Internal Analysis
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Internal Analysis
• Strategic Managers must evaluate the
Internal Environment of the organization.
• What is the process?
– Identify and classify variables within an
organization as strengths or weaknesses.
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• STRENGTH = factor that is better than:
– past performance
– key competitors
– industry as a whole
• WEAKNESS = factor that is worse than:
– past performance
– key competitors
– industry as a whole
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Approaches for scanning and
analyzing Internal Variables
• Functional Analysis
• Value Chain Analysis
• Core Competencies Analysis
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Functional Analysis
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Management
1. General Management
2. Human Resource Management
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General Management Factors
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Structure of the organization
Organizational Culture
Record in Achieving Objectives
Top management skills, capabilities, &
interests.
• Reputation of the Organization and Top
Management
• Social Responsibility record
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Human Resource Management
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Number of employees
Unionization
Employee skills and morale
Quality of Work/Life Issues
– Recent downsizings
• Recognition/promotion/reward systems
• Training programs; educational
reimbursement
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Operations (Manufacturing or
Service Firms)
• Quality Initiatives
– Quality certifications
– Policies and procedures for quality
• Six sigma quality = 3.4 manufacturing defects per
million items
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Location of facilities
Outsourcing
Flexible manufacturing
Raw material costs and availability
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Operations - Continued
(Manufacturing or Service)
• Economies of scale
– decreasing fixed costs/ unit when producing more
• Economies of scope
– common parts of different products manufactured
together.
• Re-engineering
• Percentage of cost of goods sold to sales
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Information Systems
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Chief Information Officer
Network Capabilities
Hardware and software upgrades
Y2K compliance & costs
Internet page
– quality; features
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Research and Development
• Expenditures
– Over time
– In relation to competitors/industry
– Percentage of sales
• Product to market time
• Own labs/facilities or lease?
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Finance
• Currency risk management
– Global impact
• Financing decisions
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Financial Ratios
1995 1996 1997 Industry Trend
Type of
ratio
Avg
Liquidity
Current
Quick
Leverage
Debt-tototal
assets
Debt-to14
equity
Value Chain Analysis
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Firm Infrastructure
general management,accounting finance
Support
Human Resource Management
Activities
recruiting, training, development
Technology Development
R&D, product and process improvement
Procurement
purchasing raw materials; machines, supplies
Inbound OperationsOutbound Marketing Service
Logistics machining Logistics and Sales instalraw matl assembling wareadvertising lation,
handling testing
housing
promotion repair,
replacewarepackaging distripricing
ment
housing
bution
channel
relations
PRIMARY ACTIVITIES
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Core Competencies
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Core Competencies of the
Corporation
• Real sources of advantage - not based on
businesses.
– management’s ability to consolidate
corporatewide technologies and production into
competencies.
• Core competencies are collective learning in
the organization, especially:
– how to coordinate diverse production skills by
integrating multiple streams of technologies. 18
Three tests to identify core
competencies
• Provide potential access to a wide variety of
markets.
• Make a significant contribution to the
perceived customer benefits of the end
product.
• Are difficult to imitate.
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examples
Core Competencies
Products/businesses
• Engines
• Powertrains
• Cars; motorcycles; lawn
mowers; generators
• Optics
• Imaging
• Microprocessor
controls
• Copiers; laser printers;
cameras; image scanners;
medical imaging
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More kinds of core
competencies:
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Systems Integration
Virtual reality
Bioengineering
Delighting the customer
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Purpose of Internal Analysis
• Identify and evaluate what’s going on inside
the firm.
• The goal is to assess what are strengths and
what are weaknesses.
• Critical in making decisions about the
future of the organization.
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