An internal analysis consists of the identification and evaluation of the different factors or elements that may exist within a company.
Conducting an internal analysis has as objective to know the resources and capacities with which the company counts and to identify its strengths and weaknesses, and thus to establish objectives based on said resources and capacities, and to formulate strategies that allow to strengthen or to take advantage of said strengths, and Reduce or overcome such weaknesses.
Companies often conduct an internal analysis together with an external analysis when carrying out strategic planning, or when they need to conduct an investigation that allows them to find the solution to a problem; However, due to the high competition of today, for a company to remain competitive, it is advisable to do this task permanently.
There are several ways to do an internal analysis. One common way is to make use of the value chain tool, and another is through the following process:
1. Determine information to collect
First we determine the information about the different factors or elements that may exist within the company and that can give us an idea of the resources and capacities with which it counts, as well as its strengths and weaknesses and that, therefore, we will To collect.
In the administrative area we could, for example, gather information on objectives, strategies, policies, culture, values, structure, planning, organization, direction, control, etc.
In the area of sales marketing, target audience, product, price, distribution, promotion, advertising, customer service, customer loyalty, etc.
In the area of accounting and finance on liquidity, financing, profitability, working capital, assets, liabilities, equity, cash flow, etc.
In the area of human resources on hiring, training, remuneration, incentives, labor relations, leadership, motivation, performance, etc.
In the area of production on layout of plant, acquisition of inputs, stock control, subcontracting, production efficiency, technology, etc.
2. Determine sources of information
Once we have determined the information we are going to collect, we proceed to determine the sources from which we are going to obtain such information.
Examples of sources of information for internal analysis are financial statements, past audit results, internal publications, reports or reports, and the company’s own employees.
3. Collection of information
Once we have determined the sources of information to which we will turn, we proceed to perform the task of collecting the information; For example, we proceed to review the financial statements, to prepare financial ratios, to read the reports or reports, to interview our workers, etc.
When doing an internal analysis it is advisable to involve as many members of the company as possible; At least, with regard to this stage of information collection, since this will allow us to get them to better understand the operation of their areas and the relationship of these with the others, and to feel committed to the company.
4. Evaluation of information
Once we have collected the required information, we proceed to evaluate it in order to know the resources and the real capabilities of the company, as well as to identify its main strengths and weaknesses.
The strengths allow the company to have a high level of competitiveness, while the weaknesses hurt the achievement of the objectives.
Some examples of strengths and weaknesses that we could identify are:
In the administrative area:
-Clear and measurable goals.
-Good communication system.
-Lack of planning.
-Function description unclear.
-Lack of adequate control measures.
In the area of marketing:
-A positive image for consumers.
-Good customer service.
-Effective advertising and promotion strategies.
-Lack of market research.
-Poor distribution channels.
-Inability to innovate.
In the area of accounting and finance:
-Sufficient working capital.
-Good level of indebtedness.
-Trained and experienced finance managers.
-Lack of liquidity.
-Little access to funding sources.
-Profitability below the industry average.
In the area of human resources:
-Priority to teamwork.
-Low level of absenteeism.
-Workers identified with the company.
-Lack of leadership.
In the production area:
-Good quality raw material.
-Good inventory control.
-Obsolete machines and equipment.
-Poorly located facilities.
-Difficulties in increasing productive capacity.
At this point, it is advisable to make a list in order of importance with the strengths and weaknesses detected, placing the most important strength and / or weakness at the top of the list for better goal setting and strategy formulation.
5. Establish objectives and formulate strategies
Finally, once we have evaluated the information collected and have known the resources and capabilities that the company has, as well as identified its main strengths and weaknesses, we proceed to set goals and formulate strategies.
We establish objectives considering the resources and capacities that the company has, and formulate strategies that allow us to strengthen or take advantage of strengths, and reduce or overcome weaknesses; But also considering the resources and capabilities of the company.