Micro-Internal Audit-

Identifying Organizational
Strengths
and
Weaknesses
Internal Environment – set of conditions inside the
firm affecting the choice and use of strategies

Internal Analysis –
The process of identifying and evaluating an
organization’s specific characteristics
- Resources, capabilities and core competencies
- Organizational Culture
- Management
Functions of Management
Functional Areas of Management
Why conduct Internal Analysis

- Identify strengths and weaknesses

-relative to competitors
-important to customers

- Enables a firm to make good strategic decisions

- Information from internal environment provides

basis for developing strategic alternatives
 Perform
External
Audit

Generate
Develop Impleme Implement
Establish , Measure
Visions nt Strategies–
Long Evaluate Marketing, and
and Strategie
term and Finance, Evaluate
Mission s– Accounting,
Objective Select Performa
Stateme Manageme R&D, MIS
s Strategie nce
nts nt Issues Issues
s

Perform
Internal
Audit

Strategy
Strategy Strategy
Implementatio
Formulation Evaluation
n
Strengths
– Resources that an organization possesses and
capabilities that the organization has developed.
– Both can be exploited and developed into a
sustainable competitive advantage.

Weaknesses
– Resources and capabilities that are lacking or
deficient.
– Prevents an organization from developing a
sustainable competitive advantage.
 MANAGING RESOURCES TO DEVELOP
CAPABILITES AND CORE COMPETENCIES

Inputs into firms production process

Financial Resources, Intangible Resources
RESOURCES Physical Resources, Structural-Cultural Resources
Human Resources
Integrated to form
Capacity to deploy resources that have been
purposely integrated to complete a task or to
achieve a desired end state
CAPABILITIES Marketing, Finance, skills and knowledge of
employees
Developed into -Capabilities the firm emphasizes and performs
especially well while pursuing its vision.
CORE -Gives a firm a potentially valuable competitive
COMPENTENCIES capability
Better after sales activity, Fast devt of new product
Expertise in an important technology.
(Business Strategy - Theory and Cases, Hoskisson,Hitt,Ireland
 FROM CORE COMPETENCIES TO DISTINCT
CAPABILITIES, COMPETITIVE ADVANTAGE

Distinctive Competence (Capabilities)

Core competence that differ from those held by
RESOURCES
competitors

Integrated to form Competitive Advantage

-Aims of a firm
-When core competencies allow it to create value for
customers by performing a key activity better than key
CAPABILITIES
competitors

Characteristic of Core competencies that could

Developed into
lead to Competitive Advantage
-Valuables
CORE -Rare
COMPENTENCIES -Difficult to imitate
-Non substitutable
 FACTORS DETERMINING THE STRATEGIC SIGNIICANCE OF
STRENGTHS WEAKNESSES
HOW DO STREGTHS COMPARE WITH
ACCEPTED STANDARDS OF
EXCELLENCE?

Favorably Unfavorab
ly
STRENGT WEAKNES
H SES

Can strength be How do strength and

easily weaknesses compare
matched or with competitors and
imitated
NO industry standards of
excellence
DISTINCTI Provides Necessary Necessary
VE an edge skill not present
COMPETEN skill
CE
COMPETITI BUSINESS KEY
VE REQUIREME VULNERABIL
ADVANTA NTS ITY
(Strategy in a Changing Enviroment. Bryars, Rue, Zahra p93)
Organizational Culture
Define as the collective assumptions and beliefs that
pervade the organization about how business should
be conducted and how employees should behave
and should be treated

Determines “how do we do
things around here”

(Strategy in a Changing Enviroment. Bryars, Rue, Zahra p95)

Management
Functions Specific Task/Areas
Planning Forecasting, establishing objectives, devising
strategies, developing policies
Organizing Organizational design, job description, span of
control, unity of command, coordination, job
analysis
Leading Leadership, communication, delegation of
authority, job satisfaction, organizational
change employees morale and managerial
morale
Controlling Quality control, financial control, sales control,
inventory control, expense control
Management
Functional Areas Aids in Determining Strengths and
Weaknesses
Finance Cash flow statement, income statements, balance
sheet and annual report
Human Resource Training program, compensation systems,
performance appraisal system, management and
employees development program
Operations/production Inventory system, Plan Lay out, maintenance, plant
location
Marketing Customer analysis, marketing capability like
distribution channel, types of advertising and
promotion used.
APPROACHES TO INTERNAL ANALYSIS
Value Chain Analysis (VCA)

– process where firm determines the cost

associated with the organizational activities.

