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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

• 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

Type ofratio

1995 1996 1997 IndustryAvg

Trend

LiquidityCurrentQuickLeverageDebt-to-totalassetsDebt-to-equity

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Value Chain Analysis

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Firm Infrastructuregeneral management,accounting financeHuman Resource Management recruiting, training, development

Technology DevelopmentR&D, product and process improvement

Procurementpurchasing raw materials; machines, supplies

SupportActivities

InboundLogisticsraw matlhandlingware-housing

Operationsmachiningassemblingtestingpackaging

OutboundLogisticsware-housingdistri-bution

Marketingand Salesadvertisingpromotionpricingchannelrelations

Serviceinstal-lation,repair,replace-ment

PRIMARY ACTIVITIES

Pro

fit

Mar

gin

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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.

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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

• Engines• Powertrains

• Optics• Imaging• Microprocessor

controls

• Cars; motorcycles; lawn mowers; generators

• Copiers; laser printers; cameras; image scanners; medical imaging

Core Competencies Products/businesses

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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 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.