ELEMENTS OF STRATEGIC AUDIT TOP DOWN APPROACH

Strategic Audit - A process in business strategy

- Focused on ensuring that resources and
competencies are understood and
evaluated.
Corporate – concern with overall purpose and
scope of the business to meet the stakeholder ’s
expectation
Business Unit - concern how a business
complete successfully in a particular market. - Internal (SW) and External (OT)
Operational - concern with how each business - “To be in a position to exploit
is organized to deliver the corporate and opportunities or respond to threats, a
business unit levels strategic direction business needs to have the right
RESOURCES COMPETENCIES resources and capabilities in place”
ELEMENTS (STAGES) OF STRATEGIC AUDIT
-Resource Audit
- Value Chain Analysis
- Core Competence Analysis
- Performance Analysis
- Portfolio Analysis
- SWOT Analysis
Resource Audit - Identifies the resources
available to a business.
Core Competencies - What can you provide that
- Some of these can be owned where as
cannot provide by competitors
other resources can be obtained
through partnerships, joint ventures, or
simply supplier arrangements with
other businesses
Value Chain Analysis - It describe the activities
that take place in a business and relates them to
an analysis of the competitive strength of the
business.

TWO GROUPS
Primary Activities - those that are direct
concerned with creating and delivering a
Some Preliminaries
product.
- Essence of business strategy is all about Support Activities - which whilst they are not
choices related to competition directly involved in production, may increase
- Strategic thinking and decision making effectiveness or efficiency
- Emphasis on business environment Core Competence Analysis - Those capabilities
that are critical to a business achieving
competitive advantage.
 - Starts with recognizing that competition SWOT ANALYSIS
between businesses is as much a race - Use Strength to overcome the
for competence mastery as it is for weaknesses
MARKET POSITION AND MARKET - Maximize / optimize the opportunities
POWER. and minimize the threats Use S/W to
- THE GOAL IS FOR MANAGEMENT TO exploit opportunities and respond to
FOCUS ATTENTION COMPETENCIES threats.
THAT REAKKY AFFECT COMPETITIVE - It is an important tool for auditing the
ADVANTAGE overall strategic position of a business
PERFORMANCE ANALYSIS - Investigate how well and its environment
the organization is taking advantage of its core STRATEGIC AUDIT CRITERIA FOR
competencies, resources, and value chain to EVALUATION
meet its objectives, measured against past
performance, goals, or competitors. Establishing the Criteria
HISTORICAL ANALYSIS: How have the resources - Objective
deployed in the business changed over time? - Familiar
INDUSTRY NORM ANALYSIS: How do the
- Well-understood
resources and capabilities of the business
- Accepted measures of performance
compare with others in the industry?
WHY
BENCHMARKING: How do the resources and
• First, the ultimate responsibility of the
capabilities of the business compare with “best-
board is to understand the impact of a
in-class ” – whatever that is to be found?
given strategy on the value of the
FINANCIAL STATEMENT ANALYSIS/ RATIO
owners' investment. This obligation
ANALYSIS: How has the performance of the
implies evaluating performance in
business changed over time and how does it
financial terms.
compare with key competitors and the industry
• Second, although it's inevitable that much
as a whole?
of the evidence on the success of an
evolving strategy is subjective, managers
PORTFOLIO ANALYSIS
familiarity with the details of product-
- The overall balance of the strategic
market and company-specific issues, and
business units of a business.
their access to an incredible amount and
- Operations in more than one market variety of data give them an advantage over
segment. outside board members
- Diversification is the risk of portfolio. Data Understood + Data Available =
- An important objective of a strategic • Objective data consistently presented and
audit is to ensure that the business reinforced by the cumulative evidence of
portfolio is strong and business unit past performance can strengthen the power
requiring investment and management and credibility of the board' s opinion.
attention. • Standard financial indicators facilitate
- THIS IS IMPORTANT: A business should discussion in terms all parties can
always consider which markets are most understand
attractive and which business unit have
the potential to achieve advantage in
the most attractive markets.
2 Important Criteria Characteristics It has the advantage of being based on data
• focus on the sustainable rate of return on familiar to shareholders and management.
shareholder investment produced by the It shows profit per unit of sales (profit
corporate income stream. margin), sales per unit of capital employed
• permit objective comparisons among the (asset turnover), and capital employed per
company ' s separable income streams and unit of equity invested (leverage)
with alternative investments in other
companies inside or outside the industry. Comments on the use of ROI
*The board determines whether the
company ' s chosen strategy—or a particular • it may be subject to random changes in
decision-will contribute to a long-term accounting practice, so that users may
return of shareholder investment equal or have to make appropriate retroactive
superior to other investment alternatives of adjustments to the raw data.
comparable risk. • it does not provide an external standard
*They should also allow a comparison of the of comparison. The underlying
promise of future returns with the reality of components of the corporate income
past performance stream need to be broken out, and
comparable data on companies inside
and outside the industry gathered.
In the final analysis, these criteria should • The data of review should also
reflect a fundamental economic reality: The encompass information on investor
long-term loyalty of the equity holders response, including price-to-earnings
depends solely on sustaining a competitive and market-to-book-value ratios. These
return on investment. Without that, no data reveal evidence of investors '
product-market strategy is safe. Although reaction to published information on
professional managers might find this company performance and are a
dictum hard to accept, it is nevertheless the measure of confidence. They are an
reality of the public capital markets in which essential supplement to any
they operate. Just doing better than other measurement based primarily on
immediate investment alternatives, better company-specific data
than last year, or even better than all major • ·Cash flow return on investment (CFROI)
competitors in the same industry may not, • Net economic value added from year to
in the end, be good enough to justify year (EVA)
continued investor support. (axiom • ·Total of shareholders ' return on
1+demsup+risktolerance+costbenefit) investment (TSR)

