Strategic Audit of a Corporation

TODAY WILL DISCUSS THE TOPIC ABOUT STRATEGIC AUDIT OF CORPORATION

Aid to Strategic Decision-Making
The strategic decision-making process is put into action through a technique known as the
strategic audit. A strategic audit provides a checklist of questions, by area or issue, that enables
a systematic analysis to be made of various corporate functions and activities. Note that the numbered primary headings in the audit
are the same as the numbered blocks in the strategic decision-making process
Beginning with an evaluation of current performance, the audit continues with environmental
scanning, strategy formulation, and strategy implementation, and it concludes with evaluation
and control. A strategic audit is a type of management audit and is extremely useful as a diagnostic
tool to pinpoint corporate wide problem areas and to highlight organizational strengths
and weaknesses. A strategic audit can help determine why a certain area is creating problems
for a corporation and help generate solutions to the problem.
A strategic audit is not an all-inclusive list, but it presents many of the critical questions
needed for a detailed strategic analysis of any business corporation. Some questions or even
some areas might be inappropriate for a particular company; in other cases, the questions may be insufficient for a complete analysis. However, each question in a particular area of a strategic
audit can be broken down into an additional series of sub-questions. An analyst can develop
these sub-questions when they are needed for a complete strategic analysis of a company.

I. Current Situation


A. Current Performance


How did the corporation perform the past year overall in terms of return on investment,
market share, and profitability?

B. Strategic Posture


What are the corporation’s current mission, objectives, strategies, and policies?

  1. Are they clearly stated, or are they merely implied from performance?
  2. Mission: What business(es) is the corporation in? Why?
  3. Objectives: What are the corporate, business, and functional objectives? Are they consistent with each other, with the mission, and with the internal and external environments?
  4. Strategies: What strategy or mix of strategies is the corporation following? Are they
    consistent with each other, with the mission and objectives, and with the internal and external environments?
  5. Policies: What are the corporation’s policies? Are they consistent with each other, with the mission, objectives, and strategies, and with the internal and external environments?
  6. Do the current mission, objectives, strategies, and policies reflect the corporation’s international operations, whether global or multi-domestic?

II. Corporate Governance


A. Board of Directors

  1. Who is on the board? Are they internal (employees) or external members?
  2. Do they own significant shares of stock?
  3. Is the stock privately held or publicly traded? Are there different classes of stock with different voting rights?
  4. What do the board members contribute to the corporation in terms of knowledge, skills, background, and connections? If the corporation has international operations, do board members have international experience? Are board members concerned with environmental sustainability?
  5. How long have the board members served on the board
  6. What is their level of involvement in strategic management? Do theymerely rubber-stamp
    top management’s proposals or do they actively participate and suggest future directions?
    Do they evaluate management’s proposals in terms of environmental sustainability?

B. Top Management


What person or group constitutes top management?
What are top managements chief characteristics in terms of knowledge, skills, background,and style? If the corporation has international operations, does top management have international experience? Are executives from acquired companies considered part of the top management team?
Has top management been responsible for the corporation’s performance over the past
few years? How many managers have been in their current position for less than three
years? Were they promoted internally or externally hired?
Has top management established a systematic approach to strategic management?
What is top management’s level of involvement in the strategic management process?
How well does top management interact with lower-level managers and with the board
of directors?
Are strategic decisions made ethically in a socially responsible manner?
Are strategic decisions made in an environmentally sustainable manner?
Do top executives own significant amounts of stock in the corporation?
Is top management sufficiently skilled to cope with likely future challenges?

III. External Environment:
Opportunities and Threats (SWOT)


A. Natural Physical Environment: Sustainability Issues

  1. What forces from the natural physical environmental are currently affecting the corporation and the industries in which it competes? Which present current or future threats?
    Opportunities?
    a. Climate, including global temperature, sea level, and fresh water availability
    b. Weather-related events, such as severe storms, floods, and droughts
    c. Solar phenomena, such as sun spots and solar wind
  2. Do these forces have different effects in other regions of the world?

B. Societal Environment

What general environmental forces are currently affecting both the corporation and the
industries in which it competes? Which present current or future threats? Opportunities?
a. Economic
b. Technological
c. Political–legal
d. SocioculturalAre these forces different in other regions of the world?

