Download - David ppt exp_ch04
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Copyright 2007 Prentice Hall Ch 4 -1
Chapter 4 The Internal Assessment
Strategic Management: Concepts & Cases
11th Edition
Fred David
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Copyright 2007 Prentice Hall Ch 4 -2
Chapter Outline
The Nature of an Internal Audit
The Resource-Based View (RBV)
Integrating Strategy & Culture
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Copyright 2007 Prentice Hall Ch 4 -3
Chapter Outline (cont’d)
Management
Marketing
Opportunity Analysis
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Copyright 2007 Prentice Hall Ch 4 -4
Chapter Outline (cont’d)
Finance/Accounting
Production/Operations
Research & Development
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Copyright 2007 Prentice Hall Ch 4 -5
Chapter Outline (cont’d)
Management Information Systems
The Internal Factor Evaluation (IFE) Matrix
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Copyright 2007 Prentice Hall Ch 4 -6
The biggest levers you’ve got to change a company are strategy, structure, and culture. If I could pick two, I’d pick strategy and culture. –Wayne Leonard, CEO, Entergy
Internal Assessment
Weak leadership can wreck the soundest strategy. – Sun Zi
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Copyright 2007 Prentice Hall Ch 4 -7
Nature of an Internal Audit
-- Strengths
-- Weaknesses
Functional Areas of Business
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Copyright 2007 Prentice Hall Ch 4 -8
Internal strengths/weaknesses External opportunities/threats Clear statement of mission
Nature of an Internal Audit
Basis for Objectives & Strategies
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Copyright 2007 Prentice Hall Ch 4 -9
Key Internal Forces
Functional Business Areas:
Vary by organization
Divisions have differing strengths & weaknesses
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Copyright 2007 Prentice Hall Ch 4 -10
Key Internal Forces
Distinctive Competencies:
Firm’s strengths that cannot be easily matched or imitated by competitors
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Copyright 2007 Prentice Hall Ch 4 -11
Key Internal Forces
Distinctive Competencies:
Building competitive advantage involves taking advantage of distinctive competencies
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Copyright 2007 Prentice Hall Ch 4 -12
Key Internal Forces
Distinctive Competencies:
Strategies designed to improve on a firm’s weaknesses and turn to strengths
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Copyright 2007 Prentice Hall Ch 4 -13
Internal Audit
•Information from:•Management
•Marketing
•Finance/accounting
•Production/operations
•Research & Development
•Management information Systems
Parallels process of external audit
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Copyright 2007 Prentice Hall Ch 4 -14
Internal Audit
Involvement in performing an internal strategic-management audit provides vehicle for understanding nature and effect of decisions in other functional business areas of the firm
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Copyright 2007 Prentice Hall Ch 4 -15
Internal Audit
Coordination & understanding among managers from all functional areas
Key to Organizational Success
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Copyright 2007 Prentice Hall Ch 4 -16
Internal Audit
Number and complexity increases relative to organization size
Functional Relationships
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Copyright 2007 Prentice Hall Ch 4 -17
Internal Audit
Exemplifies complexity of relationships among functional areas of the business
Financial Ratio Analysis
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Copyright 2007 Prentice Hall Ch 4 -18
Resource Based View (RBV)
Approach to Competitive Advantage
Internal resources are more important than external factors
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Copyright 2007 Prentice Hall Ch 4 -19
Resource Based View (RBV)
3 All Encompassing Categories
1. Physical resources
2. Human resources
3. Organizational resources
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Copyright 2007 Prentice Hall Ch 4 -20
Resource Based View (RBV)
Empirical Indicators
Rare
Hard to imitate
Not easily substitutable
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Copyright 2007 Prentice Hall Ch 4 -21
Integrating Strategy & Culture
Pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integration…is considered valid and taught to new members
Organizational Culture
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Copyright 2007 Prentice Hall Ch 4 -22
Integrating Strategy & Culture
Organizational Culture
Resistant to change
May represent:
Strength
Weakness
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Copyright 2007 Prentice Hall Ch 4 -23
CulturalProducts
Values
Legends Beliefs
Heroes Rites
Symbols RitualsMyths
Integrating Strategy & Culture
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Copyright 2007 Prentice Hall Ch 4 -24
Integrating Strategy & Culture
Organizational Culture Can Inhibit Strategic Management
Miss external changes due to strongly held beliefs
Natural tendency to “hold the course” even during times of strategic change
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Copyright 2007 Prentice Hall Ch 4 -25
U.S. Versus Foreign Cultures
To successfully compete in world markets, U.S. managers must obtain a better knowledge of historical, cultural, and religious forces that motivate and drive people in other countries.
