In strategic management, an internal audit determines the organization’s position within its industry. This process is essential for building and maintaining a sustainable competitive advantage, and typically consists of at least one, or a combination of, distinct analytical tools.
The gap analysis is a type of internal audit that measures the gap between the organization’s current situation and its desired position. For example, a gap may exist between an organization's current financial status and its desired financial position. This can be due to poor customer service, sales numbers or production. Depending on the cause and measure of the gap, organizational leaders will develop strategic objectives designed to close it, such as new training methods or shelving a product that isn't selling.
A common part of the strategic management process is to identify the organization’s strengths, weaknesses, opportunities and threats, or SWOT. Strengths and weaknesses are part of the internal audit process, while opportunities and threats are due to external influences. Strengths include those internal aspects of the organization that leaders can capitalize on to build a sustainable competitive advantage. Weaknesses consist of internal stressors that misalign operational activities with the mission statement. These stressors can range from poorly trained production employees to faulty machines. The SWOT analysis requires all the members of management, production, finance, marketing, research and development, and other functional teams to be involved.
A cultural analysis evaluates the current culture of the organization and determines what aspects must change to best support strategic objectives. The cultural audit often includes employee surveys to analyze worker perceptions of whether they are treated fairly by managers or paid fairly in comparison to coworkers.
One of the goals of the internal audit in strategic management is to identify the core competencies of an organization. The existence of strong core competencies is what typically leads consumers to choose one organization over another. For example, a shoe brand that successfully markets its products to build a loyal customer base can charge higher prices than shoe brands that are relatively unknown.