LA PATRIA COLLEGE

Santiago City
College of Accountancy and Management
MODULE IN BMEC 104
Strategic Management

MAKING AN INTERNAL ASSESSMENT

All organizations have strengths and weaknesses in the functional areas of business 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.

A. INTEGRATING STRATEGY AND CULTURE

Relationships among a firm's functional business activities perhaps can be exemplified best by focusing on
organizational culture, an internal phenomenon that permeates all departments and divisions of an
organization. Organizational culture can be defined as "a pattern of behavior that has been developed by
an organization as it learns to cope with its problem of external adaptation and internal integration, and that
has worked well enough to be considered valid and to be taught to new members as the correct way to
perceive, think, and feel." T

Organizational culture captures the subtle, elusive, and largely unconscious forces that shape a workplace.
Remarkably resistant to change, culture can represent a major strength or weakness for the firm. It can be
an underlying reason for strengths or weaknesses in any of the major business functions.

Cultural Products

1. Rites 8. Folktale
2. Ritual 9. Symbol
3. Ceremonial 10. Language
4. Myth 11. Metaphors
5. Saga 12. Values
6. Legend 13. Beliefs
7. Story 14. Heroes/heroine

B. MANAGEMENT

The functions of management consist of five basic activities: planning, organizing, motivation, staffing and
controlling.

Planning

Planning is the process by which one determines whether to attempt a task, work out the most effective
way of reaching desired objectives, and prepare to overcome difficulties with adequate resources.

Planning helps a firm achieve maximum effect from a given effort. Planning enables the firm to take in
account relevant factors and focus on the critical ones. Planning helps ensure that the firm can be prepared
for all reasonable eventualities and for all changes that will be needed.

Planning allows a firm to adapt to changing markets and thus to shape its own density. Strategic
management can be viewed as a formal planning process that allows an organization to pursue proactive
rather than reactive strategies.
 Organizing

The purpose of organizing is to achieve coordinated effort by defining task and authority relationships.
Organizing means determining who does and who reports to whom. The organizing function of
management can be viewed as consisting of three sequential activities: breaking down task into jobs,
combining jobs to form departments, and delegating authority.

Motivation

Motivation van be defined as the process of influencing people to accomplish objectives. Motivation
explains why some people work hard and others do not. Objectives, strategies, and policies have little
chance of succeeding if employees and managers are not motivated to implement strategies once they are
formulated. The motivating function of management includes at least four major components: leadership,
group dynamics, and organizational change.

Staffing

Staffing the management function of staffing, also called personnel management or human resource
management, includes activities such as recruiting, interviewing, testing, selecting, orienting, training,
developing, caring for, evaluating, rewarding, promoting, transferring, demoting, and dismissing employees,
as well managing union relations.

Controlling

The controlling function of management includes all the activities undertaken to ensure that actual
operations conformed to planned operations. The controlling function of management is particularly
important for effective strategy evaluation. Controlling consist of four basic steps:

1. Establishing performance standards

2. Measuring individual and organizational performance
3. Comparing actual performance to planned performance standards
4. Taking corrective actions.

C. MARKETING

Marketing cam be described as the process of defining, anticipating, creating, and fulfilling customers’
needs. There are seven basic functions of marketing: customer analysis, selling products/services, product
and service planning, pricing, distribution, marketing research, an opportunity analysis.

Customer Analysis

The examination and evaluation of consumer needs, desires, and wants-involves administering customer
surveys, analysing consumer information, evaluating market positioning strategies, developing customer
profiles, and determining optimal market segmentation strategies.

Selling Products/Services

Successful strategy implementation generally rests upon the ability of an organization to sell some
produc6t or service. Selling includes many marketing activities, such as advertising, sales promotion,
publicity personal selling, sales force management, customer relations and dealer relations. These
activities are critical when a firm pursues a market penetration strategy.
 Product/Service Planning

Product and service planning includes activities such as test marketing, product and brand positioning,
devising warranties, packaging, determining product options, product features, product style, product
quality, and providing for customer service. Product and service planning is particularly important when a
company is pursuing product development or diversification.

Pricing

Five major stakeholders affect pricing decisions: consumers, governments, suppliers, distributors, and
competitors, sometimes an organization will pursue forward integration strategy primarily to gain better
control over prices charged to customers.

Distribution

Distribution includes warehousing, distribution channels, distribution coverage, retail locations, sales
territories, inventory levels and location, transportation carriers, wholesaling and retailing. Distribution
becomes especially important when a firm is striving to implement a market development or forward
integration strategy.

Marketing Research

Marketing research is a systematic gathering, recording, and analysing of data about problems relating to
marketing of goods and services. Marketing research can uncover critical strengths and weaknesses, and,
marketing researcher employ numerous scales instruments, procedures, concepts, and techniques to
gather information. Organizations that possess excellent marketing research skills have definite strength in
pursuing generic strategies.

Opportunity Analysis

The seventh function of marketing is opportunity analysis, which involves assessing the costs, benefits,
risks, associated with marketing decisions. Three steps are required to perform a cost/ benefit analysis;
compare total costs with the total costs associated with the decision, estimate the total benefits from the
decision, and compare the total cost with the total benefits.

D. FINANCE/ACCOUNTING

Financial condition is often considered the single best measure of a firm’s competitive position and overall
attractiveness to investors. Determining an organizations financial strengths and weaknesses is essential
to effectively formulate strategies.

