This document discusses tools and methods for assessing an organization's internal environment, including its strengths and weaknesses. It describes analyzing distinctive competencies, conducting an internal audit of key functional areas like management, marketing, finance, production, and information systems. The internal factor evaluation matrix and resource-based view are introduced as frameworks for evaluating internal resources. Benchmarking and value chain analysis are presented as methods to evaluate organizational activities against competitors.

1. CHAPTERFOUR
INTERNAL ENVIRONMENT ASSESSMENT
As the name suggests, internal analysis focuses on evaluating all
aspects of the organization itself. Although internal analysis can
sometimes take into account the actions of external organizations or
market-wide shifts, it is largely related to the inherent traits of the
organization at hand.
For example, internal analysis can allow you to identify both strong
and weak aspects of your organization, without taking into account
the performance of external organizations. Unlike internal
analysis, external analysis is less about the organization itself, and
more about its business environment (including its competitors).
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2. Key Internal Forces
Distinctive competencies
 A firm’s strengths that cannot be easily matched or imitated by
competitors.
Building competitive advantages involves taking advantage of
distinctive competencies.
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3. NATURE OF THE INTERNAL AUDIT
The internal audit
 Requires gathering and understanding information about
the firm’s management, marketing, finance/accounting,
production/operations, research and development (R&D),
and management information systems operations
 Provides more opportunity for participants to understand
how their jobs, departments, and divisions fit into the
whole organization.
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4. The Process of Performing an Internal Audit
 The process of performing an internal audit closely parallels
the process of performing an external audit. Representative
managers and employees from throughout the firm need to
be involved in determining a firm's strengths and
weaknesses.
 Performing an internal audit requires gathering,
assimilatingunderstanding, and evaluating information
about the firm's operations.
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5. cont…
 Compared to the external audit, the process of performing an
internal audit provides more opportunity for participants to
understand how their jobs, departments, and divisions fit
into the whole organization.
 Financial ratio analysis exemplifies the complexity of
relationships among the functional areas of business.
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6. The Internal Factor Evaluation (IFE) Matrix
Internal Factor Evaluation (IFE) matrix is a strategic
management tool for auditing or evaluating major strengths and
weaknesses in functional areas of a business.
IFE matrix also provides a basis for identifying and evaluating
relationships among those areas.
IFE matrix together with the EFE matrix are used in strategy
formulation.
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7. The Resource-Based View (RBV)
The Resource-Based View(RBV) approach
 Contends that internal resources are more important for a
firm than external factors in achieving and sustaining
competitive advantage.
Supporters of the RBV argue that organizational performance
will mainly be determined by internal resources that can be
groupedinto three all-inclusive categories:
 physical resources, human resources, and organizational
resources.
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8. 1. Integrating Strategy and Culture
Organizational culture significantly affects business decisions
and thus must be evaluated during an internal strategic-
management audit.
 If strategies can benefit from cultural strengths, such as a
strong work ethic or highly ethical beliefs, then management
oftencan quickly and easilyimplement changes.
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9. 2. Management
The functions of management consist of five basic activities:
planning, organizing, motivating, staffing, and controlling.
These activities are important to assess in strategic planning
because an organization should continually benefit from its
management strengths and improve on its management
weaknesses.
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10. 4. Marketing
Marketing
 the process of defining, anticipating, creating, and
fulfilling customers’ needs and wants for products and
services.
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11. Functions of Marketing
Customer analysis
Selling products/services
Product and service planning
Pricing Distribution
Marketing research
Opportunity analysis
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12. 4.1. Customer analysis
Customer analysis
 the examination and evaluation of consumer needs,
desires, and wants.
 involves administering customer surveys, analyzing
consumer information, evaluating market positioning
strategies, developing customer profiles, and determining
optimal market segmentation strategies
 essential in developing an effective mission statement.
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13. 4.2. Product and Service Planning
Product and service planning
 includes activities such as test marketing; product and brand
positioning; devising warranties; packaging; determining product
options, features, style, and quality; deleting old products; and
providing for customer service.
 important when a company is pursuing product development or
diversification
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14. 4.4. Pricing
Five major stakeholders affect pricing decisions: consumers,
governments, suppliers, distributors, and competitors
Sometimes an organization will pursue a forward integration
strategy primarily to gain better control over prices charged
to consumers.
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15. 4.4. Distribution
Distribution
 includes warehousing, distribution channels, distribution
coverage, retail site locations, sales territories, inventory
levels and location, transportation carriers, wholesaling,
and retailing.
 especially important when a firm is striving to implement
a market development or forward integration strategy.
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16. 4.5. Marketing Research
Marketing research
 the systematic gathering, recording, and analyzing of data
about problems relating to the marketingof goods and
services
 can findout critical strengths and weaknesses.
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17. Finance/Accounting Functions
The functionsof finance/accountingcomprise three decisions:
1. the investment decision
2. the financing decision
3. the dividend decision
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18. 4. Finance/Accounting Functions
Investment decision
 the allocation and reallocation of capital and resources to
projects, products, assets, and divisions of an organization.
Financing decision
 determines the best capital structure for the firmand
includes examining various methods by which the firm
can raise capital.
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19. Finance/Accounting Functions
Dividenddecisions
 concern issues such as the percentage of earnings paid to
stockholders, the stability of dividends paid over time, and the
repurchase or issuance of stock.
 determine the amount of funds that are retained in a firm
compared to the amount paid out to stockholders.
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20. 5. Production/Operations
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Production/operations function
 consists of all those activities that transforms inputs into
goods and services.
Production/operations management deals with inputs,
transformations, and outputs that vary across industries
and markets.

21. 7. Management Information Systems
A management information system’s purpose is to improve
the performance of an enterprise by improving the quality of
managerial decisions
An effective information system thus collects, codes, stores,
synthesizes, and presents information in such a manner that
it answers important operating and strategic questions
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22. 4. Value Chain Analysis (VCA)
Value chain analysis (VCA)
 refers to the process whereby a firm determines the costs
associated with organizational activities from purchasing
raw materials to manufacturing product(s) to marketing
those products
 aims to identify where low-cost advantages or
disadvantages exist anywhere along the value chain from
raw material to customer service activities
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23. 6-24
Advantages of Joint Ventures
Joint
Ventures
Improvement
of efficiency Access to
knowledge
Collusion or
restriction of
competition
Political
factors

24. 4.1. Benchmarking
Benchmarking
 an analytical tool used to determine whether a
firm’s value chain activities are competitive
compared to rivals and thus conducive to winning
in the marketplace
 entails measuring costs of value chain activities
across an industry to determine “best practices”
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