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Internal & external analysis, what is an internal and external analysis.

An internal and external strategic analysis refers to reviewing your organization’s current state from an internal and external perspective. The output of completing an internal and external analysis – also known as a strategic analysis – is to have a clear picture of your organization’s current state.

How does a strategic analysis fit into strategic planning?

Before any organization jumps into the core of strategic planning process, it’s vital to clearly understand where your organization is today . Without clearly defining where you are today (your current state), you can’t define your bold destination of the future (vision) or create the roadmap to get there (your annual strategic plan).

Completing an internal and external analysis lays the groundwork and foundation for the bones of your strategic plan, influencing everything from your competitive advantages, growth strategy, and major themes that influence your entire strategic plan’s framework.It also helps you better understand the gaps you need to overcome to reach your future goals.

Pro Tip: DO NOT SKIP THIS STEP IN PLANNING! It may seem tempting to skip things like your SWOT, completive analysis, and strategic market analysis, but don’t do it! Build a plan that helps you go from where you are today to a bold place in the future.

What is the output of an internal and external analysis?

The result or output from this work should be a fully fleshed-out current state analysis for your organization’s growth. This should include:

• What you’re best at, and what you need to improve upon.
• Your clearly defined competitive advantages.
• Areas of market opportunity or growth opportunity to pursue.
• A clear understanding of your competitors and what they’re best at.
• Strategic themes to use as the framework for your plan.

Analyzing Your Internal Factors

What is an internal analysis.

An internal analysis examines your organization’s core competencies today that are influenced by internal factors – factors that are not driven by external market dynamics. This analysis would look at the organization’s strengths and weaknesses in meeting the needs of your customers or stakeholders

As you dive deeper into an internal analysis process, you will examine internal factors that give an organization advantages and disadvantages in meeting the needs of its market, customers, partners, and even employees. Any analysis of company strengths should be market-oriented/customer-focused because strengths are only meaningful when they assist the firm in meeting customer needs.

Internal Factors to Consider

An internal analysis can look at all internal factors affecting a company’s business performance. Here are the three most common factors to consider as you conduct your internal analysis:

Your Organization’s Resources

A good starting point to identify resources is to look at tangible and intangible resources available to your organization.

Tangible resources are the easiest to identify and evaluate financial resources, and physical assets are identified and valued in the firm’s financial statements.

Intangible resources are largely invisible, but over time become more important to the firm than tangible assets because they can be a main source of competitive advantage. Such intangible resources include reputational assets (brands, images, etc.) and technological assets (proprietary technology and know-how).

Your Organization’s Capabilities

Organizational capabilities are used to refer to a firm’s capacity for undertaking a particular productive activity. Our interest is not in capabilities per se but in capabilities relative to other firms. We will use the functional classification approach to identify the firm’s capabilities. A functional classification identifies the organizational capabilities of each of the principal functional areas.

Your Human Resources (Employees)

Technically, this could fall underneath your organization’s resources, but it’s worth separating human resources into its own category. After all, without your organization’s human capital, you wouldn’t exist!

Data to Use in an Internal Analysis

Before you conduct your internal analysis, we recommend collecting the following as references:

Employee Surveys

What do your employees say your organization does well, and where must you improve? Surveys need to be from within the previous 12 months!

Customer Surveys

What do customers love most about your organization, product, or service? How do you best meet their needs? Again, these surveys must be from within at least the previous 12 months.

Business Strategy of Record + Current Performance

Having your previous strategic plan and performance data to reference is always helpful as you complete your strategic internal analysis process.

List of Resources

Your tangible and intangible resources may directly influence your internal strategic strengths, weaknesses, problems, constraints, and uncertainties.

A List of Capabilities

Capabilities [or lack of capabilities] are helpful to reference and identify internal strategic strengths, weaknesses, problems, constraints, and uncertainties.

Questions to Consider for Your Internal Analysis

• What do you do best?
• What do we do best?
• What do our customers value most from our organization?
• How do we uniquely serve our customers?
• What are our company resources – assets, intellectual property, and people?
• How are we using our resources well?
• Where do we need to be more efficient?
• How do our employees or shareholders perceive us?
• How are we meeting our employees’ needs?
• What are our organization’s core capabilities?
• What do we need to improve upon?

