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CHAPTER 4 • THE INTERNAL ASSESSMENT 95

Performing an internal audit requires gathering, assimilating, and evaluating informa-
tion about the firm’s operations. Critical success factors, consisting of both strengths and
weaknesses, can be identified and prioritized in the manner discussed in Chapter 3.
According to William King, a task force of managers from different units of the organiza-
tion, supported by staff, should be charged with determining the 10 to 20 most important
strengths and weaknesses that should influence the future of the organization. He says:

The development of conclusions on the 10 to 20 most important organizational
strengths and weaknesses can be, as any experienced manager knows, a difficult
task, when it involves managers representing various organizational interests and
points of view. Developing a 20-page list of strengths and weaknesses could be
accomplished relatively easily, but a list of the 10 to 15 most important ones involves
significant analysis and negotiation. This is true because of the judgments that are
required and the impact which such a list will inevitably have as it is used in the
formulation, implementation, and evaluation of strategies. 1

Strategic management is a highly interactive process that requires effective coordina-
tion among management, marketing, finance/accounting, production/operations, R&D,
and management information systems managers. Although the strategic-management
process is overseen by strategists, success requires that managers and employees from all
functional areas work together to provide ideas and information. Financial managers,
for example, may need to restrict the number of feasible options available to operations
managers, or R&D managers may develop products for which marketing managers need to
set higher objectives. A key to organizational success is effective coordination and under-
standing among managers from all functional business areas. Through involvement in
performing an internal strategic-management audit, managers from different departments
and divisions of the firm come to understand the nature and effect of decisions in other
functional business areas in their firm. Knowledge of these relationships is critical for
effectively establishing objectives and strategies.
A failure to recognize and understand relationships among the functional areas of
business can be detrimental to strategic management, and the number of those relation-
ships that must be managed increases dramatically with a firm’s size, diversity, geographic
dispersion, and the number of products or services offered. Governmental and nonprofit
enterprises traditionally have not placed sufficient emphasis on relationships among the
business functions. Some firms place too great an emphasis on one function at the expense
of others. Ansoff explained:

During the first fifty years, successful firms focused their energies on optimizing the
performance of one of the principal functions: production/operations, R&D, or
marketing. Today, due to the growing complexity and dynamism of the environment,
success increasingly depends on a judicious combination of several functional influ-
ences. This transition from a single function focus to a multifunction focus is essen-
tial for successful strategic management. 2

Financial ratio analysis exemplifies the complexity of relationships among the
functional areas of business. A declining return on investment or profit margin ratio
could be the result of ineffective marketing, poor management policies, research and
development errors, or a weak management information system. The effectiveness of
strategy formulation, implementation, and evaluation activities hinges upon a clear
understanding of how major business functions affect one another. For strategies to
succeed, a coordinated effort among all the functional areas of business is needed. In the
case of planning, George wrote:

We may conceptually separate planning for the purpose of theoretical discussion and
analysis, but in practice, neither is it a distinct entity nor is it capable of being sepa-
rated. The planning function is mixed with all other business functions and, like ink
once mixed with water, it cannot be set apart. It is spread throughout and is a part of
the whole of managing an organization. 3