Wednesday, November 13, 2013

Performing the Internal Analysis

One of the things that caught my interest in terms of external versus internal analysis was the “how-to.”  This week’s articles talk about the importance of performing an internal analysis and the potential that can be revealed, but they don’t really go deep into the mechanics of the process.  Therefore, I thought it might be interesting to look at some of the tools that companies out there are using for their self-assessments.

Once an external analysis is conducted, a company should also think about doing an internal analysis.  The purpose of the latter is to utilize the resulting information for strategic planning; that is, the plan for a company’s growth, success, and market leadership.  Identifying businesses’ strengths and weaknesses brings an organization closer to achieving its goals.

Most companies opt to do their internal analysis by comparing themselves with their main competitors, with the goal of finding those key aspects in which they are better [or worse] than the competition.  I remember they used benchmarks in a former job and used them as comparison points for reference or as a way of measuring how well [or bad] the company was doing. 

SWOT Analysis
This is one of the most popular, yet robust, tools to date.  It provides the necessary insights for the strategic analysis process by resulting in key information to plan and implement corrective actions and measures, as well as favor innovation and stimulating the creation of new projects.  SWOT stands for Strengths, Weaknesses, Opportunities, and Threats; it facilitates the identification and articulation of strategies that allow the organization to redirect their route by recognizing their current position and providing elements to take a new course of action [1].
The advantage of the SWOT when utilized for internal analysis is that the company has the ability to change or influence the identified factors.  Each company has a set of unique internal resources that depend on people, financial status, IT, etc. These factors establish the boundaries for how likely each company is to reach their goals.  In the planning process, it is important to consider these factors.

Classic Method – Strategic Profile
Some consider this method to be the initial tool for strategic diagnoses, and its main purpose is to construct a strategic profile [2].  The process to devise a strategic profile constitutes:
  1.           Determining key success factors in the business and categorizing them into functional areas.  Six is the recommended maximum number of factors to identify and work with.
  2.           Appraising the company’s capacity vis-à-vis these success factors.  A scale of -2 to +2 is common with the industry standard represented by 0.
  3.  .       Comparing the resulting [and illustrated] profile to our main competitors.  Those areas in which the company is found to the right of the competitor (towards +2) will be stronger for the company and viceversa.


Value Chain Model
The third tool that I found is called the value chain.  This is none but the way in which the company adds value to their products and/or services, as it improves over time and takes raw material into a finished product.  The value chain analysis is employed as a criterion to identify the capacities of a business based on activity break down [3].  The idea is to observe each step of the process from concept to final product, including all the services that are involved in the process such as distribution, retailing, etc.
Some of the “perks” of this model include, but are not limited to:

  •         Enables an “inside-out” analysis
  •         Identifies the most relevant aspects from a competitive standpoint
  •         Relates strengths and weaknesses in terms of the importance of each step in the process
  •         Allows for calibration with resources and their redistribution


Something that was very interesting to observe in my organization was that they had a very hard time being impartial when it came down to evaluating themselves and their competitors.  These tools, as much as they might have the potential to be really useful, require that the company utilizing them is as neutral and objective [and honest] as possible to guarantee the effectiveness and validity of results.  Can companies really set emotions aside when conducting self-assessments? How difficult can this be?



References:

By Elisa Taymes

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