness; on a very limited basis, human resources accounting and personnel satisfaction
measures; more commonly, management by objectives systems; social analysis;
operational audits of any functional, divisional, or staff component, distribution cost and
efficiency; management audits modeling; and so forth.
The list is almost endless and there is no time to discuss each item here.
Which factors should be used? Establishing the standards and tolerance limit is not as
easy as we might expect. Managers need to first define the critical success factors - the
factors which are most important to the strategy and being successful in the business.
Most of these measures are internal. But objective assessments can also be made by
comparing the firm's results of similar firms (see sectionBenchmarking)
Below we present a set of worthwhile guidelines that managers might follow in designing
and implementing more comprehensive strategic audits.
A strategic audit is conducted in three phases: diagnosis to identify how, where, and in
what priority in-depth analyses need to be made; focused analysis; and generation and
testing recommendation. Objectivity and the ability to ask critical, probing questions are
key requirements for conducting a strategic audit.
Phase one: Diagnosis
The diagnostic phase includes the flowing tasks:
1. Review key document such as:
o Strategic plan
o Business or operational plans
o Organizational arrangements
o Major policies governing matters such as resource allocation and
performance measurement.
2. Review financial, market, and operational performance against benchmarks and
industry norms to identify jet variances and emerging trends.
3. Gain an understanding of: