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 hat 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 eroded; 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 o 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 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 reference. 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 dependent not on the differences benzene the fields of activity, but especially on the differences between the resources and capabilities and the ways these are capitalized on.
Resources Analysis The analysis of the Company’s resources is the most used instrument for the internal environment analysis. A good starting point to identify company resources is to look at tangible, intangible and human resources. Tangible sources are the easiest to identify and evaluate as they are identified and valued in the firm’s financial statements: * Financial resources – Are they making a profit? What is there borrowing capacity? Are their costs to high? * Physical Assets – Do they have raw materials? What is their technology like? How much is their plant/factory worth?Intangible resources are largely invisible, but over time become more important to the firm than tangible assets because they can be a main source for a competitive advantage. * Do they have a brand/image? * Do they have established relationships with customers Technological assets – Do they have any proprietary technology (copyrights, patents or know-how). Human resources or human capital are the productive services human beings offer the firm. * Are the employees skilled? * Are the employees loyal? Function Analysis One of the simplest methods of analyzing the internal environment is the functional analysis.The abilities and resources of an organization may be classified under a capability profile starting from the basic business functions of the company: marketing, finance, research and development, production, etc. It is important that the company has the capabilities to implement the accessory objectives, strategies and policies for each area of activity.
An internal audit of all business functions should show any strengths and weaknesses. Core Competences The idea of “core competences” is one of the most important business ideas currently shaping our world.The starting point for understanding core competences is understanding that businesses need to have something that customers uniquely value if they’re to make good profits. Businesses with nothing unique to distinguish them from their competition are doomed to compete on price and therefore profit margins become thinner and thinner.
Therefore if you’ re able to offer something uniquely good, customers will want to choose your products and will be willing to pay more for them. In their key 1990 paper “The Core Competence of the Corporation,” C. K.Parallax and Gary Hammed argue that “Core Competences” are some of the most important sources of uniqueness: These are the things that a company can do uniquely well, and that no-one else can copy quickly enough to affect competition. It’s often easy to think about a whole range footings that a company does that it can do well; however, Hammed and Parallax give three tests to see whether they are true core competences: 1.
Relevance: Firstly, the competence must give your customer something that strongly influences him or her to choose your product or service.If it does not, then it has no effect on your competitive position and is not a core competence. 2. Difficulty of imitation: Secondly, the core competence should be difficult to imitate. This allows you to provide products that are better than those of your competition. And because you’re continually working to improve these skills, means that you can sustain its com appetite position. 3. Breadth of application: Thirdly, it should be something that opens up a good number of attention markets.
If it only opens up a few small, niche markets, then success in these markets will not be enough to sustain significant growth.To identify their core competences, a company should use the following Steps: 1. Brainstorm the factors that are important to your clients. 2.
Brainstorm your existing competences and the things you do well. 3. For the list of your own competences, screen them against the tests of relevance, difficulty of imitation, and breadth of application, and see if any of the competences you’ve listed are core competences. 4. For the list of factors that are important to clients, screen them using these tests to see if you could develop these as core competences.
. Review the two screened lists – A. If you’ve identified core competences that you already have, then great! Work on them and make sure that you build them as far as sensibly possible. B. If you have no core competences, then look at ones that you could develop, and work to build them.
6. Think of the most time-consuming and costly things that you as a company. If any of these things do not contribute to a core competence, ask yourself if you can outsource them effectively, clearing down time so that you can focus on core competences.