– provide to customer some type of value from

goods or services the firm offers
1. uniqueness of the product and services
2. low priced product/service
3. quick response to specific customers need

– allows assessment of cost competitiveness of

organization with those of its rival .
Example of Value Chain for Grain Production

Firm Infrastructure

Human Resource Management

MA
Supporting
Activities

RG
Technological Development

IN
Procurement

Inbound Outbound Marketing Service

Operations
Logistics
Activities

Logistics & Sales

N
Primary

I
RG
MA
Relationship with Suppliers Relationship with Buyers

Elapsed Time - Value added time cost

 Service
Outbound On-time del-
Inbound Operations Logistics Marketing ivery
Logistics & Sales Forward
Tillage Grain contract
Planning transport Forward. Storage
Fertilizer and
Fertilizing to elevator contracts Tracing
Chemical
Spraying or buyer Futures
storage,
Cultivate Options
custom
Harvest Grain Value added
application
transport grain
of inputs
to storage

Relationship with Suppliers Relationship with Buyers

Procurement

Technology

Firm Infrastructure

Human Resource management

Service

Inbound Outbound Marketing

Operations
Logistics Logistics and Sales
 Procurement

Technological Development

Human Resources

Infrastructure: management, planning, finance,

Firm Infrastructure

Service
Inbound Outbound Marketing
Operations
Logistics Logistics and Sales

accounting, government compliance, quality control

Human Resource: motivation tools, compensation,

training, and directing farm employees, including
family, management, and laborers

Technological Development: research and adoption practices

for things like GPS,the Internet, IP storage facilities

Procurement: Purchasing inputs: seed, fertilizer, chemicals,

fuel, land, Machinery, storage equipment, office supplies, parts,
tools, insurance etc. with focus on negotiating capabilities
Another example of Value Chain for a Manufacturing
Suppliers cost
Raw Materials Budgeting
Fuel Personnel
Truck Internet
Drivers Railroad
Storing Fuel

Warehouse Maintenance
Sales & Marketing Cost
Production Cost
Salespersons
Inventory System
Web site
Receiving
Internet
Plant Layout
Publicity
Maintenance
Promotion
Plant location
Management Cost
Computer Human Resources
Cost Accounting Administration
Distribution Cost Employee Benifits
Loading Labor relation
Shipping Managers
INTERNAL FACTOR EVALUATION
(IFE)
-Assesses strengths and weaknesses

-Provides one overall number for the

strength of the firms internal position

-Similar in procedure to EFE

Example of IFE Matrix on Grains Production
Internal Factors Weight Rating Weighted Comments
Score
Strengths
Good management 0.15 5 0.75 Use Craig and Mike’s abilities very well.

Soil fertility 0.10 4 0.40 Key to productivity. Manure from dairy

helps keep fertilizer costs low.
Equipment 0.05 3 0.15 Generally in good shape but aging.

Financial position 0.10 3 0.30 Profitable, low debt, too many assets.

Information management 0.15 3 0.30 Well maintained crop production data by

field. Record system, capacity, etc. well
designed.
Weaknesses

Spread too thin, several 0.25 2 0.50 Craig seems to have too many things to
different crops do.
Hay and silage equipment 0.10 2 0.20 Out dated and in constant need of repair.

Commodity pricing 0.10 4 0.40 Trying to improve by using marketing

consultant.
Total 1.0 3.00
If you know the enemy and know yourself,
you need not fear the result of a hundred
battles.  If you know yourself but not the
enemy, for every victory gained you will
also suffer a defeat. If you know neither
the enemy nor yourself, you will succumb
in every battle Art of War, Sun Tzu