DIFFERENT STROKES FOR DIFFERENT FOLKS The directors and the chief executive alike must
have a thorough grasp of all the elements of the
• boards will find that several criteria satisfy chosen measurement. Otherwise, debate over
the basic requirements of a strategic review the validity of the index itself may undermine
process. the impact of the objective evidence. If
particular members of the board are more
• One is the reported return on book
familiar with other indices, there might not be
investment (ROI), particularly when it is
universal agreement about which to use for the
disaggregated into its primary components.
audit. In such a case, individual members might
be provided with the comparable data in the compatible with the context and
index of their choice. What all the measures strategic direction of the organization.
presented share is an ability to capture External Environment
significant and sustained trends, whether strong a. Natural Environment - all living and
or weak, which then become the baseline from non-living things occurring naturally. It
which to track strategic progress. does not include human activity.
b. Societal Environment - refers to the
STRATEGIC AUDIT FORMAT immediate physical and social setting in
which people live or in which something
Strategic Audit Structure happens or develops
c. Task Environment - • It affects its ability
I. Current Situation
to reach business goals.
II. Corporate Governance
Internal Environment
III. External Environment
a. Corporate Structure - how an
IV. Internal Environment
organization is organized and how its
V. Analysis of Strategic Factors
various divisions, departments, and
VI. Alternatives and Recommendations
roles are structured
Current Situation b. Corporate Culture - refers to the shared
A. Past Corporate Performance values, beliefs, norms, and practices
B. Strategic Posture that guide the behavior and actions of
Current Vision individuals or employees within an
Current Mission organization
Current Objectives c. Corporate Resources –
Current Strategies - Marketing
Current Policies - Finance
CORPORATE GOVERNANCE - talks about what - Research and Development
the board of a company does and how it sets - Operations and Logistics
the values of the company, and it is to be - Human Resources
distinguished from the day to day operational - Information Technology
management of the company by full-time Analysis of Strategic Factors
executives. 1. Key Internal and External Strategic
1. Board of Directors - provide strategic Factors (SWOT)
direction and oversight for the 2. Review of Mission and Objectives
company.
- Accountable to the company’s ALTERNATIVES
shareholders and is involved in decision- PROS --- PUTTING THINGS TOGETHER----- CONS
making processes that affect the
company’s performance. Recommendations
2. Top Management - Take accountability Recommended Strategy
for the effectiveness of the quality 1. Decide and defend
management system. 2. Support strategies by sample policies
- Ensure that the quality policy and
quality objectives are established for
the quality management system and are
13 Proven Benefits of Sustainability Reporting Reputation of an organization - Built upon
consistent performance and how it
1. Providing information to internal and communicates with the public
external stakeholders Regular Sustainability Assessment and
Bridge between your organization and its Reporting - Displays organization's commitment
stakeholders to transparency, which helps establish trust
Internal Stakeholders between the organization and its stakeholders,
- Transparency Fosters Purpose and is seen as a sign of good leadership
- Enhanced Employee Engagement 7. Attracting capital and investment
- Awareness of Sustainability KPIs Acquiring capital investment – vital for both
- Understanding Trajectory and Vision startups and established businesses.
- Alignment with Sustainability Vision Investors – 1. Environmental 2. Social 3.
Governance
External Stakeholders 8. Improved stakeholder engagement
- Can be a little complex at times
- Trust building Important Report for Stakeholder Engagement
- Informed Decision-Making Sustainability Report – can simplify
- Strengthening Relationships complexibility
- Facilitating Partnerships - Serves as easily accessible source of
- Simplified Relationship Management relevant information for your
stakeholders.
2. Demonstrating commitment to 9. Competitive advantage
transparency - Being an early adopter of sustainability
reporting enables an organization to
Transparency is a powerful driver of
acquire a superior or favorable long-
positive change.
term position over competitors.
It provides the company with a competitive
3. Measuring impacts to improve
performance advantage in the following ways:
a. Distinguishing your organization from
Measuring impacts allows your organization other competitors
to improve its performance and to make b. Reducing business costs
meaningful strides toward its sustainability c. Attracting and retaining motivated and
and financial goals alike. skilled employees
d. Attracting consumers
4. Vision and Strategy 10. Identifying an organization’s strengths
- Allowing for developing a more and weaknesses
achievable vision for the future and a Sustainability Reporting
more effective and implementable - It is a useful tool for all companies
strategy to achieve that vision. regardless of size and industry, as it not
5. Motivating Employees only enables a business to identify areas
- “Companies that care, attract of strength in its operations but also to
employees that care.” discover where it is falling short on the
6. Improving reputation & increasing trust sustainability front and where there is
still some room for improvement.
 11. Building goodwill and reducing
reputational risk
Sustainability reporting acts as a proactive
shield, enabling organizations to identify
potential issues, address them, and
demonstrate their commitment to responsible
business practices, ultimately safeguarding their
image and preserving trust among stakeholders
12. Attracting new talent to your
organization
When competing in the employment market for
hiring highly skilled individuals, having a
professionally drafted sustainability report and
roadmap will set your organization apart.
13. Increased customer satisfaction and
loyalty
The best way to ensure the loyalty of high-
quality supply chain partners is by providing
them with an easily accessible sustainability
report.

- Through transparency, it strengthens

stakeholder engagement, nurtures
employee motivation, and fortifies
reputations.
- It empowers organizations to measure
their impacts, identify areas for
improvement, and navigate toward a
sustainable future.
- Sustainability reporting attracts capital
and investment, showcasing your
commitment to responsible practices.
- It aids in strategic vision and decision-
making, aligning your organization with
long-term sustainability goals.