Tools to Conduct Your Internal Analysis

Swot analysis.

Conducting a SWOT analysis is easily the most common approach to completing an internal analysis. SWOT stands for strengths, weaknesses, opportunities, and threats. The internal component of a SWOT analysis specifically looks at your organization’s core strengths (S) and weaknesses (W).

Pro Tip: A SWOT’s S and W portion is directly influenced by your organization’s internal factors – meaning factors you can directly influence. You can check out our full post on SWOT analysis here and download the free SWOT analysis guide here .

VRIO Framework

The VRIO framework is an internal analysis tool designed to help you identify your organization’s competitive advantages.

The VRIO analysis too helps you evaluate if a core strength, capability, or resource is a competitive advantage by assessing if that strength is valuable to your market, rare in competition, hard to copy, and organized to act upon.

Pro Tip: The VRIO framework evaluates internal strengths but needs external strategic analysis of your competition. So, it uses internal and external factors to help you identify your competitive advantages.

Download our Free VRIO Template and Examples!

What is the Output of an Internal Analysis?

There are a few important outputs from an internal analysis that help create the foundation of your business strategy formulation and direction:

• Output #1: A clear list of internal strengths and internal weaknesses of an organization.
• Output #2: Strategic issues to address (from an internal perspective).
• Output #3: A list of strengths to use as fodder for your competitive advantages (you’ll need to use these paired with a competitive analysis to identify competitive advantages).
• Output #4: Themes to use in your strategic framework and strategic planning objectives.

Analyzing Your External Factors

An external analysis examines the external factors and forces that impact your organization’s operating environment. External factors, by nature, exist beyond the walls of your organization and internal environment. They are forces and dynamics beyond your control, but still, impact your organization level and position in the marketplace.

Pro Tip: A helpful way to think about external forces is to ask, “would this be an issue or opportunity even if our organization did not exist?” If yes, it is an issue that is an external force.

The goal of these exercises is to identify external opportunities, threats, trends, and strategic uncertainties.

External Factors to Consider

An external analysis can be used to look at all external factors affecting a company. Here are the three most common factors to consider as you conduct your external analysis:

Market Trends

Market-level data, including overall size, projected growth, profitability, entry barriers, cost structure, distribution system, trends, and key success factors in your competitive market.

Industry Data and Trends

This data looks at what’s happening in your industry, including factors like vendors, suppliers, competitors, and buyers’ power.

Operating Environment Trends

This looks at global forces, demographic changes, political winds, ecological and natural issues, technological trends, economic factors, and social/cultural shifts. This is most often completed using a PESTLE analysis.

Data to Use in External Analysis

Industry and market reports.

What are important and potentially important markets? What are their size and growth characteristics? What markets are declining? What are the driving forces behind sales trends? Who competes in your market, and what is their market share?

Market Profitability Projections

For a holistic strategic analysis of your major market, consider the following factors: Is this a business where the average firm will make money? How intense is the competition among existing firms? Evaluate the threats from potential entrants and substitute products. What is the bargaining power of suppliers and customers? How attractive/profitable is the market now and in the future?

Cost Structure

What are the major cost and value-added components for various types of competitors?

Supplier and Distribution Data

What’s happening in your supply chain market? What are the alternative channels of distribution? How are they changing?

Operating Environment Factors

The interest is in environmental analysis and events that have the potential to affect strategy. This analysis should identify such trends and events and estimate their likelihood and impact. When conducting these types of strategic analysis, it is easy to get bogged down in an extensive, broad survey of trends. It is necessary to restrict the analysis to areas relevant enough to impact strategy significantly.

• Economic: What economic trends might have an impact on business activity? (Interest rates, inflation, unemployment levels, energy availability, disposable income, etc)
• Technological: To what extent are existing technologies maturing? What technological developments or trends are affecting or could affect our industry?
• Legal Forces: What changes in regulation are possible? What will their impact be on our industry? What tax or other incentives are being developed that might affect strategy development? Are there political or governmental stability risks?
• Sociocultural: What are the current or emerging lifestyle, fashion, and culture trends? What are their implications? What demographic trends will affect the market size of the industry? (i.e. growth rate, income, population shifts) Do these trends represent an opportunity or a threat?

