Internal Analysis: Firm's Diagnosis

Study Notes

Internal aspects (efficient plants, technology, processes, brand ownership, distribution networks) are often more important for competition than external factors.
Internal analysis aims to identify a firm's strengths and weaknesses within its competitive environment. This involves determining how the firm performs compared to competitors.
A key aspect to competitive analysis is understanding what the firm does better than its competitors to remain viable in the market.
Steps in internal analysis include:
- Determining the firm's fundamental characteristics and nature.
- Identifying key variables to analyze.
- Measuring metrics to understand customer experience and perception compared to competitors.
Firms vary in their identity determined by their nature and fundamental characteristics.
Age (start-up, adolescent, developed, mature/adult, anaemic/old)
Size. (small, medium, large), using variables such as turnover, total assets, and headcount
Scope of the firm is derived from the combination of its products and markets. Functions and needs a firm aims to meet for target customer groups.
Firm's technologies and ownership types (public, private, family-held, diffuse ownership).
Firm's geographical scope (local, regional, national, multinational).
Legal structure (public limited companies, limited liability companies, cooperatives, single-company regime, business groups).

Functional analysis examines specialized activities within a firm (production, marketing, finance, human resources, organization).
Firm's strategic profile assesses a firm's strengths and weaknesses, identifying opportunities and issues in functional areas.
Variable lists define core aspects determining firm objectives, and are categorized under functional areas.
Variable evaluation uses a Likert scale (1-5) to rate a variable's performance (negative, neutral, positive).

Value chain breakdown of all key operations needed to sell a product or service.
Each operation accounts for part of the final product cost.
Value generated if selling price exceeds operations costs.
Value system encompasses a company's value chain and the value chains of its suppliers and customers.

Primary activities: directly involved in the production process and transfer to the customers, after-sales service.
- Inbound logistics: reception, stockpiling, and raw/ancillary material control.
- Operations/production
- Outbound logistics: delivery of finished products.
- Marketing & sales: driving product sales.
- After-sales service
Support activities: activities that support the primary activities.
- Procurement: purchasing raw materials and services.
- Technology development: improving product/process technologies.
- Human resource management: recruitment, and training.
- Firm infrastructure: planning, information, and control.

Horizontal links: interactions between different internal activities.
Vertical links: relations between the firm's value chain and that of its external suppliers and customers.
Just in time coordination between suppliers and firm production systems.

Resource-Based View evaluates a firm's potential based on its resources and capabilities.
It analyzes a firm's potential for using resources and capabilities to develop a competitive advantage.
Resources include assets held by a firm, skills, technological know-how or organizational structure.
Capabilities are a firm's skills, competence, or organizational routines.

Resources (tangible and intangible) are evaluated to determine their value/potential for success. Intangibles include knowledge, culture, reputation
Capabilities are skills to conduct a certain activity, often combinations of resources put together by skill and process.

Core or distinctive competencies distinguish firm's operations and allow a better performance of activities compared to competitors.
Capabilities are firm skills or collective competence
Functional capabilities: resolve technical or management issues.
Cultural capabilities: values and work-related attitudes.

Firms are able to adjust internal capabilities and integrate external resources in order to change/develop and improve operations.
They are important for a firm to adjust and improve its business's operations.
Ability to renew, reconfigure, and re-create.

Transferability: an aspect of resource/capabilities that is easily moved from one firm to another.
Importance of resources and capabilities that are specifically intangible or have limitations in transferability.

Extent to which the rights of an owner are well-established/control rights over resources are clear.
Control rights over tangible and intangible resources (patents, brand, reputation) exist.

Strengths, Weaknesses, Opportunities, and Threats summary for the firm's performance.
Using a matrix, strengths and weaknesses focus on internal factors while opportunities and threats focus on external factors.