Internal Analysis

By: Zammy Haryo Kusuma 12502020712103 Monica Christy 145020207121015 Diandra Renaldy J 145020207121018 Moch. Nur Agung 145020208121002

Resource Based View (RBV) Internal resources come from three categories. 1. Physical resources: plant, equipment, location, technology, raw materials, machines, etc. 2. Human resources: employees, training, experience, intelligence, knowledge, skills, abilities. 3. Organizational resources: firm structure, planning processes, information systems, patents, trademarks, copyrights, databases, etc.

Integrating Strategy and Culture

Organizational culture significantly affects business decisions and thus must be evaluated during an internal

strategic-management audit.

If strategies can capitalize on cultural strengths, such as a strong work ethic or highly ethical beliefs, then

management often can swiftly and easily implement changes.

Management

The functions of management consist of five basic activities: planning, organizing, motivating, staffing, and

controlling.

These activities are important to assess in strategic planning because an organization should continually

capitalize on its management strengths and improve on its management weaknesses.

The Basic Functions of Management

Marketing

Marketingis the process of defining, anticipating, creating, and fulfilling customers’ needs and wants for

products and services.

Functions of Marketing

Customer analysis

the examination and evaluation of consumer needs, desires, and wants

involves administering customer surveys, analyzing consumer information, evaluating market

positioning strategies, developing customer profiles, and determining optimal market

segmentation strategies

essential in developing an effective mission statement

Product and service planning

includes activities such as test marketing; product and brand positioning; devising warranties;

packaging; determining product options, features, style, and quality; deleting old products; and

providing for customer service

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 a forward integration strategy primarily to gain better

control over prices charged to consumers

Distribution

includes warehousing, distribution channels, distribution coverage, retail site locations, sales

territories, inventory levels and location, transportation carriers, wholesaling, and retailing

especially important when a firm is striving to implement a market development or forward

integration strategy

Marketing research

the systematic gathering, recording, and analyzing of data about problems relating to the

marketing of goods and services

can uncover critical strengths and weaknesses

Cost/Benefit Analysis

Three steps are required to perform a cost/benefit analysis:

1. compute the total costs associated with a decision,

2. estimate the total benefits from the decision,

3. compare the total costs with the total benefits.

Finance/Accounting Functions

The functions of finance/accounting comprise three decisions:

Investment decision

the allocation and reallocation of capital and resources to projects, products, assets, and divisions of

an organization

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 the percentage of earnings paid to stockholders, the stability of dividends

paid over time, and the repurchase or issuance of stock

determine the amount of funds that are retained in a firm compared to the amount paid out to

stockholders

A Summary of Key Financial Ratios

Financial ratio analysis must go beyond the actual calculation and interpretation of ratios. The analysis should be conducted on three separate fronts:

How has each ratio changed over time? This information provides a means of evaluating historical trends. For example, a 10 percent profit margin could be bad if the trend has been

down 20 percent each of the last three years. But a 10 percent profit margin could be excellent if the trend

has been constantly rising.

How does each ratio compare to industry norms? Industries can differ dramatically on certain

ratios. Therefore, comparison of a firm’s ratios within its particular industry can be essential in

determining strength/weakness. a high inventory turnover ratio could indicate efficient inventory

management and a strong working capital position, but it also could indicate a serious inventory

shortage and a weak working capital position.

How does each ratio compare with key competitors? Oftentimes competition is more intense between several competitors in a given industry or location than across all rival firms in the industry. When this is true, financial ratio analysis should include comparison to those key competitors.

Production/Operations

Production/operations function

consists of all those activities that transforms inputs into goods and services

Production/operations management deals with inputs, transformations, and outputs that vary across industries

and markets.

Management Information Systems

A management information system’s purpose is to improve the performance of an 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

Assessing a firm’s internal strengths and weaknesses

A management information system gathers data about marketing, finance,

production, and personnel matters internally, and social, cultural, demographic, environmental,

economic, political, governmental, legal, technological, and competitive factors externally(input) into

computer printouts, written reports, tables, charts, graphs, checks, purchase orders, invoices, inventory

records, payroll accounts, and a variety of other documents (output)

Strategic-Planning Software Usually strategic decision support systems, however, are too sophisticated, expensive, or restrictive to be used

easily by managers in a firm.

Actually, . This is unfortunate because the strategic-management process must be a people process to be successful.

Strategic- planning software should offer information, CIO/CTO, security, user-friendly, and participative approach. So, the right strategic-planning software surely useful for creating strategy formulation and implementation.

Determine & Prioritize Strength & Weaknesses.

All organizations have strengths and weaknesses in the functional areas of business, and no enterprise is equally strong or weak in all areas.

