The Internal Audit Chapter Six

Copyright ©2017 Pearson Education, Limited The Internal Audit Chapter Six 6-1 Each Group present one part of a internal audit (select one) ? How to evaluate Management ? How to evaluate organization ? How to evaluate sales/Marketing ? For each area… the important task is to consider how to research and find out how a specific area function. ? And to develop a strategic plan. .how to improve it. ? One hour and 15 min for each to present Copyright ©2017 Pearson Education, Limited 6-2 Learning Objectives 1. Describe the nature and role of an internal assessment in formulating strategies. 2. Discuss why organizational culture is so important in formulating strategies. 3. Identify the basic functions (activities) that make up management and their relevance in formulating strategies. 4. Identify the basic functions of marketing and their relevance in formulating strategies. 5. Discuss the nature and role of finance and accounting in formulating strategies. Copyright ©2017 Pearson Education, Limited 6-3 Learning Objectives (cont.) 6. Discuss the nature and role of production/operations in formulating strategies. 7. Discuss the nature and role of research and development (R&D) in formulating strategies. 8. Discuss the nature and role of management information systems (MIS) in formulating strategies. 9. Explain value chain analysis and its relevance in formulating strategies. 10. Develop and use an Internal Factor Evaluation (IFE) Matrix. Copyright ©2017 Pearson Education, Limited 6-4 A Comprehensive Strategic - Management Model Copyright ©2017 Pearson Education, Limited 6-5 Key Internal Forces ? Distinctive competencies ? A firm 's strengths that cannot be easily matched or imitated by competitors ? Building competitive advantages involves taking advantage of distinctive competencies. Copyright ©2017 Pearson Education, Limited 6-6 The Process of Performing an Internal Audit ? The internal audit ? Requires gathering, assimilating, and prioritizing information about the firm 's management, marketing, finance, accounting, production/operations, research and development (R&D), and management information systems operations ? Provides more opportunity for participants to understand how their jobs, departments, and divisions fit into the whole firm Copyright ©2017 Pearson Education, Limited 6-7 The Resource - Based View (RBV) ? The Resource - Based View (RBV) Approach ? contends that internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage Copyright ©2017 Pearson Education, Limited 6-8 The Resource - Based View (RBV) ? Proponents of the RBV contend that organizational performance will primarily be determined by internal resources that can be grouped into three all - encompassing categories: ? physical resources ? human resources ? organizational resources Copyright ©2017 Pearson Education, Limited 6-9 The Resource - Based View (RBV) ? For a resource to be valuable, it must be either (1) rare, (2) hard to imitate, or (3) not easily substitutable. ? These three characteristics of resources are called Empirical Indicators ? These enable a firm to implement strategies that improve its efficiency and effectiveness and lead to a sustainable competitive advantage. Copyright ©2017 Pearson Education, Limited 6-10 Assignment ? Find examples of industries with resources that are rare, hard to imitate or not easy to substitute and… the alternative ? Find 2 minimum (one of each) and explain why Copyright ©2017 Pearson Education, Limited 6-11 Integrating Strategy and Culture ? Organizational culture significantly affects planning activities. ? 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. Copyright ©2017 Pearson Education, Limited 6-12 Organizational Culture ? Organizational culture is “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.” Copyright ©2017 Pearson Education, Limited 6-13 Cultural Products ? Values ? Beliefs ? Rites ? Rituals ? Ceremonies ? Myths ? Stories ? Legends ? Sagas ? Language ? Metaphors ? Symbols ? Folktales ? Heroes and heroines Copyright ©2017 Pearson Education, Limited 6-14 Give examples of how culture is important in your contries Copyright ©2017 Pearson Education, Limited 6-15 Aspects of Organizational Culture Copyright ©2017 Pearson Education, Limited 6-16 Management The functions of management consist of five basic activities: ? planning ? organizing ? motivating ? staffing ? controlling Copyright ©2017 Pearson Education, Limited 6-17 The Basic Functions of Management ? Planning : forecasting, establishing objectives, devising strategies, and developing policies ? Organizing : organizational design, job specialization, job descriptions, span of control, coordination, job design, and job analysis ? Motivating : leadership, communication, work