Strategic management In your assigned groups, each group can select a group leader to submit their work in the assigned Dropbox on Slate. For any requireme

Strategic management In your assigned groups, each group can select a group leader to submit their work in the assigned Dropbox on Slate. For any requireme

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Answer the following:

  1. Explain what RBV is?
  2. What are the sources of competitive advantage based on RBV?
  3. What is the name of the opponent theory or alternative to RBV?

ICA (3) - RBVICA (3) – RBV

MGMT 40000D
Strategic Management

Week 4.

By: Dr. Wael Ramadan, B.Eng., MBA, PhD, PMP, LSSBB,



• StratSim Decision Point

• CH 4: Perform The Internal Audit

• Next Class:
– StratSim Decision Point

– Weekly Case Presentation Due for Assigned Team

• Final Project Proposals & Team Contracts Due next week

(Refer to Topical Outline For Deadline)

• Summary


Chapter Objectives
1. Describe how to perform an internal strategic-

management audit.
2. Discuss the Resource-Based View (RBV) in strategic

3. Discuss key interrelationships among the functional

areas of business.
4. Identify the basic functions or activities that make up

management, marketing, finance/accounting
production/operations, research and development, and
management information systems.


Chapter Objectives
5. Explain how to determine and prioritize a firm’s

internal strengths and weaknesses.
6. Explain the importance of financial ratio analysis.
7. Discuss the nature and role of management

information systems in strategic management.
8. Develop an Internal Factor Evaluation

(IFE) Matrix.
9. Explain cost/benefit analysis value chain

analysis, and benchmarking as strategic-
management tools.

Strategic Management Model


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.


Weaknesses Strengths Distinctive Competencies

The Process of Gaining Competitive Advantage in a Firm


The Process of Performing an
Internal Audit

• The internal audit
– Requires gathering and assimilating 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 organization


The Resource-Based View (RBV)

• Contends that internal resources are more
important for a firm than external factors in
achieving and sustaining competitive


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: plant and equipment, location,
technology, raw materials, machines

– Human Resources: employees, training,
experience, intelligence, knowledge, skills,

– Organizational Resources: firm structure, planning
processes, information systems, patents, trademarks,
copyrights, databases, and so on.


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
enable a firm to implement strategies that
improve its efficiency and effectiveness
and lead to a sustainable competitive

Example Cultural Products Defined

Examples of Possible Aspects of an
Organizational Culture

Dimension Low Degree Degree Degree High
1. Strong work ethic; arrive early and leave late 1 2 3 4 5

2. High ethical beliefs; clear code of business ethics followed 1 2 3 4 5

3. Formal dress; shirt and tie expected 1 2 3 4 5

4. Informal dress; many casual dress days 1 2 3 4 5

5. Socialize together outside of work 1 2 3 4 5

6. Do not question supervisor’s decision 1 2 3 4 5

7. Encourage whistle-blowing 1 2 3 4 5

8. Be health conscious; have a wellness program 1 2 3 4 5

9. Allow substantial “working from home” 1 2 3 4 5

10. Encourage creativity, innovation, and open-mindedness 1 2 3 4 5

11. Support women and minorities; no glass ceiling 1 2 3 4 5

12. Be highly socially responsible; be philanthropic 1 2 3 4 5

13. Have numerous meetings 1 2 3 4 5

14. Have a participative management style 1 2 3 4 5

15. Preserve the natural environment; have a sustainability

1 2 3 4 5


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.


• 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

The Basic Functions of Management


Management Audit Checklist
of Questions

1. Does the firm use strategic-management

2. Are company objectives and goals
measurable and well communicated?

3. Do managers at all hierarchical levels plan

4. Do managers delegate authority well?
5. Is the organization’s structure appropriate?


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

9. Are organizational reward and control

mechanisms effective?



• Marketing is the process of defining,
anticipating, creating, and fulfilling
customers’ needs and wants for products
and services

Functions of Marketing


Customer analysis

Selling products and services

Product and service planning



Marketing research

Cost/benefit analysis


• 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


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



• 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



• Distribution
– includes warehousing, distribution channels,

distribution coverage, retail site locations,
sales territories, inventory levels and location,
transportation carriers, wholesaling, and

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


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


Cost/Benefit Analysis

Three steps are required to perform a
cost/benefit analysis:
1. compute the total costs associated with a

2. estimate the total benefits from the decision,
3. compare the total costs with the total



Marketing Audit Checklist
of Questions

1. Are markets segmented effectively?
2. Is the organization positioned well among

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

6. Does the firm conduct market research?


Marketing Audit Checklist
of Questions

7. Are product quality and customer service good?
8. Are the firm’s products and services priced

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?