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Copyright 2007 Prentice Hall Ch 4 -26
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Copyright 2007 Prentice Hall Ch 4 -27
Management
Functions of Management
1. Planning
2. Organizing
3. Motivating
4. Staffing
5. Controlling
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Copyright 2007 Prentice Hall Ch 4 -28
Management
Planning
Stage When Most ImportantFunction
Strategy Formulation
Organizing Strategy Implementation
Motivating Strategy Implementation
Staffing
Controlling
Strategy Implementation
Strategy Evaluation
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Copyright 2007 Prentice Hall Ch 4 -29
Management
Planning
Beginning of management process
Bridge between present & future
Improves likelihood of attaining desired results
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Copyright 2007 Prentice Hall Ch 4 -30
Planning
Forecasting
Establishing objectives
Devising strategies
Developing policies
Setting goals
Management
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Copyright 2007 Prentice Hall Ch 4 -31
Management
Organizing
Achieves coordinated effort
Defines task & authority relationships
Departmentalization
Delegation of authority
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Copyright 2007 Prentice Hall Ch 4 -32
Organizing
Organizational designJob specializationJob descriptions
Job specificationsSpan of control
Unity of commandCoordinationJob design
Job analysis
Management
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Copyright 2007 Prentice Hall Ch 4 -33
Management
Motivating
Influencing to accomplish specific objectives
Communication – major component
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Copyright 2007 Prentice Hall Ch 4 -34
Motivating
LeadershipCommunication
Work groupsJob enrichmentJob satisfactionNeeds fulfillment
Organizational changeMorale
Management
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Copyright 2007 Prentice Hall Ch 4 -35
Management
Staffing
Personnel management
Human resources management
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Copyright 2007 Prentice Hall Ch 4 -36
Staffing
Wage & salary admin.Employee benefits
InterviewingHiring
DischargingTraining
Management developmentAffirmative Action
EEOLabor relations
Management
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Copyright 2007 Prentice Hall Ch 4 -37
Management
Controlling
Establishing performance standards
Ensure actual operations conform to planned operations
Taking corrective actions
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Copyright 2007 Prentice Hall Ch 4 -38
Controlling
QualityFinancial
SalesInventoryExpense
Analysis of varianceRewardsSanctions
Management
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Copyright 2007 Prentice Hall Ch 4 -39
Management Audit Checklist
•Does the firm use strategic management concepts?•Are objectives/goals measurable? Well communicated?•Do managers at all levels plan effectively?
•Does the firm use strategic management concepts?•Are objectives/goals measurable? Well communicated?•Do managers at all levels plan effectively?
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Copyright 2007 Prentice Hall Ch 4 -40
Management Audit Checklist
•Do managers delegate well?•Is the organization’s structure appropriate?•Are job descriptions clear?•Are job specifications clear?•Is employee morale high?
•Do managers delegate well?•Is the organization’s structure appropriate?•Are job descriptions clear?•Are job specifications clear?•Is employee morale high?
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Copyright 2007 Prentice Hall Ch 4 -41
Management Audit Checklist
•Is employee absenteeism low?•Is employee turnover low?•Are the reward mechanisms effective?•Are the organization’s control mechanisms effective?