groups, behavior modification, delegation of authority, job enrichment, job satisfaction, needs fulfillment, organizational change, employee morale, and managerial morale Copyright ©2017 Pearson Education, Limited 6-18 The Basic Functions of Management ? Staffing : wage and salary administration, employee benefits, interviewing, hiring, firing, training, management development, employee safety, equal employment opportunity, and union relations ? Controlling : quality control, financial control, sales control, inventory control, expense control, analysis of variances, rewards, and sanctions Copyright ©2017 Pearson Education, Limited 6-19 Management Audit Checklist of Questions 1. Does the firm use strategic -management concepts? 2. Are company objectives and goals measurable and well communicated? 3. Do managers at all hierarchical levels plan effectively? 4. Do managers delegate authority well? 5. Is the organization 's structure appropriate? Copyright ©2017 Pearson Education, Limited 6-20 Management Audit Checklist of Questions (cont.) 6. Are job descriptions and job specifications clear? 7. Is employee morale high? 8. Are employee turnover and absenteeism low? 9. Are organizational reward and control mechanisms effective? Copyright ©2017 Pearson Education, Limited 6-21 Marketing Marketing the process of defining, anticipating, creating, and fulfilling customers ’ needs and wants for products and services Copyright ©2017 Pearson Education, Limited 6-22 Functions of Marketing Customer analysis Selling products and services Product and service planning Pricing Distribution Marketing research Cost/benefit analysis Copyright ©2017 Pearson Education, Limited 6-23 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 Copyright ©2017 Pearson Education, Limited 6-24 Selling Products and Services ? Selling ? includes many marketing activities, such as advertising, sales promotion, publicity, personal selling, sales force management, customer relations, and dealer relations Copyright ©2017 Pearson Education, Limited 6-25 Product and Service Planning ? 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 Copyright ©2017 Pearson Education, Limited 6-26 Pricing ? 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. Copyright ©2017 Pearson Education, Limited 6-27 Distribution ? 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 Copyright ©2017 Pearson Education, Limited 6-28 Marketing Research ? 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 Copyright ©2017 Pearson Education, Limited 6-29 Cost/Benefit Analysis ? Cost/Benefit Analysis ? Three steps are required: 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 Copyright ©2017 Pearson Education, Limited 6-30 Marketing Audit Checklist of Questions 1. Are markets segmented effectively? 2. Is the organization positioned well among competitors? 3. Has the firm ’s market share been increasing? 4. Are present channels of distribution reliable and cost effective? 5. Does the firm have an effective sales organization? 6. Does the firm conduct market research? Copyright ©2017 Pearson Education, Limited 6-31 Marketing Audit Checklist of Questions (cont.) 7. Are product quality and customer service good? 8. Are the firm 's products and services priced appropriately? 9. Does the firm have an effective promotion, advertising, and publicity strategy? 10. Are marketing, planning, and budgeting effective? 11. Do the firm 's marketing managers have adequate experience and training? 12. Is the firm 's Internet presence excellent as compared to rivals? Copyright ©2017 Pearson Education, Limited 6-32 Finance/Accounting Functions The functions of finance/accounting comprise three decisions: 1. the investment decision 2. the financing decision 3. the dividend decision Copyright ©2017 Pearson Education, Limited 6-33 Finance/Accounting Functions ? Investment Decision (Capital Budgeting) ? 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 Copyright ©2017 Pearson Education, Limited 6-34 Finance/Accounting Functions ? 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 Copyright ©2017 Pearson Education, Limited 6-35 Finance/Accounting Functions 1. How has each ratio changed over time? 2. How does each ratio compare to industry norms? 3. How does each ratio compare with key competitors? Copyright ©2017 Pearson Education, Limited 6-36 A Summary of Key Financial Ratios Copyright ©2017 Pearson Education, Limited 6-37 A Summary of Key Financial Ratios Copyright ©2017 Pearson Education, Limited 6-38 A Summary of Key Financial Ratios Copyright ©2017 Pearson Education, Limited 6-39 A Summary of Key Financial Ratios Copyright ©2017 Pearson Education, Limited 6-40 Finance/Accounting Audit Checklist 1. Where is the firm financially strong and weak as indicated by financial ratio analyses? 