Internal Analysis

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.

 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

Management
1. General Management
2. Human Resource Management

General Management Factors

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

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

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

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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Profit
Margin

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.
managements 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.
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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:

Systems Integration
Virtual reality
Bioengineering
Delighting the customer

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Purpose of Internal Analysis

Identify and evaluate whats 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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