According to James Van Horne, the functions of finance/accounting comprise three decisions: the
investment decision the, the financing decision, and the dividend decision. The investment decision is the
allocation and reallocation of capital resources to projects, products, assets, and divisions of an
organization. The financing decision determines the best capital structure for the firm and includes
examining various methods by which the firm can raise capital. Dividend decisions concern issues such as
percentage of earnings paid to stockholders, the stability of dividends paid overtime, and the repurchase or
issuance of stocks. Dividends decisions determines the amount of funds that are retained in a firm
compared to the amount paid to stockholders.

A firm’s liquidity, leverage, working capital, profitability, and asset utilization, cash flow and equity can
eliminate some strategies as being feasible alternatives.
 Key financial ratios can be classified into the following five types:

Liquidity Ratios

1. Current Ratio
2. Quick Ratio

Leverage Ratios

1. Debt-to-Total-Asset Ratio
2. Debt-to-Equity Ratio
3. Long-Term-Debt-to-Equity Ratio
4. Times-Interest-Earned Ratio

Activity Ratios

1. Inventory Turnover
2. Fixed Assets Turnover
3. Total Assets Turnover
4. Accounts Receivable Turnover
5. Average Collection Period

Profitability Ratios

 Gross Profit Margin

 Operating Profit Margin
 Net Profit Margin
 Return on Total Assets
 Return on Stockholder’s Equity
 Earnings per Share
 Price-Earnings Ratio

Growth Ratios

 Sales
 Net Income
 Earnings per Share
 Dividends per Share

E. PRODUCTIONS/OPERATIONS

The production/operations function of a business consists of all those activities that transform inputs into
goods and services. Production/operations management deals with inputs, transformations, and outputs
that vary across industries and markets. A manufacturing operation transforms or converts inputs such as
raw materials, labour, capital, machines, and facilities into finished goods and services. Roger Schroeder
suggested that production/operations management comprises five functions or decision areas, process,
capacity, inventory, workforce, and quality.

1. Process decisions concern the design of the physical production system. Specific decisions include
choice of technology, facility layout, process flow analysis, facility location, line balancing, process
control, and transportation analysis.
2. Capacity decisions concern determination of optimal output levels for the organization not too much
and not too little. Specific decisions include forecasting, facilities planning, aggregate planning,
scheduling, capacity planning, and queuing analysis.
 3. Inventory decisions involve managing the level of raw materials, work-in-process, and finished
goods. Specific decisions include what to order when to order, how much to order, and materials
handling.
4. Workforce decisions concern managing skilled, unskilled, clerical, and managerial employees.
Specific decisions include job design, work measurement, job enrichment, work standards, and
motivation techniques.
5. Quality decisions aim to ensure that high-quality goods and services are produced. Specific
decisions include quality control, sampling, testing, quality assurance, and cost control.

Implications of Various Strategies on the Product/Operations Functions

Compete as a low-cost provider of goods or services

 Creates high barriers to entry

 Creates a larger market

Compete as a high-quality provider

 Offers more profit from a smaller volume of sales
 Requires more quality assurance effort and higher operating cost

Stress Customer Service

 Requires more service people, service parts, and equipment

 Requires rapid response to customer needs or changes in customer taste

Provide a rapid and frequent introduction of new products

 Requires versatile people and equipment
 Has higher research and development cost

Vertical integration
 Enables a company to control more of the process
 May require entry into unfamiliar business areas

Consolidate processing
 Vulnerability: one strike, fire, or flood

Dispense processing of service

 Can be near more customers and resources
 Requires more coordination and duplication of some personnel and equipment at each location

Stress the use of mechanization, automation, robots

 Requires high capital investment
 Makes maintenance crucial

Stress stability of employment

 Serves security needs of employees and may develop employee loyalty
 Helps to attract and retain highly skilled employees
F. RESEARCH AND DEVELOPMENT

The fifth major area of internal operations that should be examined for specific strengths and weaknesses
is research and development (R&D) 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.

Organizations invest in R&D because they believe that such an investment will lead to a superior product
or service and will give them competitive advantages. Research and development expenditures are
directed at developing new products before competitors do at improving product quality, or at improving
manufacturing processes to reduce costs effective management of the R&D function requires a strategic
and operational partnership between R and D and other vital business functions.

R&D in organizations can take two basic forms: (1) internal R&D, in which an organization operates its own
R&D department, and/or (2) contract R&D, in which a firm hires independent researchers or independent
agencies to develop specific products. Many companies use both approaches to develop new products. A
widely used approach for obtaining outside R&D assistance is to pursue a joint venture with another firm.
R&D strengths (capabilities) and weaknesses (limitations) play a major role in strategy formulation and
strategy implementation.

G. MARKETING INFORMATION SYSTEMS

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 strengths and weaknesses in information systems is a critical
dimension of performing an internal audit.

A management information system's purpose is to improve the performance enterprise by improving the
quality of managerial decisions. An effective information system thus collects, codes, stores, synthesizes,
and presents information in such a manner that it answers important operating and strategic questions.

A management information system receives raw material from both the external and internal evaluation of
an organization. It gathers data about marketing, finance, production, and personnel matters internally, and
social, cultural, demographic, environmental, economic, political, governmental, legal, technological, and
competitive factors externally Data are integrated in ways needed to support managerial decision making.