Questions to Consider for Your External Analysis

Assessing Your Marketing (External Factors):

• What is happening externally and internally that will affect our company?
• Who are our customers?
• What are the strengths and weaknesses of each competitor?
• What are the driving forces behind sales trends?
• What are important and potentially important markets?
• What is happening in the world that might affect our company?

Assess Your Competition (External Factors):

• How are we different from the competition?
• How are our competitors winning?
• How are our competitors losing?
• What does our competition do better than us?
• How do we best serve our market/customers?
• What competitive moves can we make against our competitors?

Tools to Conduct Your External Analysis

Pestle analysis.

A PESTLE analysis is an external analysis tool that helps you determine how your business or organization stands up against external, macro-level external environment factors that could impact your business. It is an acronym for Political, Economic, Sociological, Technological, and Environmental factors. These are the core areas in the operating environment that could affect the success of an organization the most.

However, it is not enough to just name the external factors that could impact your organization. You must determine whether these factors will primarily pose an opportunity or a threat to your organization’s growth.

Download our Free PESTLE Template and Examples!

As we said earlier, a SWOT analysis is the most common approach to finishing your external analysis. To complete the external analysis portion of the SWOT, you’ll examine Opportunities (O) and Threats (T).

Pro Tip: A SWOT’s O and T portion is directly influenced by your organization’s external factors – meaning factors you can’t directly influence. You can check out our full post on SWOT analysis here and download the free SWOT analysis guide here .

Competitor Analysis-

Your competitor analysis will look at three different types of competitors:

• Direct competitors (those in your direct market space and always listed with you in a customer shortlist).
• Indirect competitors (those who aren’t quite in your same market sphere, but who you should still watch out for as indirect competitors could become direct).
• Substitutes or new entrants (those who may have alternative products or who are not quite at your level as to be considered direct competition).

Identify Competitors

• Against whom do we compete?
• Who are our most intense competitors? Less intense?
• Makers of substitute products?
• Can these competitors be grouped into strategic groups based on assets, competencies, or strategies?
• Who are potential competitive entrants?
• What are their barriers to entry?

Evaluate Your Competitors

• What are their objectives and strategies?
• What is their cost structure? Do they have a cost advantage or disadvantage?
• What is their image and positioning strategy?
• Which are the most successful/unsuccessful competitors over time? Why?

What is the Output of an External Analysis? Why is it Important in Strategic Planning?

Completing an external analysis helps your organization identify opportunities, headwinds, and tailwinds as you build your organization’s core strategy, approach to growth, and moves you can make against your competitors.

Here are the four common outputs from completing an external analysis.

• Output #1: Clear market opportunities to use as part of your growth strategy.
• Output #2: Identify areas of headwinds that will work against your organization.
• Output #3: Your competitive advantages.
• Output #4: Competitive moves you could make against your competition.

Strategic Analysis Process: Pulling Together Your Internal and External Analysis

After you finished analyzing your internal and external environments, it’s important to pull it all together as a final product for your strategic plan.

A complete strategic analysis looks like this:

• Synthesized internal strengths and weaknesses.
• Identified competitive advantages.
• Competitive moves you can make against your competition.
• Headwinds and tailwinds for your market.
• External forces that might impact your organization.
• A clear set of opportunities to use in your growth strategy.

Pulling together a Current State Summary

Once you’ve completed your internal and external analysis, pulling together a current state summary is helpful. This summary captures your current state of the organization and is usually about 3-4 sentences long.

It’s designed to create an objective summary of your organization – where you are today – to include external environment and internal forces impacting your performance.

Quality Check – How You Know You Got it Right

A complete strategic analysis should meet the following requirements:

• Are there clear key components or themes from the SWOT that capture where we are today?
• What are the key shifts we have seen over the past few years (internally or externally) that define our current state?
• What have we learned from the internal and external analysis that is critical to address in the strategic plan?

SWOT – The Most Common Internal and External Analysis Tool

We’ve already mentioned this, but completing a SWOT is the most common exercise to complete both an internal and external analysis. Check out the video, SWOT analysis post, and the free downloadable guide .

