4.1
Introduction Internal audit is an independent appraisal function established by the management of an organisation for the review of the internal control system as a service to the organisation. It objectively examines, evaluates and reports on the adequacy of internal control as a contribution to the proper, economic and effective use of resources.The
internal audit is a helpful tool to evaluate the company's strengths and weaknesses in all areas of business. There are no enterprise is equally strong or weak in all areas. Objectives and strategies are established with the intention of capitalizing upon internal strength and overcoming weaknesses. In this chapter, we will discuss about the internal audit for Estee Lauder companies. 4.2
Strength There are the strengths of the Estee Lauder Companies: 1. Financial Position •
Sales increase 3 percent due to growth in Estee Lauder’s products.
•
The net increases reflect sales growth in all geographic regions.
•
Operating income decrease 15 percent.
•
Long-term debt decrease 4.6 percent.
2. Finances by Product •
Increase 2 percent due to new product launches.
•
Make up net sales increase 6 percent reflecting growth from makeup artist brand.
•
Hair care net sales increased 16 percent due to sales growth from Bumble and Bumble and Aveda products.
3. Finances by Geographic Region •
Led by group in the United Stated will increased sales by 3 percent.
•
Strategy growth in China combined with positive result in Korea and Hong Kong will increase sales of this region.
4. Marketing
•
An Estee Lauder company is a first cosmetic firm offer shopping via internet.
•
Estee Lauder Company provides high services and remains the best venue.
•
The skincare business continues to mitigate to pharmacy.
5. Promotion •
An Estee Lauder company is a first cosmetic company to offer free samples and gift-with-purchased.
•
Estee Lauder Company uses celebrities as endorsers in testimonial advertising for commercial on television and magazines.
6. Price
4.3
•
Estee Lauder prices vary from product to product and from brand to brand, but tend to be in the mid-high to high range of the industry.
•
Prestige pricing appears to be an effective strategy given their target markets.
Weaknesses There are the weaknesses of the Estee Lauder Companies: 1. Financial Position •
Increase in cost of sales.
2. Finances by Product •
Net sales of fragrance products by Estee Lauder decrease 4 percent as the company continue to struggle in the fragrance products, particularly in the Americas region.
3. Finances by Geographic Region •
Strength of US dollar decrease sales of the Estee Lauder’s products in Japan and Australia.
4.4
Distinctive Competencies Distinctive Competencies is a firm's strength that cannot be easily matched or limited by competitors. In order to build it, the competitive advantage involves taking advantage of distinctive competencies. Finally, strategies designed to improve a firm's weaknesses and turn into strength. There are several distinctive competencies can be defined within Estee Lauder Companies: 1. The product lines which cover 4 areas for beauty which is skin care, makeup, fragrances and hair care. 2. Sold over 130 countries with different brand names. 3. Global license to use actor/actress name as a product brand names. 4. Range of product that cover for men and woman.
4.5
IFE Matrix 4.5.1 Steps in Preparing IFE Matrix
A summary step in conducting an internal strategic-management audit is to construct an Internal Factor Evaluation (IFE) Matrix. This strategyformulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business and it also provides a basis for identifying and evaluating relationships among those areas. There are the 5 steps of an IFE Matrix: 1. List key internal factors as identified in the internal-audit process. Use a total of from 10 to 20 internal factors, including both strengths and weaknesses. List strengths first and then weaknesses. Be as specific as possible, using percentages, ratios and comparative numbers. Recall the Edward Deming said, “In God we trust. Everyone else bring data” 2. Assign a weight that ranges from 0.0 (not important) to 1.0 (allimportant) to each factor. The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm’s industry. Regardless of whether a key factor is an internal strengths or weaknesses, factors considered to have the greatest effect on organizational performance should be assigned the highest weights. The sum of all weights must equal 1.0.
3. Assign a 1 to 4 rating to each factor to indicate whether that factor represents a major weakness must receive (rating=1), a minor weakness (rating=2), a minor strength (rating=3) or a major strength (rating=4). Note that strengths must receive a 3 or 4 rating and weaknesses must receive a 1 or 2 rating. Ratings are thus company-based, whereas the weights in step 2 are industrybased. 4. Multiply each factor’s weight by its rating to determine a weighted score for each variable. 5. Sum the weighted score each variable to determine the total weighted score for the organization. 4.5.2 IFE Matrix Key Internal Factors
Weight
Rating
Weighted Score
Sales increase 3 percent due to growth in Estee Lauder’s products.
0.10
4
0.40
The net increases reflect sales growth in all geographic regions.
0.02
3
0.06
Operating income decrease 15 percent.
0.02
3
0.06
Long-term debt decrease 4.6 percent.
0.04
4
0.16
Increase 2 percent due to new product launches.
0.03
3
0.09
Make up net sales increase 6 percent reflecting growth from makeup artist brand.
0.10
4
0.40
Hair care net sales increased 16 percent due to sales growth from Bumble and Bumble and Aveda products.
0.03
4
0.12
Led by group in the United Stated will increased sales by 3 percent.
0.05
3
0.15
Strategy growth in China combined
0.06
3
0.18
Strengths
with positive result in Korea and Hong Kong will increase sales of this region. An Estee Lauder company is a first cosmetic firm offer shopping via internet.
0.08
4
0.32
Estee Lauder Company provides high services and remains the best venue.
0.07
4
0.28
The skincare business continues to mitigate to pharmacy.
0.04
3
0.12
An Estee Lauder company is a first cosmetic company to offer free samples and gift-with-purchased.
0.08
4
0.32
Estee Lauder Company uses celebrities as endorsers in testimonial advertising for commercial on television and magazines.
0.10
4
0.40
Estee Lauder prices vary from product to product and from brand to brand, but tend to be in the midhigh to high range of the industry.
0.05
3
0.15
Prestige pricing appears to be an effective strategy given their target markets.
0.04
3
0.12
Increase in cost of sales.
0.03
1
0.03
Net sales of fragrance products by Estee Lauder decrease 4 percent as the company continue to struggle in the fragrance products, particularly in the Americas region.
0.02
2
0.04
Strength of US dollar decrease sales of the Estee Lauder’s
0.04
1
0.04
Weaknesses
products in Japan and Australia. Total
4.6
1.00
3.40
Conclusion
For conclusion, management, marketing, finance/accounting, operations, research and development represent the core business or operation of Estee Lauder businesses. There are lots of competitors that compete with Estee Lauder. Therefore, a competitive advantage is needed in order to allow them take advantage over their rival firm. This is why internal audit is very important part. The EFE Matrix, Competitive Profile Matrix, IFE Matrix and clear statements of vision and mission provide the basic information needed to represents an opportunity to the organization in order to determine the firm future.
