Topic 4: Internal analysis

Organisational success is largely dependent upon the effectiveness (and efficiency) of the interface between the external and internal environments of an organisation.

Before a strategic position for an organisation can be developed, the following is required:
1. an external analysis that identifies opportunities and threats: the external environment
2. an internal analysis that identifies its strengths and weaknesses: the internal environment
3. a match between internal and external factors
4. strategic options that capitalise on strengths and assist with overcoming weaknesses

These four outcomes are essential for the formulation of a strategy that will provide an optimal fit between internal and external factors.

An organisation's strategic effectiveness is indicated by the extent to which it does the 'right things'—as opposed to 'doing things right', which defines efficiency. Ideally, to do the right things, an organisation should simply rearrange its skills and resources to match the relevant trends and issues in its external environment.

Analysing internal organisational characteristics (as is normally practised) tends to provide information about an organisation's internal environment as it is at that point in time. It does not consider the potential of these characteristics or their true value relative to the external environment. A comprehensive internal analysis needs to identify which internal factors add to or detract from the value provided to the customer by an organisation. The following more complex and open-ended analyses will be discussed: the value chain, the strength/attractiveness matrix, the resource cluster analysis (RCA)—a functional decomposition of traditional strengths and weaknesses analysis.

Characteristics that have real strategic value are called strategic assets. Their value is based on their being rare, not easy to imitate and/or not easy to substitute (Markides 2000: 115). Viljoen and Dann (2003) identify a framework for analysing these characteristics that is based on Porter's value chain and is divided into six domains: operations, marketing, research and development, human resources, information systems, organisation and structure. This framework is rather single line of business/manufacturing-oriented. For other types of organisations, such as government departments, NGOs and not-for profits, operations and marketing could be substituted by procurement, relationships and representation, and corporate resources.

A useful way of analysing these linkages is through the concept of the 'value chain'— viewing elements in terms of their contribution to added customer value. Every activity, resource, competency and asset performed within the organisation, should ideally contribute to the value provided to the customer or stakeholder. In practice, the value chain is most often applied by creating a 'resource audit matrix'. This compares all primary activities with the support activities and makes underlying relationships apparent.

The strength/attractiveness matrix enables an organisation to compare the results of an internal analysis with the characteristics of its external environment. Applying this matrix helps to identify the value of these internal characteristics.