An internal analysis looks at the factors that are happening internally in your organization. They evaluate your company’s strengths and weaknesses, taking into account things like resource management and employee performance.

An external analysis would look at the things surrounding your macro- and micro-operating environment such as a competitor analysis and a PESTLE analysis.

You could use one or the other, but it won’t give you the full picture of what your organization is up against or the moves you need to make to ensure you’re shoring up your strengths and fixing your weaknesses. Doing both an internal and external analysis, even in the form of a SWOT matrix, will help you get a full picture of your position in your market. It is highly recommended you do both by utilizing at least one internal analysis tool and one external analysis tool.

Conducting an internal and external analysis is important to conduct and organize before you begin your strategy planning as it allows you to identify and assess your own strengths, weaknesses, and competitive advantages, as well as identify the external factors that may become obstacles in your strategic growth or opportunities for strategic growth.

16 Comments

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Internal Analysis: What Is It & How To Conduct One

What Is Internal Analysis?

An Internal Analysis is the process of an organization examining its internal components to assess its resources, assets, characteristics, competencies, capabilities, and competitive advantages. This helps management during the decision-making , strategy formulation, and execution processes by identifying the organization's strengths and weaknesses.

Simply put, an Internal Analysis enables a firm to determine what it can do, increasing internal capability to manage execution and change.

An Internal Analysis in strategic management should serve as the foundation of any business strategy , and we’ll show you how to conduct one and which tools you have at your disposal to conduct an internal assessment in strategic management.

After you’ve conducted your analysis, use our free customizable Internal Analysis Strategy Template to build your strategy. This ensures seamless alignment with the insights derived from your strategic analysis.

⚠️ Remember: strengths don't win alone! Knowing your company's inside-out is crucial, but strategy requires action. Cascade Strategy Execution Platform bridges the gap between assessment and execution. Talk to our experts to transform your internal analysis into a winning plan that leverages your strengths and tackles weaknesses.

Internal Analysis tools we’ll cover:

• Gap Analysis
• Strategy Evaluation
• SWOT Analysis
• VRIO Analysis
• McKinsey 7S Framework
• Core Competencies Analysis
• + Download our Free Internal Analysis Toolkit ! This contains Excel templates of all of the above tools!

Why Conduct An Internal Environment Analysis?

An Internal Analysis highlights an organization's strengths and weaknesses in relation to its competencies, resources, and competitive advantages.

Once complete, the organization should have a clear idea of where it's excelling, where it's doing okay, and where its current deficits and gaps are. The analysis gives management the knowledge to leverage the company’s strengths, expertise, and opportunities. It also enables management to develop strategies that mitigate threats and compensate for identified weaknesses and disadvantages.

When your business strategy is based on real findings and not assumptions, you can be confident that you're funneling your resources , time, human capital, and focus effectively and efficiently.

How To Conduct An Internal Analysis In 5 Steps

Conducting an Internal Analysis doesn't need to be as difficult as it seems (especially when you have our Internal Analysis Toolkit at your disposal).

1. Set the goal

The first step is to set the goal, this is essentially the answer as to why you're conducting an Internal Analysis. For example, the desired outcome of your Internal Analysis could be to ideate the UI direction for a new product.

👉🏻 This goal helps you remain focused during the following steps.

2. Pick a template framework

The second step is to download our Free Internal Analysis Toolkit and choose the Internal Analysis Framework Template most aligned with the problem you're trying to solve and your goal.

🔜 We’ll get more into the details of each framework in the next section to help you understand which one is the best fit!

3. Data collation

Use all internal sources to collate information to assist in achieving your goal. In the context of our example from above, research would include interviewing customer success managers, engineers, etc, to gain a better understanding of the gap between the current and desired future state of the UI.

4. Framework time

Now you take into account all of the data you collected from your research and execute it in the chosen framework. Once you have completed the framework, leverage the insights to best answer the question of why you conducted an Internal Analysis.

5. Create your plan

Once you have answered that question, take the insights and create a strategic plan that enables you to reach that initial goal. So in the case of our goal, to ideate the UI direction for a new product, the vision statement in our strategic plan could be something like, to create a seamless UI that improves user experience through increased retention time.

