Page 83 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 5: Organisational Appraisal: Internal Assessment 1

5.1 Importance of Internal Analysis Notes

Strategic management is ultimately a “matching game” between environmental opportunities
and organisational strengths. But, before a firm actually starts tapping the opportunities, it is
important to know its own strengths and weaknesses. Without this knowledge, it cannot decide
which opportunities to choose and which ones to reject. One of the ingredients critical to the
success of a strategy is that the strategy must place “realistic” requirements on the firm’s resources.
The firm therefore cannot afford to go by some untested assumptions or gut feelings. Only
systematic analysis of its strengths and weaknesses can be of help. This is accomplished in
internal analysis by using analytical techniques like RBV, SWOT analysis, Value chain analysis,
Benchmarking, IFE Matrix etc.

Thus, systematic internal analysis helps the firm:
1. To find where it stands in terms of its strengths and weaknesses
2. To exploit the opportunities that are in line with its capabilities
3. To correct important weaknesses
4. To defend against threats

5. To asses capability gaps and take steps to enhance its capabilities.
This exercise is also the starting point for developing the competitive advantage required for
the survival and growth of the firm.

Notes The opportunities that can be successfully exploited depend upon the strengths of
its resources and the skills the firm employs to transform those resources into outputs. In
this sense, organisational resources and capabilities become a lynchpin over which hinges
the success and survival of a strategy.

5.2 SWOT Analysis

SWOT stands for strengths, weaknesses, opportunities and threats. SWOT analysis is a widely
used framework to summaries a company’s situation or current position. Any company
undertaking strategic planning will have to carry out SWOT analysis: establishing its current
position in the light of its strengths, weaknesses, opportunities and threats. Environmental and
industry analyses provide information needed to identify opportunities and threats, while
internal analysis provides information needed to identify strengths and weaknesses. These are
the fundamental areas of focus in SWOT analysis.
SWOT analysis stands at the core of strategic management. It is important to note that strengths
and weaknesses are intrinsic (potential) value creating skills or assets or the lack thereof, relative
to competitive forces. Opportunities and threats, however, are external factors that are not
created by the company, but emerge as a result of the competitive dynamics caused by ‘gaps’ or
‘crunches’ in the market.
We had briefly mentioned about the meaning of the terms opportunities, threats, strengths and
weaknesses. We revisit the same for purposes of SWOT analysis.
1. Opportunities: An opportunity is a major favourable situation in a firm’s environment.
Examples include market growth, favourable changes in competitive or regulatory
framework, technological developments or demographic changes, increase in demand,
opportunity to introduce products in new markets, turning R&D into cash by licensing or
selling patents etc. The level of detail and perceived degree of realism determine the
extent of opportunity analysis.

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