•Is employee absenteeism low?•Is employee turnover low?•Are the reward mechanisms effective?•Are the organization’s control mechanisms effective?
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Copyright 2007 Prentice Hall Ch 4 -42
Marketing
Customer Needs/Wants for Products/Services
1. Defining
2. Anticipating
3. Creating
4. Fulfilling
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Copyright 2007 Prentice Hall Ch 4 -43
Marketing
Marketing Functions
1. Customer analysis
2. Selling products/services
3. Product & service planning
4. Pricing
5. Distribution
6. Marketing research
7. Opportunity analysis
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Copyright 2007 Prentice Hall Ch 4 -44
Customer Analysis
Customer surveys
Consumer information
Market positioning strategies
Customer profiles
Market segmentation strategies
Marketing
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Copyright 2007 Prentice Hall Ch 4 -45
AdvertisingSales
PromotionPublicity
Sales force managementCustomer relations
Dealer relations
Marketing
Selling Products/Services
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Copyright 2007 Prentice Hall Ch 4 -46
Test marketingBrand positioning
Devising warranteesPackaging
Product features/optionsProduct style
Quality
Marketing
Planning Product/Service
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Copyright 2007 Prentice Hall Ch 4 -47
Forward integrationDiscounts
Credit termsCondition of sale
MarkupsCosts
Unit pricing
Marketing
Pricing
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Copyright 2007 Prentice Hall Ch 4 -48
WarehousingChannelsCoverage
Retail site locationsSales territoriesInventory levelsTransportation
Marketing
Distribution
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Copyright 2007 Prentice Hall Ch 4 -49
Data collectionData input
Data analysisSupport business functions
Marketing
Marketing Research
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Copyright 2007 Prentice Hall Ch 4 -50
Assessing costs
Assessing benefits
Assessing risks
Cost/benefit/risk analysis
Marketing
Opportunity Analysis
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Copyright 2007 Prentice Hall Ch 4 -51
Marketing
Opportunity Analysis
1. Are markets segmented effectively?
2. Is the organization positioned well among competitors?
3. Has the firm’s market share been increasing?
4. Are the distribution channels reliable & cost effective?
5. Is the sales force effective?
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Copyright 2007 Prentice Hall Ch 4 -52
Marketing
Opportunity Analysis
6. Does the firm conduct market research?
7. Are product quality & customer service good?
8. Are the firm’s products/services priced appropriately?
9. Does the firm have effective promotion, advertising, & publicity strategies?
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Copyright 2007 Prentice Hall Ch 4 -53
Marketing
Opportunity Analysis
10.Are the marketing planning & budgeting effective?
11.Do the firm’s marketing managers have adequate experience and training?
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Copyright 2007 Prentice Hall Ch 4 -54
Finance/Accounting
Determining financial strengths & weaknesses key to strategy formation
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Copyright 2007 Prentice Hall Ch 4 -55
Finance/Accounting
Finance/Accounting Functions
1. Investment decision (Capital budgeting)
2. Financing decision
3. Dividend decision
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Copyright 2007 Prentice Hall Ch 4 -56
Firm’s ability to meet its short-term obligations
Ratios
Current ratioQuick (or acid test) ratio
Basic Financial Ratios
Liquidity Ratios
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Copyright 2007 Prentice Hall Ch 4 -57
Extent of debt financing
Ratios
Debt-to-total assetsDebt-to-equity
Long-term debt-to-equityTimes-interest earned
Basic Financial Ratios
Leverage Ratios
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Copyright 2007 Prentice Hall Ch 4 -58
Effective use of firm’s resources
Ratios
Inventory-turnoverFixed assets turnoverTotal assets turnover
Accounts receivable turnoverAverage collection period
Basic Financial Ratios
Activity Ratios
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Copyright 2007 Prentice Hall Ch 4 -59
Effectiveness shown by returns on sales &
investment
Ratios
Gross profit marginOperating profit margin
Net profit marginReturn on total assets (ROA)
Basic Financial Ratios
Profitability Ratios
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Copyright 2007 Prentice Hall Ch 4 -60
Effectiveness shown by returns on sales &
investment
Ratios
Return on stockholders equity (ROE)
Earnings per sharePrice-earnings ratio
Basic Financial Ratios
Profitability Ratios(cont’d)
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Copyright 2007 Prentice Hall Ch 4 -61
Firm’s ability to maintain economic position
Ratios
SalesNet income
Earnings per shareDividends per share
Basic Financial Ratios
Growth Ratios
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Copyright 2007 Prentice Hall Ch 4 -62
Finance/Accounting Audit
•Where is the firm strong/weak as indicated by financial ratio analysis?•Can the firm raise short-term capital as needed?•Can the firm raise long-term capital as needed through debt and/or equity?
