Internal Organizational Analysis
In formulating a strategy, the strategic decision makers must also analyze conditions internal to the organization. An internal analysis leads to a realistic company profile, which is the determination of a firm's strategic competencies and weaknesses.
The development of a company profile in four-step process:
* In step 1, managers audit and examine key aspects of the business's operation, seeking to target key areas for further assessment.
* Step 2 has managers evaluating the firm's status on these factors by comparing their current condition with past abilities of the firm.
* In step 3, managers seek some comparative basis - linked to key industry or product/market conditions - against which to more accurately determine whether the company's condition on a particular factor represents a potential strength or weakness.
* The final step in internal analysis is to provide the results, or company profile, as input into the strategic management process.
This explains internal analysis as a process, but in practice, efforts to distinguish each step are seldom emphasized because the process is very interactive.
The Areas That Most Businesses Should Analyze
An internal organizational analysis evaluates all relevant factors in an organization in order to determine its strengths and weaknesses. Some of the areas that most businesses should analyze include the following:
- Financial position. The financial position of a business plays a crucial role in determining what it can or cannot do in the future.
- Product position. For a business to be successful, it must be acutely aware of its product position in the marketplace.
- Marketing capability. Closely allied with an organization's product position is its marketing capabilities (i.e., its ability to deliver the right product at the right time at the right price).
- Research and development capability. Every organization must be concerned about its ability to develop new products.
- Organizational structure. Organizational structure can either help or hinder an organization in achieving its objectives.
- Human resources. All the activities of an organization are significantly influenced by the quality and quantity of its human resources.
- Condition of facilities and equipment. The condition of an organization's facilities and equipment can either enhance or hinder its competitiveness.
- Past objectives and strategies. In assessing its internal environment, every business should attempt to explicitly describe its past objectives and strategies.
Internal analysis is difficult and challenging. The checklists provided above can be helpful in determining specific strengths and weaknesses in the functional areas of business.
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