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124 PART 2 • STRATEGY FORMULATION
organizational health. Many companies still prefer to be judged solely on their bottom-
line performance. However, an increasing number of successful organizations are using
the internal audit to gain competitive advantages over rival firms.
Systematic methodologies for performing strength-weakness assessments are
not well developed in the strategic-management literature, but it is clear that strate-
gists must identify and evaluate internal strengths and weaknesses in order to effec-
tively formulate and choose among alternative strategies. The EFE Matrix,
Competitive Profile Matrix, IFE Matrix, and clear statements of vision and mission
provide the basic information needed to successfully formulate competitive strate-
gies. The process of performing an internal audit represents an opportunity for man-
agers and employees throughout the organization to participate in determining the
future of the firm. Involvement in the process can energize and mobilize managers
and employees.

Key Terms and Concepts

Activity Ratios (p. 109) Internal Factor Evaluation (IFE)
Benchmarking (p. 120) Matrix (p. 122)
Breakeven Point (p. 112) Investment Decision (p. 107)
Capital Budgeting (p. 107) Leverage Ratios (p. 109)
Communication (p. 94) Liquidity Ratios (p. 109)
Controlling (p. 102) Management Information System (p. 118)
Core Competence (p. 120) Marketing Affiliate (p. 93)
Cost/Benefit Analysis (p. 106) Marketing Research (p. 106)
Cultural Products (p. 97) Motivating (p. 101)
Customer Analysis (p. 103) Organizational Culture (p. 97)
Data (p. 118) Organizing (p. 100)
Distinctive Competencies (p. 93) Personnel Management (p. 102)
Distribution (p. 105) Planning (p. 100)
Dividend Decisions (p. 107) Pricing (p. 105)
Empirical Indicators (p. 96) Product and Service Planning (p. 104)
Financial Ratio Analysis (p. 95) Production/Operations Function (p. 113)
Fixed Costs (p. 112) Profitability Ratios (p. 109)
Financing Decision (p. 107) Research and Development (R&D) (p. 115)
Functions of Finance/Accounting (p. 107) Resource-Based View (RBV) (p. 96)
Functions of Management (p. 99) Selling (p. 103)
Functions of Marketing (p. 103) Staffing (p. 102)
Growth Ratios (p. 111) Synergy (p. 100)
Human Resource Management (p. 102) Test Marketing (p. 104)
Information (p. 118) Value Chain Analysis (VCA) (p. 119)
Internal Audit (p. 93) Variable Costs (p. 113)

Issues for Review and Discussion

1. List three firms you are familiar with and give a distinctive competence for each firm.
2. Give some key reasons why prioritizing strengths and weaknesses is essential.
3. Why may it be easier in performing an internal assessment to develop a list of 80
strengths/weaknesses than to decide on the top 20 to use in formulating strategies?
4. Think of an organization you are very familiar with. Lit three resources of that entity that are
empirical indicators.
5. Think of an organization you are very familiar with. Rate that entity’s organizational culture
on the 15 example dimensions listed in Table 4-2.