•Where is the firm strong/weak as indicated by financial ratio analysis?•Can the firm raise short-term capital as needed?•Can the firm raise long-term capital as needed through debt and/or equity?
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Copyright 2007 Prentice Hall Ch 4 -63
Finance/Accounting Audit
•Does the firm have sufficient working capital?•Are capital budgeting procedures effective?•Are dividend payout policies reasonable?•Are the firm’s financial managers experienced & well trained?
•Does the firm have sufficient working capital?•Are capital budgeting procedures effective?•Are dividend payout policies reasonable?•Are the firm’s financial managers experienced & well trained?
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Copyright 2007 Prentice Hall Ch 4 -64
Finance/Accounting Audit
Effective Financial Analysis Requires:1. Analysis of how the ratios have
changed over time2. How the ratios compare to industry
norms3. How the ratios compare with key
competitors
Effective Financial Analysis Requires:1. Analysis of how the ratios have
changed over time2. How the ratios compare to industry
norms3. How the ratios compare with key
competitors
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Copyright 2007 Prentice Hall Ch 4 -65
Production/Operations
Production/Operations Functions
Process
Capacity
Inventory
Workforce
Quality
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Copyright 2007 Prentice Hall Ch 4 -66
Facility designTechnology selection
Facility layoutProcess flow analysis
Facility locationLine balancingProcess control
Production/Operations
Process
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Copyright 2007 Prentice Hall Ch 4 -67
ForecastingFacilities planning
Aggregate planningScheduling
Capacity planningQueuing analysis
Production/Operations
Capacity
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Copyright 2007 Prentice Hall Ch 4 -68
Raw materialsWork in processFinished goods
Materials handling
Production/Operations
Inventory
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Copyright 2007 Prentice Hall Ch 4 -69
Job designWork measurement
Job enrichmentWork standards
Motivation techniques
Production/Operations
Workforce
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Copyright 2007 Prentice Hall Ch 4 -70
Quality controlSamplingTesting
Quality assuranceCost Control
Production/Operations
Quality
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Copyright 2007 Prentice Hall Ch 4 -71
Production/Operations Audit
•Are suppliers of materials, parts, etc. reliable and reasonable?•Are facilities, equipment & machinery in good condition?•Are inventory-control policies and procedures effective?
•Are suppliers of materials, parts, etc. reliable and reasonable?•Are facilities, equipment & machinery in good condition?•Are inventory-control policies and procedures effective?
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Copyright 2007 Prentice Hall Ch 4 -72
Production/Operations Audit
•Are quality-control policies & procedures effective?•Are facilities, resources, and markets strategically located?•Does the firm have technological competencies?
•Are quality-control policies & procedures effective?•Are facilities, resources, and markets strategically located?•Does the firm have technological competencies?
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Copyright 2007 Prentice Hall Ch 4 -73
Research & Development
Research & Development Functions
Development of new products before competitors
Improving product quality
Improving manufacturing processes to reduce costs
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Copyright 2007 Prentice Hall Ch 4 -74
Financing as many projects as possible
Use percent-of-sales method
Budgeting relative to competitors
How many successful new products are
needed
Research & Development
R&D Budgets
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Copyright 2007 Prentice Hall Ch 4 -75
Research & Development Audit
•Are the R&D facilities adequate?•If R&D is outsourced, is it cost effective?•Are the R&D personnel well qualified?•Are R&D resources allocated effectively?
