What is the importance of assessing the internal organization strategic management?

Strategic Management - Importance of Internal Factor Analysis

Importance of Internal Factor Analysis

1. Internal factor analysis helps to analyze its resources and functional strengths and weaknesses.

2. Internal factor analysis helps to understand the factors and work upon those factors so as to gain competitive advantage, growth, and profitability in the firm.

3. Internal factor analysis helps to internally assess the organization and formulate, implement, and evaluate the strategic plan and cross-functional decision so as to achieve the company's primary objective of above-average return and competitive advantage.

4. Internal factor analysis explains the company's available resources or ease of access to resources and whether those resources are rare, easily, or hardly imitable, and whether substitute available or not. Resources are defined by their type, nature, and amount. Internal factors analysis helps to understand the organization internally and with a clear understanding of its competencies and capabilities that are distinctive from other competitors.

5. Internal factors analysis not only helps to understand its strengths and weaknesses, but it also helps in gathering, analyzing, assimilating, and distributing those resources effectively and efficiently.

6. Internal factors analysis helps in understanding its past trends and activities and understanding the room for improvement.

Some Major Internal Factors that Need to be Considered When Designing A Strategic Plan

Functional departments such as Marketing, finance, MIS, human resource, research and development, and production/operation are the major internal factors that need to be considered when designing a strategic plan.

1. Marketing- It is the only department that looks at earning money whereas other departments spend. Marketing is required for advertising activities, customer analysis, customer acquisition and retention, and understanding market trends and activities, demand, opportunities creation, branding, etc.

2. Finance- It is important to understand the transaction of money, investment, capital requirements, etc. Accounting helps to understand the overall health of an organization in terms of monetary matters. It helps in ratio analysis, cash inflow, and outflow analysis, etc. It looks at how to spend money on the necessary area.

3. Operations- It looks at the operations of daily activities and the production of products of an organization. It looks at process, inventory, quality, quantity, etc.

4. Research and development- It looks at the research of products/services in the marketplace such as its demand, trends, customer analysis, market analysis, product analysis, etc.

5. Human resource- It helps in analyzing the work done by the employees, hiring strategies, training, motivation, salaries, benefits, and others considered.

These functional areas are important for designing a strategic plan for an organization. This analysis helps in understanding the strengths and weaknesses of the firm and also helps in improving, evaluating, and controlling by understanding any mistakes or changes required in an organization. It helps to formulate strategy in an effective way and develop a vision and mission statement, establish long-term objectives, and generate, evaluate, and select strategies. These internal factors assessment of resources and functional help in designing a proper strategic plan.

Internal Factor Analysis Summary

1. Internal factor includes resources and function of an organization such as Marketing, finance, human resource, production/operation, research and development, and management information system.

2. The internal factor can be controlled and influenced.

3. Internal factor looks at their own strength and weakness and then look at external factors by identifying opportunities and threats.

4. Internal factor analysis helps to establish long-term objectives, generate, evaluate, and select strategies i.e. strategy formulation.

“Regularly scheduled maintenance” for an organization

An internal assessment is an often forgotten, but in our experience, essential part of an organization’s strategic plan (see where it fits in the planning process in our article titled The Components of an Effective Strategic Planning System). A strategic plan is the key tool for growing an organization whether in market share, sales, profitability, excellence in service, etc. However, growth can outstrip an organization’s ability to perform to the extent that each new unit of product or service actually costs or loses money vs. bringing in profit. The speed, volume and effectiveness of an organization’s growth are direct products of its health. And the health of an organization is determined in a well-conducted internal assessment.

Consider your car. A typical vehicle is built to drive 200,000+ miles. However, that distance changes dramatically based on how the car is taken care of. Fail to provide regular needed maintenance, and you find yourself with costly repairs or perhaps even a vehicle beyond repair.

The same is true for your organization. The leadership may be organized, innovation plentiful, financing in place…but if the organization is not healthy, growth will slow or seize up, just like an automobile engine. That is the purpose of an internal assessment – to identify and plan out the needed “maintenance” of the organization so that it can continue to move toward its vision..

Consistency is essential

Consistency in the quality of both your product/service and your customers’ experience is key to maintaining and gaining market share. Can your organization deliver consistently high quality results? The internal assessment begins with an evaluation of the organization’s infrastructure, systems, processes, human resources and culture. Following the evaluation is development of a plan to correct any issues that are uncovered.

