Internal Assessment Phase (IAP) of Strategy

Formulation
 Internal audit – Requires gathering, assimilating, and
prioritizing information about firm’s management, marketing,
operations, finance, accounting, R&D and management
information systems operations
 Opportunity for participants to understand how their jobs and
divisions fit into the firm
 In a VUCA (Volatile, Uncertain, Complex, Ambiguous) world
the internal capabilities are stable to define its identity as the
external environment may not provide a secure environment for
strategy formulation
IAP - Resource-Based Review
 RBV contends that internal resources are more important that
external in having and maintaining a competitive advantage
 Organisational performance is determined by internal resources
that enables opportunities to be exploited and threats neutralized
 Can be tangible of intangible
 Empirical Indicators –
o Rare
o Hard to imitate
o Not easily substituted
 Involves the development and exploitation of a firm’s unique
capabilities and resources through maintaining and
strengthening resources
IAP - Key Internal Forces
 Analysing internal S & W across the functional areas to
determine if a firm possesses or lacks distinctive competencies
 DC cannot be easily imitated of matched by competitors
 Building CA (comp advantage) involves taking full advantage of
the firm’s DCs by ensuring the firm continually nurtures the
strengths while closing the gaps on the weaknesses
 Effective strategic planning relies on identification and
prioritization of internal strengths and weaknesses
IAP – Management
Planning –
 Management activities related to preparing for the future
 Developing strategies, objectives and policies
 Strategy formulation
Organizing –
 All management tasks involved in structuring tasks and
authority relations
 Developing job descriptions, specifications, design, analysis,
span of control
 Strategy implementation
Motivating/Leading –
 Efforts directed at shaping human behavior
 Leadership, team work, HRM
 Strategy implementation
Controlling –
 Managerial activities, comparing results to projections
 Quality control, finances, rewards and sanction
 Strategy evaluation
Production / Ops consists of all the acts that transform a product
into its final form
Decision area:
 Process– layout; process flow analysis; line balancing
 Capacity– Forecasting; planning; scheduling; capacity planning
 Inventory- Level of raw materials required; work-in-process;
finished goods; what to order
 Workforce- Managing the unskilled; skilled, job enrichment
 Quality- Quality control; sample testing; quality assurance; cost
control
Integrating Strategy and Organizational culture
 OC (org culture) impacts planning activities
 If the strats can capitalize on the OC then management can
swiftly implement changes
 OC – pattern of behavior developed by and organization to help
cope with the external adaptation and internal integration and
that has worked well enough to be taught to new members as the
correct way to work and think
IAP – Marketing
Process of defining, anticipating, creating and fulfilling customers’
wants and need
5 Basic marketing activities:
 Market research and target market analysis
o Systematic gathering, recording, and analyzing of data
relating to problems about the marketing of goods and
services
o Can uncover critical strength and weaknesses
o TMA – examination and evaluation of customers’ wants
and needs
  Product planning
o Includes activities such as test marketing, product and
brand positioning, etc.
o Important when a company is pursuing product
development or diversification
 Pricing product
o How much the firm is charging the customer for the
product
o Often based on cost, demand, competition, or the
customers’ needs
 Promoting products
o Marketing activities like ads
 Placing or distributing products
o How the product will be distributed to the customers and
what intermediaries will be used
IAP – Finance and Accounting
Functions of finance/accounting comprise of three decisions:
 Investment decisions: Allocation and reallocation of capital
and resources to project, products, assets, and divisions
 Financing decisions: Determines best capital structure for the
firms
 Dividend decisions: Determined the amount of funds that the
firm will retain in comparison to the amount that will be paid
out
 Financial Ratios
o How does each ration change over time?
o How does each ratio compare to the industry norm?
o How does each ratio compare with key competitors?
IAP – The Internal Factor Evaluation (IFE) Matrix
Actionable-Quantitative-Comparative-Divisional (AQCD) test
 Actionable: Meaningful and helpful when deciding what
actions/strategies the firm should consider pursuing
 Quantitative: Include %, ratios and number to the extent
possible
 Comparative: Reveals the changes over time
 Divisional: Related to the firm’s products and/or regions so
comparisons can be drawn to see who is
performing/underperforming
Steps in developing an IFE Matrix
 Step 1: Develop a full and narrow list of key internal factors
 Step 2: Assign weight to each key internal factor
 Step 3: Assign ratings to key internal factors
 Step 4: Obtain weighted scores
 Step 5: Obtain total weighted score
The External Assessment Phase of Strategy
Formulation
 Purpose – develop finite list of opportunities that the firm could
benefit from, as well as threats that should be avoided
 Not aimed at developing an exhaustive list of factors
Nature of External Forces
 Divided into 5 broad categories
 Make sure factors are Specific, Actionable, Stated as External
trends
The external forces
Economic Forces
 Be mindful that strategic planning the relevant economic
variables (inflation, unemployment, GDP, etc.) must be
quantifiable and actionable to be useful
Social, Cultural, Demographic, and Environmental Trends
 New trends are creating a different type of consumer and a need
for different products, services, and updated strategies
Political, Governmental, and Legal Forces
 Can present major opportunities/threats to firms
Technological Forces
 No industry is insulated from emerging technologies
 Innovation, identification and evaluation of key tech
opportunities/threats can be the most important part of the
strategic management
Competitive Forces
 Collecting and evaluating info on competitors for successful
strategy formulation
Competitive Intelligence (CI)
 Defined by Society of Competitive Intelligence Professionals
(SCIP)
 Not corporate espionage
Porter’s Five-Forces Model of Competition
Rivalry among competing firms
 Most powerful force, most analyzed by managers
 Strategies can be effective only to the extent it provides a
competitive advantage over their competitors
 Intense competition can decrease overall industry profits, as
firms lower prices to outsell rivals
Potential Entry of Competitors
 Firms are likely to face new threats and lose market share to
new entrants if it is easy to enter into an industry
 Barriers to entry is what keeps new firms at bay (economies of
scale, initial capital investment, supply chains)
Potential Substitute Products
 Presence of substitute products puts a ceiling on the price firms
can ask for their products, as consumers will buy the sub if they
get too expensive
Bargaining Power of Suppliers
 The ability of suppliers to raise the price of goods/services
firms buy
 It affects the intensity of competitiveness, especially if few
substitutes exist; when the cost of switching is high; when the
sub it too different; when there are few suppliers
Bargaining Power of Consumers
 Ability for consumers to drive down the prices of products in an
industry
 Strong when the firm is competing with limited amount of buyer
(niche industry)
 Consumers can gain power if:
o Can inexpensively switch to competing brands or subs
o Important to the seller
o Sellers are struggling due to a drop in demand
o Informed about sellers’ costs, prices and products
o Have discretion to when and where they can buy the
products
 Force is higher if products are undifferentiated or standard
Forecasting Tools and Techniques
 Complex due to factors like tech innovation, cultural changes,
new products, improved services, stronger competitors, etc.
Making Assumptions
 McConkey defines assumptions as: “best present estimates of
the impact of major external factors, over which the manager
had little if any control, but which may exert a significant
impact on performance or the ability to achieve desired results”
Competitive Profile Matrix (CPM)
 Identifies the firm’s major competitors and their S&W in
relation to a sample of the firm’s strategic positions
 Ratings:
o 4 = major strength
o 3 = minor strength
o 2 = minor weakness
o 1 = major weakness
 Steps for a CPM:
o Identify the firm’s major competitors
o Identify core S&W in relation to the firm
o Critical success factors include internal and external issues