•Are the R&D facilities adequate?•If R&D is outsourced, is it cost effective?•Are the R&D personnel well qualified?•Are R&D resources allocated effectively?
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Copyright 2007 Prentice Hall Ch 4 -76
Research & Development Audit
•Are MIS and computer systems adequate?•Is communication between R&D & other organizational units effective?•Are present products technologically competitive?
•Are MIS and computer systems adequate?•Is communication between R&D & other organizational units effective?•Are present products technologically competitive?
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Copyright 2007 Prentice Hall Ch 4 -77
Management Information Systems
Purpose
Improve performance of an enterprise by improving the quality of managerial decisions.
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Copyright 2007 Prentice Hall Ch 4 -78
Management Information Systems
Information Systems CIO/CTO Security User-friendly E-commerce
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Copyright 2007 Prentice Hall Ch 4 -79
Management Information Systems Audit
•Do managers use the information system to make decisions?•Is there a CIO or Director of Information Systems position in the firm?•Is data updated regularly?
•Do managers use the information system to make decisions?•Is there a CIO or Director of Information Systems position in the firm?•Is data updated regularly?
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Copyright 2007 Prentice Hall Ch 4 -80
Management Information Systems Audit
•Do managers from all functional areas contribute input to the information system?•Are there effective passwords for entry into the firm’s information system?•Are strategists of the firm familiar with the information systems of rival firms?
•Do managers from all functional areas contribute input to the information system?•Are there effective passwords for entry into the firm’s information system?•Are strategists of the firm familiar with the information systems of rival firms?
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Copyright 2007 Prentice Hall Ch 4 -81
Management Information Systems Audit
•Is the information system user-friendly?•Do all users understand the competitive advantages that information can provide?•Are computer training workshops provided for users?•Is the firm’s system being improved?
•Is the information system user-friendly?•Do all users understand the competitive advantages that information can provide?•Are computer training workshops provided for users?•Is the firm’s system being improved?
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Copyright 2007 Prentice Hall Ch 4 -82
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Copyright 2007 Prentice Hall Ch 4 -83
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Copyright 2007 Prentice Hall Ch 4 -84
Key Terms & Concepts
For Review (Chapter 4)
Activity Ratios Cost/Benefit Analysis
Capital Budgeting Cultural Products
Communication Distinctive Competencies
Controlling Distribution
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Copyright 2007 Prentice Hall Ch 4 -85
Key Terms & Concepts
For Review (Chapter 4)
Dividend DecisionFunctions of
Finance/Accounting
Empirical Indicators Functions of Management
Financial Ratio Analysis Functions of Marketing
Financing DecisionFunctions of Production/
Operations
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Copyright 2007 Prentice Hall Ch 4 -86
Key Terms & Concepts
For Review (Chapter 4)
Growth Ratios Investment Decision
Human Resource Management
Leverage Ratios
Internal Audit Liquidity Ratios
Internal Factor Evaluation(IFE) Matrix
Management InformationSystems
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Copyright 2007 Prentice Hall Ch 4 -87
Key Terms & Concepts
For Review (Chapter 4)
Motivating Personnel Management
Opportunity Analysis Planning
Organizational Culture Pricing
OrganizingProduct & Service
Planning
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Copyright 2007 Prentice Hall Ch 4 -88
Key Terms & Concepts
For Review (Chapter 4)
Production/OperationsFunctions
Selling
Profitability Ratios Staffing
Research & Development Synergy
Resource Based View(RBV)
Test Marketing
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Copyright 2007 Prentice Hall Ch 4 -89
Key Terms & Concepts
For Review (Chapter 4)
Value Chain Analysis(VCA)