Internal analysis

Introduction

Internal analysis is also referred to as “internal appraisal”, “organisational audit”, “internal

corporate assessment” etc. Over the years, research has shown that the overall strengths and
weaknesses of a firm’s resources and capabilities are more important for a strategy than
environmental factors. Even where the industry was unattractive and generally unprofitable,
firms that came out with superior products enjoyed good profits.

Managers perform internal analysis to identify the strengths and weaknesses of a firm’s
resources and capabilities. The basic purpose is to build on the strengths and overcome the
weaknesses in order to avail of the opportunities and minimize the effects of threats. The
ultimate aim is to gain and sustain competitive advantage in the marketplace.

Importance of Internal Analysis Notes

Strategic management is ultimately a “matching game” between environmental opportunities and

organisational strengths. But, before a firm actually starts tapping the opportunities, it is
important to know its own strengths and weaknesses. Without this knowledge, it cannot decide
which opportunities to choose and which ones to reject. One of the ingredients critical to the
success of a strategy is that the strategy must place “realistic” requirements on the firm’s
resources.

The firm therefore cannot afford to go by some untested assumptions or gut feelings. Only
systematic analysis of its strengths and weaknesses can be of help. This is accomplished in
internal analysis by using analytical techniques like RBV, SWOT analysis, Value chain analysis,
Benchmarking, IFE Matrix etc.

Thus, systematic internal analysis helps the firm:

1. To find where it stands in terms of its strengths and weaknesses

2. To exploit the opportunities that are in line with its capabilities

3. To correct important weaknesses

4. To defend against threats

5. To asses capability gaps and take steps to enhance its capabilities.

This exercise is also the starting point for developing the competitive advantage required for

the survival and growth of the firm.