Finance/Accounting Functions

The functions of finance/accounting comprise
three decisions:

1. The investment decision
2. The financing decision
3. The dividend decision


Finance/Accounting Functions

• 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


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

Classification of Key Financial Ratios Into Five Types:

• Measure the firm’s ability to meet maturing short-
term obligationsLiquidity Ratios

• Measure the extent to which a firm has been
financed by debtLeverage Ratios

• Measure how effectively a firm is using its
resourcesActivity Ratios

• Measure management’s overall effectiveness as
shown by the returns generated on sales and
investmentProfitability Ratios

• Measures the firm’s ability to maintain its
economic position in the growth of the economy
and industryGrowth Ratios



Finance/Accounting Functions
1. How has each ratio changed over time?

2. How does each ratio compare to industry

3. How does each ratio compare with key

A Summary of Key Financial Ratios

A Summary of Key Financial Ratios (2)

A Summary of Key Financial Ratios (3)

A Summary of Key Financial Ratios (4)

Sample Financial Ratio Trend


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?


Finance/Accounting Audit Checklist

7. Are dividend payout policies reasonable?

8. Does the firm have good relations with its investors and

9. Are the firm’s financial managers experienced
and well trained?

10. Is the firm’s debt situation excellent?


• 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.

The Basic Functions (Decisions) Within

Implications of Various Strategies on


Audit Checklist

1. Are supplies of raw materials, parts, and subassemblies
reliable and reasonable?

2. Are facilities, equipment, machinery, and offices in good

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?


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?


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


Management Information Systems

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

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?


Management Information Systems

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?


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



• 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”

Transforming Value Chain Activities into
Sustained Competitive Advantage


The Internal Factor Evaluation (IFE) Matrix

1. List key internal factors as identified in the internal-audit

2. Assign a weight that ranges from 0.0 (not important) to
1.0 (all-important) to each factor, industry based

3. Assign a 1-to-4 rating to each factor to indicate whether that
factor represents a strength or weakness. Rating value
interpretation: 1= major weakness, 2=minor weakness, 3=
minor strength, 4=major strength.

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. (Interpretation of
total weighted score value: 4=strong internal position, 1=weak
internal position)

A Sample Internal Factor Evaluation Matrix

  • MGMT 40000D
    Strategic Management
  • Agenda:
  • Chapter Objectives
  • Chapter Objectives
  • Slide Number 5
  • Key Internal Forces
  • The Process of Performing an Internal Audit
  • The Resource-Based View (RBV)
  • The Resource-Based View (RBV)
  • The Resource-Based View (RBV)
  • Example Cultural Products Defined
  • Examples of Possible Aspects of an Organizational Culture
  • Integrating Strategy and Culture
  • Management
  • Slide Number 15
  • Management Audit Checklist of Questions
  • Management Audit Checklist of Questions (cont.)
  • Marketing
  • Functions of Marketing
  • Marketing
  • Product and Service Planning
  • Pricing
  • Distribution
  • Marketing Research
  • Cost/Benefit Analysis
  • Marketing Audit Checklist of Questions
  • Marketing Audit Checklist of Questions
  • Finance/Accounting Functions
  • Finance/Accounting Functions
  • Finance/Accounting Functions
  • Classification of Key Financial Ratios Into Five Types:
  • Finance/Accounting Functions
  • A Summary of Key Financial Ratios
  • A Summary of Key Financial Ratios (2)
  • A Summary of Key Financial Ratios (3)
  • A Summary of Key Financial Ratios (4)
  • Sample Financial Ratio Trend Analysis
  • Finance/Accounting Audit Checklist
  • Finance/Accounting Audit Checklist
  • Production/Operations
  • Slide Number 41
  • Slide Number 42
  • Production/Operations Audit Checklist
  • Research and Development Audit
  • Management Information Systems
  • Management Information Systems Audit
  • Management Information Systems Audit
  • Value Chain Analysis (VCA)
  • Benchmarking
  • Slide Number 50
  • The Internal Factor Evaluation (IFE) Matrix
  • Slide Number 52

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