Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher’s prior permission. Violators will be prosecuted.

Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher’s prior permission. Violators will be prosecuted.
This chapter focuses on identifying and evaluating a firm’s strengths and weaknesses in the functional areas
of business, including management, marketing, finance and accounting, production and operations,
research and development (R&D), and management information systems (MIS). Relationships among
these areas of business are examined. Strategic implications of important functional area concepts are
examined. The process of performing an internal audit is described. The resource-based view (RBV) of
strategic management is introduced as is the value chain analysis (VCA) concept. Priceline.com does an
excellent job using its strengths to capitalize on external opportunities. Priceline is showcased in the
opening chapter boxed insert.
The Nature of an Internal Audit
All organizations have strengths and weaknesses in the functional areas of business. No enterprise is
equally strong or weak in all areas. Maytag, for example, is known for excellent production and product
design, whereas Procter & Gamble is known for superb marketing. Internal strengths and weaknesses,
coupled with external opportunities and threats and clear vision and mission statements, provide the basis
for establishing objectives and strategies. Objectives and strategies are established with the intention of
capitalizing on internal strengths and overcoming weaknesses. The internal-audit part of the strategic-
management process is illustrated in Figure 4-1 with white shading.
Priceline.com, Inc.: EXCELLENT STRATEGIC MANAGEMENT SHOWCASED
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Do you prefer Priceline or Expedia to find low travel prices? Headquartered in Norwalk, Connecticut,
Priceline.com Inc. is the leading online travel company where buyers “name their own price” for airline
tickets, hotel rooms, rental cars, cruises, and vacation packages. Founded in 1997 with a patented business
model, Priceline.com operates through the Booking.com, Priceline.com, TravelJigsaw, and Agoda
brand names. Priceline.com uses excellent strategic management to dominate the online travel business.
For example, the company generates annual sales of more than $4 billion and has an EPS of more than
$30. Priceline’s common stock (PCLN) had the best five-year (2007–2011) performance of all companies
in the S&P 500: a total return of 972 percent. Many analysts have a $750.00/share price target for
Priceline stock. In the last 12 months, PCLN’s return on assets was 23.08 percent, compared to its
competitors Expedia (EXPE)’s 4.19 percent and Orbitz World Wide (OWW)’s 2.60. PCLN’s return on

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