C. Corporate Resources

1- Marketing
a. What are the corporation’s current marketing objectives, strategies, policies, and
programs?
i. Are they clearly stated or merely implied from performance and/or budgets?
ii. Are they consistent with the corporation’s mission, objectives, strategies, and
policies and with internal and external environments?
b. How well is the corporation performing in terms of analysis of market position and
marketing mix (that is, product, price, place, and promotion) in both domestic and international markets? How dependent is the corporation on a few customers? How big
is its market? Where is it gaining or losing market share? What percentage of sales
comes from developed versus developing regions? Where are current products in the
product life cycle?
i. What trends emerge from this analysis?
ii. What impact have these trends had on past performance and how might these
trends affect future performance?
iii. Does this analysis support the corporation’s past and pending strategic decisions?
iv. Does marketing provide the company with a competitive advantage?
c. How well does the corporation’s marketing performance compare with that of similar
corporations?
d. Are marketing managers using accepted marketing concepts and techniques to evaluate
and improve product performance? (Consider product life cycle, market segmentation,
market research, and product portfolios.)
e. Does marketing adjust to the conditions in each country in which it operates?
f. Does marketing consider environmental sustainability when making decisions?
g. What is the role of the marketing manager in the strategic management process?

2- Finance
a. What are the corporation’s current financial objectives, strategies, and policies and
programs?
i. Are they clearly stated or merely implied from performance and/or budgets?
ii. Are they consistent with the corporation’s mission, objectives, strategies, and
policies and with internal and external environments?
b. How well is the corporation performing in terms of financial analysis? (Consider ratio
analysis, common size statements, and capitalization structure.) How balanced,
in terms of cash flow, is the company’s portfolio of products and businesses? What
are investor expectations in terms of share price?
i. What trends emerge from this analysis?
ii. Are there any significant differences when statements are calculated in constant
versus reported dollars?
iii. What impact have these trends had on past performance and how might these
trends affect future performance?
iv. Does this analysis support the corporation’s past and pending strategic decisions?
v. Does finance provide the company with a competitive advantage?
c. How well does the corporation’s financial performance compare with that of similar
corporations?
d. Are financial managers using accepted financial concepts and techniques to evaluate
and improve current corporate and divisional performance? (Consider financial
leverage, capital budgeting, ratio analysis, and managing foreign currencies.)
e. Does finance adjust to the conditions in each country in which the company operates?
f. Does finance cope with global financial issues?
g. What is the role of the financial manager in the strategic management process?

3- Research and Development (R&D)
a. What are the corporation’s current R&D objectives, strategies, policies, and programs?
i. Are they clearly stated or merely implied from performance or budgets?
ii. Are they consistent with the corporation’s mission, objectives, strategies and policies and with internal and external environments?
iii. What is the role of technology in corporate performance?
iv. Is the mix of basic, applied, and engineering research appropriate given the corporate mission and strategies?
v. Does R&D provide the company with a competitive advantage?
b. What return is the corporation receiving from its investment in R&D?
c. Is the corporation competent in technology transfer? Does it use concurrent engineering and cross-functional work teams in product and process design?
d. What role does technological discontinuity play in the company’s products?
e. How well does the corporation’s investment in R&D compare with the investments
of similar corporations? How much R&D is being outsourced? Is the corporation using
value-chain alliances appropriately for innovation and competitive advantage?
f. Does R&D adjust to the conditions in each country in which the company operates?
g. Does R&D consider environmental sustainability in product development and
packaging?
h. What is the role of the R&D manager in the strategic management process?

4- Operations and Logistics
a. What are the corporation’s current manufacturing/service objectives, strategies,
policies, and programs?
i. Are they clearly stated or merely implied from performance or budgets?
ii. Are they consistent with the corporation’s mission, objectives, strategies, and
policies and with internal and external environments?
b. What are the type and extent of operations capabilities of the corporation? How
much is done domestically versus internationally? Is the amount of outsourcing appropriate
to be competitive? Is purchasing being handled appropriately? Are suppliers
and distributors operating in an environmentally sustainable manner? Which
products have the highest and lowest profit margins?
i. If the corporation is product oriented, consider plant facilities, type of manufacturing
system (continuous mass production, intermittent job shop, or flexible
manufacturing), age and type of equipment, degree and role of automation
and/or robots, plant capacities and utilization, productivity ratings, and availability
and type of transportation.
ii. If the corporation is service oriented, consider service facilities (hospital, theater,
or school buildings), type of operations systems (continuous service over time to
same clientele or intermittent service over time to varied clientele), age and type
of supporting equipment, degree and role of automation and use of mass communication
devices (diagnostic machinery, video machines), facility capacities and
utilization rates, efficiency ratings of professional and service personnel, and
availability and type of transportation to bring service staff and clientele together.
c. Are manufacturing or service facilities vulnerable to natural disasters, local or national
strikes, reduction or limitation of resources from suppliers, substantial cost increases
of materials, or nationalization by governments?
d. Is there an appropriate mix of people and machines (in manufacturing firms) or of
support staff to professionals (in service firms)?
e. How well does the corporation perform relative to the competition? Is it balancing inventory costs (warehousing) with logistical costs (just-in-time)? Consider costs per
unit of labor, material, and overhead; downtime; inventory control management and
scheduling of service staff; production ratings; facility utilization percentages; and
number of clients successfully treated by category (if service firm) or percentage of
orders shipped on time (if product firm).

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