The better your company understands its own strengths and weaknesses, the better you'll be able to draw on your assets and develop strategies to address challenges. Internal analysis is a valuable tool for mapping the situation, giving special emphasis to your company's unique qualities and hurdles. There are a variety of ways to perform an internal analysis, from formal evaluation using a template like SWOT (strengths, weaknesses, opportunities and threats) or VRIO (value, rareness, imitability and organization) framework. You can also use a homegrown approach, such as informal dialogue focused on assessing your internal situation.
Internal analysis is the process of identifying the assets and obstacles that define your company's potential and limitations.
The Importance of Internal Environment
Your company's internal environment consists of all the assets, skills, attitudes and liabilities that you bring to your short- and long-term business activities. Your strengths and assets lay the groundwork for the products and services you sell, the ways you distinguish your company from its competition and how you weather hard times. Your weaknesses and liabilities describe the ways in which you might struggle during lean months and years, and the limitations your business will face as it tries to grow and thrive. As you use internal analysis to develop a thorough understanding of your internal environment, you'll be able to develop strategies for leveraging your strengths and compensating for your weaknesses.
A SWOT analysis details your company's strengths, weaknesses, opportunities and theats. It is a powerful and widely used marketing tool. The strengths and weaknesses part of the analysis describes your internal environment, while the opportunities and threats part describes your external environment. By considering the external environment along with the internal one, the SWOT approach allows you to consider the ways in which these two sides of your company's situation reinforce and compensate for each other. For example, an analysis of your external environment can show that your business faces an upcoming shortage of a vital material, while an analysis of your internal environment can show that your team has the skills to start manufacturing this item in house.
A VRIO analysis specifically focuses on your company's internal environment. It looks at the resources that make up your unique assets, evaluating them to assess their overall worth. This tool first looks at the value of each asset from both an objective and subjective standpoint. Next, it considers the rareness of that resource, or whether your company has a competitive edge by virtue of owning something that similar companies cannot easily access. As a corollary to the question of the resource's rareness, this analysis tool then looks at whether the resource can be easily imitated. Finally, it raises the question of organization, or whether or not your company has proprietary agreements in place that affect the way it uses resources.