An internal analysis is an exploration of your organization’s competency, cost position and competitive viability in the marketplace. Conducting an internal analysis often incorporates measures that provide useful information about your organization’s strengths, weakness, opportunities and threats – a SWOT analysis. The data generated by an internal analysis is important because you can use it to develop strategic planning objectives to sustain and grow your business.
Strength and Competency
An important measure in an internal analysis is to determine your organization’s level of strength and competency. A strong organization uses updated technology systems and equipment to accomplish its work. Its financial goals are being met and strategic planning objectives are being accomplished. An organization with strong competency also has a solid brand identity built upon expertise, capabilities and resources within the organization.
Organizational Weaknesses
A weak organization is one that uses outdated technology, is lacking in expertise or working with deficient assets. A well-orchestrated internal analysis should bring to light any such organizational weaknesses that exist – areas in need of improvement and objectives that are not being realized. Once your analysis has revealed your deficiencies, you can revise your strategic plan to address and overcome failed objectives and improve or eliminate weaknesses.
Cost Position and Opportunity
An internal analysis should determine the cost position of your organization in your industry market and your potential to attract and engage new business opportunities. Cost position involves your business’s ability to acquire and manage resources and deliver exceptional value to your customers in a way that is unmatched by rival businesses.
Opportunities for business growth can include venture capital partnerships, relationship prospects in foreign markets and acquisition of competing businesses. An internal analysis can reveal your preparedness to take advantage of business growth opportunities.
Looming Threats
Striving to position your business at the top of your industry is an ongoing task. New companies are always entering the marketplace with novel innovations and potential to surpass you. It’s important to remain aware of changes in your market, the economy, technology and activities of rival companies that can threaten your viability in the marketplace. Internal analysis provides important information that can help you build on your strengths, prepare for threats and keep your business growing.
Competitive Viability
Internal analysis can help you determine how competitive you are in your industry. A competitively viable business challenges its rivals to match the service or product it offers, especially if it's using cutting edge proprietary technology, and has strongly enforced quality control standards.
A competitive business has high intellect human capital – the best and brightest employees contributing their expertise and innovations to daily operations. The most viable companies have consistently climbing sales revenues and use efficient supply chains. An internal analysis will examine the effectiveness of your supplier network, customer loyalty and sales, providing important metrics you can use to amend your business strategies and become a stronger competitor in your industry.
Organizational environment consists of both external and internal factors. Environment must be scanned so as to determine development and forecasts of factors that will influence organizational success.
Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organization’s internal and external environment.
It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities existing in the environment. While strategy formulation, an organization must take advantage of the opportunities and minimize the threats. A threat for one organization may be an opportunity for another.
Internal analysis of the environment is the first step of environment scanning. Organizations should observe the internal organizational environment.
This includes employee interaction with other employees, employee interaction with management, manager interaction with other managers, and management interaction with shareholders, access to natural resources, brand awareness, organizational structure, main staff, operational potential, etc. Also, discussions, interviews, and surveys can be used to assess the internal environment.
Analysis of internal environment helps in identifying strengths and weaknesses of an organization.
As business becomes more competitive, and there are rapid changes in the external environment, information from external environment adds crucial elements to the effectiveness of long-term plans. As environment is dynamic, it becomes essential to identify competitors’ moves and actions. Organizations have also to update the core competencies and internal environment as per external environment.
Environmental factors are infinite, hence, organization should be agile and vigile to accept and adjust to the environmental changes. For instance - Monitoring might indicate that an original forecast of the prices of the raw materials that are involved in the product are no more credible, which could imply the requirement for more focused scanning, forecasting and analysis to create a more trustworthy prediction about the input costs. In a similar manner, there can be changes in factors such as competitor’s activities, technology, market tastes and preferences.
While in external analysis, three correlated environment should be studied and analyzed —
Examining the industry environment needs an appraisal of the competitive structure of the organization’s industry, including the competitive position of a particular organization and it’s main rivals. Also, an assessment of the nature, stage, dynamics and history of the industry is essential. It also implies evaluating the effect of globalization on competition within the industry.
Analyzing the national environment needs an appraisal of whether the national framework helps in achieving competitive advantage in the globalized environment.
Analysis of macro-environment includes exploring macro-economic, social, government, legal, technological and international factors that may influence the environment. The analysis of organization’s external environment reveals opportunities and threats for an organization.
Strategic managers must not only recognize the present state of the environment and their industry but also be able to predict its future positions.
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