Internal Environment Analysis

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Internal Analysis
An Internal Analysis of a company focuses on the strengths and weaknesses of internal factors that give a company certain advantages and disadvantages in meeting the needs of its target market. Strengths refer to core competencies that give the firm an advantage in meeting the needs of its target markets. Weaknesses refer to any limitations a company faces in developing or implementing a strategy. The aim of the internal analysis is to identify the company’s strengths and weaknesses and as a result the company should be able to identify what it is or is not capable of doing and what it needs to address before pursuing certain strategic options. For the internal analysis a company would carry out a resource audit, examining physical, human, and financial resources together with intangibles such as brands, patents, etc and would then look at its value chain as a means of assessing the efficiency and effectiveness of all aspects of its operation. Any element of the value chain is capable of adding or destroying value. The analyses should feed into the mission and vision statements and also the aims and objectives that the company set for the forthcoming strategic period; these should encompass both strategic and financial objectives. It will also help to identify a series of strategic options that the company can consider and will inform the ultimate choices made.

Value Chain Analysis

The term ‘Value Chain’ was used by Michael Porter in his book "Competitive Advantage: Creating and Sustaining superior Performance" (1985). The value chain analysis describes the activities the organization performs and links them to the organizations competitive position. Value chain analysis describes the activities within and around an organization, and relates them to an analysis of the competitive strength of the organization. Therefore, it evaluates which value each particular activity adds to the organizations products or services. This idea was built upon the insight that an organization is more than a random compilation of machinery, equipment, people and money. Only if these things are arranged into systems and systematic activates it will become possible to produce something for which customers are willing to pay a price. Porter argues that the ability to perform particular activities and to manage the linkages between these activities is a source of competitive advantage. Porter distinguishes between primary activities and support activities. Primary activities are directly concerned with the creation or delivery of a product or service. They can be grouped into five main areas: inbound logistics, operations, outbound logistics, marketing and sales, and service. Each of these primary activities is linked to support activities which help to improve their effectiveness or efficiency. There are four main areas of support activities: procurement, technology development (including R&D), human resource management, and infrastructure (systems for planning, finance, quality, information management etc.).

A typical value chain analysis can be performed in the following steps: · Analysis of own value chain – which costs are related to every single activity · Analysis of customers value chains – how does our product fit into their value chain · Identification of potential cost advantages in comparison with competitors

One must also consider that a great extent of the value added created through the organization’s goods and services also depend on the supply chain. For example, the quality of a car is not only influenced by the activities inside the organization but also by the spare parts, components or dealership performance.

An internal analysis should also look at the company’s resources and capabilities as the difference in performance from one organization to another is primarily dependant not on the differences between the fields of activity, but especially on the differences between the resources...
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