👉🏻 Here’s when you can use our free Internal Analysis Strategy Template that will allow you to build a strategic plan to execute the new insights you’ve learned.

Internal Analysis Tools

Before conducting an internal analysis, you need to decide what tools you will use. There are many tools and frameworks , and each one can be valuable—but each one is also best for a specific purpose. The role played by Internal Analysis in strategic management is key to organizations having a robust strategy.

To help you choose the right framework, we've compiled a list of some of the most popular and effective ones, together with descriptions of what they’ll help you achieve.

GAP analysis

GAP analysis is an evaluation tool that allows organizations to identify performance deficiencies and internal weaknesses.

It’s a simple and practical framework. It helps you compare your current organizational state to your desired future state. It helps you identify and understand the gaps between the two states and makes it easier to create a series of actions to bridge those gaps.

GAP analysis helps management identify if their organization is performing to its potential, and if not, why. In addition, it helps to pinpoint flaws in the company resource allocation , planning, production, etc.

Why choose the GAP analysis framework

While other internal analysis tools, such as SWOT analysis, offer a more comprehensive study of the internal environment, GAP analysis is a better framework for fine-tuning a single process (or a selected few) instead of the company as a whole.

📚 Read more about GAP analysis here !

Strategy evaluation

A strategy evaluation analyzes the results of a strategic plan's implementation .

It's useful to conduct a strategy evaluation regularly to see if everyone understands and acts according to your business strategy. You might want to conduct such an evaluation every six months, every year, or after a revamped business strategy implementation. It mostly depends on the number of changes you’re trying to implement.

The strategy evaluation process involves looking back at the goals of your strategic plan and assessing how well your strategic management initiatives fared in achieving them.

Why choose the Strategy evaluation framework

Strategy evaluation shows how your strategy implementation process fares against “business as usual”. You might have created a great strategic plan, but it's of no use if it’s not being executed.

👉🏻 Use this framework to align your strategy with your company’s culture.

SWOT analysis

SWOT analysis is one of the better-known and most commonly used business analysis frameworks.

It’s popular due to its simplicity (it covers both internal and external analysis) and its efficacy. Its name is derived from the four factors that form the SWOT matrix:

• Internal strengths
• Internal weaknesses
• External opportunities
• External threats

SWOT analysis can uncover a sustainable niche in your market and grow your market share. It allows organizations to discover external opportunities they can exploit while simultaneously identifying internal factors that cause weaknesses. It also helps to reduce the risk of impending possible threats.

Here’s a simplified Internal Analysis example of Starbucks ’ SWOT:

• Global leader in coffee and beverage retailing.
• Strong brand equity and great brand recall.
• One of the largest coffee houses globally, which allows it to price its products for the middle-income group.
• Heavy dependence on coffee beans.
• Criticized in the past for procuring coffee beans from impoverished third-world farmers.
• The price is still costly for many working consumers.

Opportunities

• Should expand to the tier-II cities of the emerging countries in order to further increase its customer base.
• Should expand its product portfolio to venture into the full spectrum food and beverage business.
• Profitability is always at the mercy of the rising prices of coffee beans and the supply network.
• Strong competition from the local coffeehouses and specialty stores that offer similar products at a cheaper price.

Starbucks or any company can then use such analysis to develop strategic alternatives that will help it meet its goals by minimizing the company’s weaknesses and threats and leveraging business opportunities and strengths.

Why choose the SWOT analysis framework

It helps organizations distinguish themselves from competitors by understanding their unique capabilities and sources of competitive advantage, which can help them compete in their given marketplace.

👉🏻 If SWOT analysis seems like the framework you need, check out our SWOT template here .

VRIO analysis

The VRIO framework is a great tool for assessing an organization's internal environment.

It looks at an organization's internal resources and categorizes them based on the overall value they contribute to the organization. VRIO is a framework that helps you create sustainable competitive advantages.

It enables you to identify your unique strengths and transform them from short-term competitive edges into sustainable performance drivers.

📚 Our VRIO framework guide shows you exactly how to do it.

Why choose the VRIO analysis framework

If you're looking to develop a strategy that builds on your organization's competitive advantage, VRIO analysis is the tool you need. It will give you a deeper understanding of your assets and your organization’s added value.

