Internal Audit / Internal strategic management audit is process in which the information about key internal factors is gathered & compiled in order to ascertain the strengths & weaknesses of the organization in the functional areas of marketing, management, finance/accounting, production/operations and research & development etc. This internal strategic management audit is conducted for the assistance of the organization to positively utilize its strengths for the success while improving its identified weaknesses.
Nature of Internal Audit
Following points highlight the nature of internal strategic management audit.
- All the strategies & objectives of the organization are based on it.
- The internal strengths/weaknesses are assessed & clear statement of mission is also established
- It may be different for different kinds of organizations.
- The same organization may have different divisions that require different type of internal strategic management audit.
- It shapes the strengths of organization in such a way that cannot be easily imitated or matched by competitors.
- Effective strategies are build that converts the weakness of the organization into its strength.
In order to understand the nature & effects of decisions in other functional areas of the organization, internal strategic management audit is quite helpful. There are certain strengths & weaknesses in different functional areas of almost every organization. There is no single organization that can be completely equal in its all functional areas. For example, Proctor & Gamble Company is best in effective marketing whereas Maytag is best for perfect production & product designing. The internal weaknesses & strengths of the organization are aligned with the external threats & opportunities and finally a clear mission statement provides a ground on which objectives & strategies of the organization are established. The foundational element of the objectives & strategies is to take advantage of the strengths while improving the weaknesses of the organization.
The internal strategic management audit is essential for the success of the organization. The understanding & coordination among managers from different functional areas is enhanced through internal audit.
Key Internal Forces:
Business policy text is not sufficient enough to explain the functional areas of finance, marketing, production, information system etc. Many subareas are included in these major functional areas like warranties, customer services, packaging, advertising & pricing under marketing etc. The functional business areas also differ for different kinds of organizations like universities, hospitals, government agencies etc. For example in a hospital the functional areas may include nursing, cardiology, physician support, hematology, and receivables. Another example of university organization contains placement services, athletic programs, fund raising, counseling, housing services, academic research & intramural programs. There are certain strengths & weaknesses in each division of larger organization. For example, the AT&T organization is weak in computers while strong in communications.
Distinctive competency is related to that is referred to that strength of the organization which is not easily imitated or matched. Taking advantage of distinctive competencies enables an organization to acquire competitive advantage.
Process of Performing an Internal Audit:
The process of conducting internal Audit / internal strategic management audit is similar to External Audit. The strengths & weaknesses of the organizations are ascertained through involvement of a number of managers & employees of the organization. Certain information from the functional areas of marketing, production, finance, Research and Development etc is collected & arranged. The members of the organizations that participate in the process of internal strategic management audit better understands the working of the jobs, department & divisions as a component of the whole world. This understanding helps the managers & employees to perform their duties & tasks more effectively because they knows that their works will influence other functional areas of the organization. For example when the managers of finance & production together take into account the issues related to the strengths & weaknesses of their organization then this will help them to effectively face the issues & problems of all the functional areas of their organization. The organization that does not perform Strategic Management lacks the smooth interaction & understanding of its finance & production managers on certain problems & issues of the organization. The process of communication within the organization is made better through internal strategic management audit.
The information about the operation of the organization is gathered ad assimilated during the process of internal strategic management audit. All the weaknesses & strengths are identified & prioritized as critical success factor of the organization. There are different managers that are involved in the internal audit process and hence the identification & selection of 10 to 20 important strengths & weaknesses is quite difficult task. For this purpose significant negotiation & analysis is required. The internal strategic management audit is quite essential for the formulation, implementation & evaluation of strategies.
A number of managers & employees provide different kinds of information & ideas about the factors that serve as strengths & weaknesses for the organization through effective coordination. Moreover all the participants should have understanding about the relationship between different functional areas of the organization so that effective strategies & objectives can be established. The size, geographic dispersion, number of products or services offered & diversity of the organization makes the relationship among its functional areas more complex.