Unit 2:

Environmental
Analysis
Topic 3: Assessing Strengths and
Weaknesses: Internal Analysis

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 Analysis of Internal Resources

• An internal analysis examines your organization's internal environment in order to

assess its resources, competencies, and competitive advantages. Performing an
internal analysis allows you to identify the strengths and weaknesses of your
organization.

• The internal operations of a firm determine the strengths and weaknesses of a

firm. Strengths allow the firm to take advantage of opportunities available in the
environment, while weaknesses represent potential threats to the organization and
limit the strategies available to the firm.

• Internal environment basically consists of firm’s own resources and capabilities. It

means the nature of technology possessed, patents and designs, financial and
managerial resources etc. It also means company’s capability to produce superior
quality, manage supply chains and access to input. It also consists of other
intangible assets like company’s name/image, foreign tie-ups etc.

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 Strengths and Weaknesses

• The Internal Analysis of strengths and weaknesses focuses on internal factors that
give an organization certain advantages and disadvantages in meeting the needs of
its target market. Strengths refer to core competencies that give the firm an
advantage in meeting the needs of its target markets.
• Any analysis of company strengths should be market oriented/customer focused
because strengths are only meaningful when they assist the firm in meeting
customer needs.
• Weaknesses refer to any limitations a company faces in developing or
implementing a strategy.
• Weaknesses should also be examined from a customer perspective because
customers often perceive weaknesses that a company cannot see.
• Being market focused when analyzing strengths and weaknesses does not mean
that non-market oriented strengths and weaknesses should be forgotten.
• Rather, it suggests that all firms should tie their strengths and weaknesses to
customer requirements.

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 Tools you should use for Analysis of
Internal
• GAP Analysis
• Strategy Evaluation
• SWOT Analysis
• VRIO
• OCAT(Organizational Capacity Assessment
Tool)
• McKinsey 7S Framework
• Core Competencies Analysis

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GAP Analysis

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 GAP Analysis
 Compares two things, what is with what should be.
 Often helps comparing two different states of something:
E.g.: The current state with the future state.
 Once the gap is identified, an action plan can be developed to bridge the
gap.

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 Process of GAP Analysis
 Identify what you need to achieve.
 Understand the current situation:
• Who has the knowledge that you need?
• Is the information documented somewhere?
• Is there is a need to conduct brainstorming sessions?
• Do you need to use other data collection tools (e.g. focus groups).
 Identify the desired outcome:
• Is there is a need to conduct benchmarking studies?
 Identify and document the gap.
 Identify how to bridge the gap.
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Example of GAP Analysis

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 VRIO Analysis
 VRIO acronym- Value, Rareness, Imitability, Organization.

 The VRIO Analysis was developed by Jay B. Barney as a way of evaluating the resources of an
organization (company’s micro-environment) which are as follows:
Financial Resources
Human resources
Material resources
Non-material resources (information, knowledge)

The dimensions of VRIO are:

 Value - How expensive is the resource and how easy is it to obtain on the market (purchase,
lease, rent..)?
 Rareness - How rare or limited is the resource?
 Imitability - How difficult is it to imitate the resource?
 Organization - respectively arrangement - Is the resource supported by any existing
arrangements and can the organization use it properly?

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 How to make the VRIO
Analysis?(1/2)
• VRIO analysis is a complement to a PESTLE analysis (which assesses macro-
environment).
• VRIO is used to assess the situation inside the organization (enterprise) - its
resources, their competitive implication and possible potential for improvement in
the given area or for a given resource.
• Such an assessment is then used for example in the strategic management of
development in various areas or for decision making about the advantage of an
external or internal process and the securing service (e.g. outsourcing decision).

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 How to make the VRIO
Analysis?(2/2)
 If the resource is not valuable it should be outsourced because it brings no value to
us
 If the resource is valuable but not rare the company is in competitive conformity. It
means we are not worse than our competition,
 If the resource is valuable and rare but it is not expensive to imitate it, we have
a temporary competitive advantage. Other companies will try to imitate it in the
near future, then we lost our competitive advantage.
 If the resource is valuable, rare and is expensive to imitate it but we are not able
to organize our company, the resource become expensive for us (unused incurred
costs)
 if we can manage the advantage and we are able to organize our company and
temporary competitive advantage, it becomes as permanent competitive
advantage

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VRIO Model

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Example of VRIO analysis from
Starbucks

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 ORGANIZATIONAL CAPACITY
ASSESSMENT TOOL (OCAT)
• It allows you to identify areas of capacity that require strengthening
within your project.

• Increased organizational capacity leads to a more efficient and effective

project, resulting in better value for money and a greater impact

• Completing an OCA enables the Fund Manager to identify capacity

needs, informing the capacity building support provided to grant
holders.

• It assesses capability in five key areas:

governance, organizational management, program management,
human resources management, and financial management.

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 References

1. Strategic Management, Azhar Kazmi, Adela Kazmi

McGraw Hill Education (India) Private Limited, 2015

2. Strategic Mangement, OM S Trivedi, Carvinowledge

Press, 7 Ed 2018