GENERAL FRAMEWORK FOR INTERNAL ANALYSIS Company Situation Analysis

The Key Questions 1. How well is firm’s present strategy working? 2. What are the firm’s resource strengths and weaknesses and its external opportunities and threats? 3. Are firm’s prices and costs competitive? 4. How strong is firm’s competitive position relative to its rivals? 5. What strategic issues does firm face?

1. How well is the firm’s strategy working? a. Determine current strategy of the firm. How well has the firm achieved its financial and strategic objectives? b. Examine key indicators of strategic and financial performance c. Is the firm above-average industry performer

What is the current strategy Identify competitive approach - Low-cost leadership - Differentiation - Focus on a particular market niche Determine competitive scope - Stages of industry’s value chain - Geographic coverage - Customer base Identify functional strategy Examine recent strategic moves

INDICATORS Trend in market share Trend in profit margin Trend in net profit, ROI, EVA etc. Overall financial strengths and credit rating Stock price and market value added Growth in sales Image and reputation with customers Leadership position in technology, product innovation, product quality, customer service

2. What are the firm’s resource strengths and weaknesses? SWOT analysis Strengths : Skill or important expertise Valuable physical assets Valuable human assets Valuable organizational assets Valuable intangible assets Competitive capabilities Alliance and cooperative ventures

Weaknesses and resource deficiencies Some strengths are competitively more important than others. Similarly some weaknesses can be highly damaging to the firm

Internal Analysis (IFE) Five-Step Process: List key internal factors (10-20) Strengths & weaknesses Assign weight to each (0 to 1.0) Sum of all weights = 1.0 © 2001 Prentice Hall

Internal Analysis (IFE) (Cont’d) Five-Step Process: (Cont’d) Assign 1-4 rating to each factor Firm’s current strategies response to the factor Multiply each factor’s weight by its rating Produces a weighted score © 2001 Prentice Hall

Internal Analysis (IFE) (Cont’d) Five-Step Process: Sum the weighted scores for each Determines the total weighted score for the organization Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5 © 2001 Prentice Hall

Internal Factor Evaluation (IFE) Matrix Strengths Weight Rating Weighted Score Comments Quality culture .30 4 1.20 Key to success Experienced Top Mgmt .15 3 0.45 skillful Employee relation .25 1.00 Quality product Weaknesses Low R&D .10 2 0.20 Slow inv Distribution .20 1 Low sales 3.05

Hotel ABC .15 3 .05 Financial ratios Reputation as family-friendly .20 4 Long-range planning Customer services Adequate facilities Strong management team .60 Owns property in the heart of city Increasing free cash flows .40 .10 Room occupancy rates over 95% Largest Hotel in the country Weighted score Rating Weight Hotel ABC Internal Strengths

Hotel ABC 2.75 1.0 TOTAL (including Strengths) .10 1 Labour relations Networking and external relations 2 .05 Family reputation Little diversification Most properties located in city only Weighted score Rating Weight Hotel ABC Internal Weaknesses © 2001 Prentice Hall

Internal Analysis (IFE) (Cont’d) Hotel ABC(in the previous example), has a total weighted score of 2.75 indicating that the firm is above average in its overall internal strength © 2001 Prentice Hall

SWOT MATRIX Internal External Strengths (S) (5 -10 factors) Weaknesses (W) (5 – 10 factors) Opportunities (O) (5- 10 factors) SO strategies to take advantages of opportunities WO strategies To take advtg. of opportunities by overcoming weaknesses Threats (T) ST strategies To avoid threats WT strategies To minimise weaknesses and avoid threats