Stabilizing the quality of execution and growing infrastructure to keep pace with growth of sales is vital to maintaining market share or unit profitability as you grow. This is as true for non-profit organizations as it is for-profit ones. No matter the ownership structure or purpose, a single negative customer experience gets shared multiple times with damaging effects. Overburdened staff, last minute purchases, delays due to system inadequacies and, generally, not managing growth can have long-term negative impacts. Alternatively, a high functioning organization with consistency in quality throughout is an organization that can carry out its strategies for growth and move toward its vision.

Leadership has a blind spot

Ever heard of a scotoma? A scotoma is a blind spot, something you simply cannot see. It is our experience that CEO’s, and often the whole executive team, do not know the true condition of their organization. They have a scotoma based on the angle from which they view the organization. They simply can’t see all the issues. Employees are wondering, “why don’t things get better?” The answer is because management doesn’t recognize the problem. In short, they don’t know the whole truth. The statement is true that “It is not what you don’t know that is killing you, it is what you think you know that you don’t.” When leadership “thinks it knows”, they miss problems that could be easily fixed.

Consider again our car analogy. If each time the “check engine” light were to come on, you added a little oil and kept on driving, eventually the loose belt, low tire pressure or leaking fluid that really was the trigger for the light would erupt into a much bigger problem. Management often reacts similarly, attacking the symptoms of underlying problems rather than the underlying problems themselves. A good internal assessment includes tools that dig down to the source of problems, rather than the symptoms.

What issues should you expect?

What kinds of issues typically surface in an internal assessment? We have done hundreds of internal assessments as part of our Vision Navigation® strategic planning process. I recently had our staff compile results from those assessments, and here is what we have found.

1. 44% of the assessments included HR and training/development issues (e.g. evaluations, unacceptable turnover, lack of training)
2. Just over 25% of the assessments we studied included poor or unclear organizational structure as an issue
3. Just over 25% included internal communications as an issue
4. Just over 15% included lack of clear vision and many of these organizations had strategic plans. They just weren’t communicated to the troops. (To learn more about communicating your plan, view our article on Capturing More Value from Your Strategic Plan)
5. Lack of alignment between management and governing boards or owners is another theme. Surprisingly, if it exists, it is well known in the rank and file and has a damaging impact upon morale.

The specifics for each organization are different, but the major themes were very consistent across the board.  Utilizing an internal assessment to understand what the real issues are in the organization and their cause is essential to growing an organization successfully.

How do you fix the issues?

When the internal assessment reveals key issues to be worked on, what is next? The answer is, it depends. Strategic plans are about allocation of scarce financial and management resources that can be applied to change versus maintaining existing operations. A good plan should be a balance of investment to bring about growth and investment to improve performance. The proper balance depends upon the condition of the organization. Some issues may get tabled for the year while others clearly must be resolved in order for the organization to move forward.

Using the analogy of a ship, one client CEO announced to his board after completing an internal assessment, “We are not fit to set sail. I need at least one year in dry dock to get her fixed. We are not now capable of executing any new growth strategy. We would sink if we did”. On the other hand, if your infrastructure and corporate culture are sound, you are poised to focus on opportunities in the marketplace that will fuel growth.

What is the process?

An effective internal assessment includes input from all viewpoints in the organization. Maybe not all employees, but all levels of employees. Your first step should be to gather input from throughout the organization on the issues or challenges associated with optimizing the organization, i.e., the issues that keep the organization spinning its wheels. Once the list is complete, group similar issues then prioritize the remaining list based on which potential solutions have the greatest leverage for overall improvement. Make sure you are not reacting to pain but finding root causes and solving them. In other words, priority should fall to fixing issues that are creating other problems down the line. Look for leverage and root cause when you select issues to work on, and you will create the biggest positive impact on the organization

Want help?

We believe strongly in the value of an internal assessment, and therefore have built one into our Vision Navigation® strategic planning process. Learn more about that process here and contact us when you are interested in seeing what value it might have for your organization. We can also look with you at the value of completing only an internal assessment to identify and plan out the fixes to your biggest issues. E-mail us if you are interested.

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