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

That’s the several reason why firm need to implement strategies. Strategies are designed in part to improve on a firm’s weaknesses, turning them into strengths—and maybe even into distinctive competencies.

The Process of Performing an Internal 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 assimilating information about the firm’s management, marketing,finance/accounting,production/operations,research and development(R&D),andmanagement information systems operations.

The process of performing an internal audit provides more opportunity for participants to understand how their jobs, departments, and divisions.

Performing an internal audit thus is an excellent vehicle or forum for improving the process of communication in the organization. Communication may be the most important word in management.

Benchmarking

An analytical tool used to determine whether a firm’s value chain activities are competitive compared to rivals and thus conducive to winning in the marketplace. The other definition is the search for industry best practices that lead to superior performance.

Without it, you would never know how successful your performance is in a market or whether you perform one or another task better than your competitor does.

For example, 85% customer satisfaction might look great for you or even compared to your industry’s average, but what if some other companies (not necessarily rivals) easily achieve 97% rate? In this situation, your 85% satisfaction rate doesn’t look that brilliant.

There are different types of benchmarking the managers can use. Strategic benchmarking. Managers use this type of benchmarking to identify the best way to compete

in the market. During the process, the companies identify the winning strategies (usually outside their own industry) that successful companies use and apply them to their own strategic process. It is also common to compare the strategic goals in order to spot new strategic choices.

Performance benchmarking. It is concerned with comparing your company’s products and services. According to Bogan & English the tool mainly focuses on product and service quality, features, price, speed, reliability, design and customer satisfaction, but it can measure anything that has the measurable metrics, including processes. Performance benchmarking determines how strong our products and services are compared to our competition.

Process benchmarking. It requires to look at other companies that engage in similar activities and to identify the best practices that can be applied to your own processes in order to improve them. Process benchmarking is a separate type of benchmarking, but it usually derives from performance benchmarking. This is because companies first identify the weak competing points of their products or services and then focus on the key processes to eliminate those weaknesses. For example, an organization using performance comparison identifies that their product ‘X’ is superior in features, manufacturing quality and design, but pricier than competitor’s product ‘Y’. Then the company determines, which processes add the most to the cost of the product and seek how to improve them by looking at similar, but less cost heavy processes in other companies.

This picture shows us about steps for doing benchmarking, which easily helps lot of famous firms like AT

Kearney, Best Practices Benchmarking & Consulting, as well as the Strategic Planning Institute’s Council

on Benchmarking, gather benchmarking data, conduct benchmarking studies, and distribute

benchmark information without identifying the sources.

Internal Analysis (IFE)

This strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among those areas

Intuitive judgments are required in developing an IFE Matrix, so the appearance of a scientific approach should not be interpreted to mean this is an all-powerful technique

IFE Matrix can be developed in five steps:

o List key internal factors as identified in the internal-audit process. Use a total of from 10 to 20 internal factors, including both strengths and weaknesses. List strengths first and then weaknesses. Be as specific as possible, using percentages, ratios, and comparative numbers.

o Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to each factor. The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm’s industry. Regardless of whether a key factor is an internal strength or weakness, factors considered to have the greatest effect on organizational performance should be assigned the highest weights. The sum of all weights must equal 1.0.

o Assign a 1-to-4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4). Note that strengths must receive a 3 or 4 rating and weaknesses must receive a 1 or 2 rating. Ratings are thus company-based, whereas the weights in step 2 are industry-based.

o Multiply each factor’s weight by its rating to determine a weighted score for each variable. o Sum the weighted scores for each variable to determine the total weighted score for the

organization. Regardless of how many factors are included in an IFE Matrix, the total weighted score can range from

a low of 1.0 to a high of 4.0, with the average score being 2.5. Total weighted scores well below 2.5 characterize organizations that are weak internally, whereas scores significantly above 2.5 indicate a strong internal position

Mandalay Bay (in the previous example), has a total weighted score of 2.75 indicating that the firm is

above average in its overall internal strength.

Case Analysis Eastman Kodak is a technology company focused on imaging. Kodak provide hardware, software, consumables, and services to customers in graphic arts commercial print, publishing, packaging, electronic displays, entertainment and commercial films, and consumer products markets. Though Kodak has mostly been known for its historic role in photography, the company has served imaging needs of numerous industries since the early 1990’s. Kodak’s current prortofolio is based on deep technological expertie developed over there in materials science, deposition, and digital imaging science Nowadays Eastman have lot of business division that are site of 1250 acres and 16 million square feet of building space, 55 companies on site today with kodak(16 of them are in clean technology and renewble energy generation and creation) Strength :

One simple product Strong brand equity Legacy in Research and Development International properties

Weaknesses :

Large liabilities Increasing & improved of competitor’s product Low penetration of hyped market