2. Can the firm raise needed short -term capital? 3. Can the firm raise needed long -term capital through debt and/or equity? 4. Does the firm have sufficient working capital? 5. Are capital budgeting procedures effective? Copyright ©2017 Pearson Education, Limited 6-41 Finance/Accounting Audit Checklist (cont.) 6. Are dividend payout policies reasonable? 7. Does the firm have good relations with its investors and stockholders? 8. Are the firm 's financial managers experienced and well trained? 9. Is the firm 's debt situation excellent? Copyright ©2017 Pearson Education, Limited 6-42 Production/Operations ? Production/operations function ? 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. Copyright ©2017 Pearson Education, Limited 6-43 The Basic Functions (Decisions) Within Production/Operations Copyright ©2017 Pearson Education, Limited 6-44 Implications of Various Strategies on Production/Operations Copyright ©2017 Pearson Education, Limited 6-45 Production/Operations Audit Checklist 1. Are supplies of raw materials, parts, and subassemblies reliable and reasonable? 2. Are facilities, equipment, machinery, and offices in good condition? 3. Are inventory -control policies and procedures effective? 4. Are quality -control policies and procedures effective? 5. Are facilities, resources, and markets strategically located? 6. Does the firm have technological competencies? Copyright ©2017 Pearson Education, Limited 6-46 Research and Development Audit 1. Does the firm have R&D facilities? Are they adequate? 2. If outside R&D firms are used, are they cost -effective? 3. Are the organization 's R&D personnel well qualified? 4. Are R&D resources allocated effectively? 5. Are management information and computer systems adequate? 6. Is communication between R&D and other organizational units effective? 7. Are present products technologically competitive? Copyright ©2017 Pearson Education, Limited 6-47 Management Information Systems ? Management Information System ? Receives raw material from both external and internal evaluation of an organization ? Improves the performance of an enterprise by improving the quality of managerial decisions ? Collects, codes, stores, synthesizes, and presents information in such a manner that it answers important operating and strategic questions Copyright ©2017 Pearson Education, Limited 6-48 Management Information Systems Audit 1. Do all managers in the firm use the information system to make decisions? 2. Is there a chief information officer or director of information systems position in the firm? 3. Are data in the information system updated regularly? 4. Do managers from all functional areas of the firm contribute input to the information system? 5. Are there effective passwords for entry into the firm 's information system? Copyright ©2017 Pearson Education, Limited 6-49 Management Information Systems Audit (cont.) 6. Are strategists of the firm familiar with the information systems of rival firms? 7. Is the information system user -friendly? 8. Do all users of the information system understand the competitive advantages that information can provide firms? 9. Are computer training workshops provided for users of the information system? 10. Is the firm’ s information system continually being improved in content - and user -friendliness? Copyright ©2017 Pearson Education, Limited 6-50 Value Chain Analysis (VCA) ? Value Chain Analysis (VCA) ? refers to the process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing product(s) to marketing those products ? aims to identify where low -cost advantages or disadvantages exist anywhere along the value chain from raw material to customer service activities Copyright ©2017 Pearson Education, Limited 6-51 Transforming Value Chain Activities into Sustained Competitive Advantage Copyright ©2017 Pearson Education, Limited 6-52 Benchmarking ? 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 ? entails measuring costs of value chain activities across an industry to determine “ best practices ” Copyright ©2017 Pearson Education, Limited 6-53 The Internal Factor Evaluation (IFE) Matrix 1. List key internal factors as identified in the internal -audit process. 2. Assign a weight that ranges from 0.0 (not important) to 1.0 (all -important) to each factor. 3. Assign a 6 -to -4 rating to each factor to indicate whether that factor represents a strength or weakness. 4. Multiply each factor 's weight by its rating to determine a weighted score for each variable. 5. Sum the weighted scores for each variable to determine the total weighted score for the organization. Copyright ©2017 Pearson Education, Limited 6-54 A Sample Internal Factor Evaluation Matrix for a Retail Computer Store Copyright ©2017 Pearson Education, Limited 6-55