Internal analysis or organisational analysis is the process of reviewing organisational resources, scanning organisational activities and linking them with creations of value of the organisation and identifying the strengths and capabilities. This implies that the internal – analysis is concerned basically with three things namely, resource and its, value chain analysis and identification of core-competence.
Importance of Internal Analysis
It goes without saying that the firm must have a perfect understanding of its strengths and weaknesses for tapping the opportunities that are present in the environment and to overcome the threats that follow opportunities. A perfectly carried out internal appraisal brings home the facts on which firm’s success or failure rests. The importance or the role and the purposes can be described as under:
(1) It Helps to know where the firm stands in terms of strengths and weaknesses – It is the internal analysis which determines the status of a firm in terms of strengths and weaknesses so that it can decide what is the extent of its ability to encash on opportunities that are opened by the environment along with the threats on which it is attacked to make the way smooth. That is, external environmental scanning brings home the opportunities and threats. However, unless the firm’s ability to exploit is known, it is futile. It is like asking the question : How many horses you buy when you have 100 in your pocket. The ability to encash is dependent on firms plus and minus points.
(2) It Helps to select the opportunities to be tapped in line with its capacity – It is the internal assessment of the strengths and weaknesses which are put to acid test of cold facts. There may be ample promising opportunities thrown open by the environment along with threats. However, if the firm’s strengths and weaknesses do not permit to take advantage of all, at least what opportunities it can go in for is important. Every body has a dream of owning a “Sonata” car but how many can afford to pay 14 lakhs to 16 lakhs to start with and maintaining that white elephant. In case a person has 5 lakhs, he can go in for ‘Fiat Uno’ or ‘Maruti Zen’ and so on. This is what, the internal- analysis makes it.
(3) It supports matching of objectives to its capacity – The purposes or objectives as strategies is fully supported by the findings of internal assessment. The internal-analysis directly forces the strategists to come to the ground realities and design these strategies founded on the capabilities or strengths and weaknesses of the firm. There is no danger of over performing or under-performing as the targets are set based on realities.
(4) It assists in assessing the capability-gap and takes steps for evaluating the capability in line with growth objective – In case the growth objectives are set and the firm cannot achieve the said because of its strengths and weaknesses position, then gap-analysis is undertaken as to how for the company is to prepare itself to perform as per the growth objectives. Take that the growth objective is set at 8 per cent per annum in sales. However, company’s strength and weaknesses are sufficient to attain easily and effectively say 6 per cent, then there is a gap of 2 per cent. That is, the company is to raise its resources and efforts to reach a stage of 8 per cent. The company is made to equip with minimum of resources and capabilities to reach 8 per cent growth. This is also brought to surface by the internal assessment.
(5) It assists in selecting the specific lines in which it can grow, using its potential – The number of alternatives which are made available by the environment the firm is made of act on rational basis and chose those lines in which it has a greater potential so that the opportunity is encashed and the threat is overcome successfully. This is, what is really significant as the company has its resource constraints within which it is to attain the goal. The best performance can be given if there is correct assessment of the situation that is faced by a company.