1. GENERAL FRAMEWORK FOR INTERNAL ANALYSIS
Company Situation Analysis

2. 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?

3. 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

4. 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

5. 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

6. 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

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

8. 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

9. 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

10. 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, Average = 2.5
© 2001 Prentice Hall

11. 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

12. Hotel ABC .15 3 .05 Financial ratios Reputation as family-friendly .204
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

13. 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

14. 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

15. 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