👉 Use your free VRIO strategy template that will help you to develop and execute a strategy based on your VRIO analysis.

The Organizational Capacity Assessment Tool was designed for non-profit organizations looking to analyze their internal environments.

OCAT assesses how well your organization performs across the following 10 internal dimensions::

• Aspirations
• Leadership, Board & Staff
• Marketing & Communications
• Business Processes
• Infrastructure & Organizational Structure
• Culture and shared values
• Innovation and adaptation

The results of the assessment help non-profits evaluate and improve their organizational capabilities.

Why choose the OCAT framework

OCAT dives deeper into organizational structure and internal state than most other frameworks. Its power lies in translating organizational capacities into strategies that boost organizational performance to a new level.

McKinsey 7S framework

Another popular and battle-tested tool is the McKinsey 7S Framework .

McKinsey 7S is ideal for organizations looking to determine the state of alignment between departments and processes. The model can assess an organization's current state compared to a desired future state and evaluate the gaps and inconsistencies between them.

McKinsey 7S prompts you to analyze seven internal aspects that should be aligned if your organization is to reach its full potential. These seven aspects are:

• Shared Values

Why choose the McKinsey 7S framework

This framework provides an honest view of the organization’s internal alignment . It examines various internal elements, from the company’s culture to its staff, leadership capabilities, and process efficiency.

📚 Read more about the McKinsey 7S framework in our article .

Core competencies analysis

The core competencies analysis helps organizations shape their unique advantage, which can help them overtake the competition.

The basic premise of the analysis is to identify the organization's core competencies —the combined resources, knowledge, and skills of an organization that provide unique value for its customer. Once an organization has identified its core competencies, it can implement strategies that focus specifically on its strengths and the added value it provides.

Why choose the Core competencies analysis framework

Compared to other types of analyses, this one puts a greater emphasis on intangibles instead of focusing solely on tangible resources. It focuses on unique advantages that also make strategic sense.

👉🏻 Check out this article to learn how to perform a core competency analysis.

📚 Learn about other competitive analysis frameworks in our article— 6 Competitive Analysis Frameworks: How to Leave Your Competition In the Dust

Are Internal Analysis & External Analysis Connected?

Internal environment analysis and external analysis are like yin and yang. Doing one without the other paints an incomplete and one-sided picture.

Evaluating the external environment , your market, and industry conditions highlight potential opportunities and threats. Evaluating the internal environment , company’s assets, and capabilities highlights organizational weaknesses and strengths.

🔀 Combining both findings gives you a broader perspective and a holistic picture of your organization's situation.

Both are needed if you want to create a winning business plan that takes into account internal and external factors.

When should you conduct Internal and External Analysis?

Internal and external scans should always be done before you start developing your strategy. But even if you already have your strategy in place, you can use these tools to inform your strategy for the next iterations since they always provide interesting insights.

If you're in the process of creating a new strategic plan and have skipped this step, pause and complete the internal and external scans first. As the saying goes—better late than never. You can then confidently continue the strategy creation process and correct any potential misassumptions.

If you're unsure where to begin, great tools for conducting an external scan are Porter's 5 Forces and the PESTLE analysis framework. These frameworks will help you analyze your organization's environment, trends, and different external factors that will affect your profitability and growth prospects.

You'll then be able to adjust your strategy accordingly.

Internal Analysis Toolkit

Download our Free Internal Analysis Toolkit to get access to these convenient and structured templates that will help you to identify where you stand today and what gaps you need to close in order to achieve success.

Here’s what you will get inside this toolkit:

• One-pager guide that walks you through the toolkit
• Gap Analysis Template
• SWOT Analysis Template
• VRIO Analysis Template
• McKinsey 7S Framework Template
• Core Competencies Analysis Template
• Bonus gift  :)

Each template comes with instructions to guide you through the process. On top of that, all templates are in Excel format, so you can start using them straight away.

So, what are you waiting for? Download the toolkit and get started on your analysis!

💡 And remember! Once you’re done, use our free Internal Analysis Strategy template to build your strategic plan, ensuring you add the insights distilled from the Internal Analysis and align them to your business strategy.

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Summary. Internal analysis is a method for determining a company’s assets, opportunities, and threats. One of the most popular ways to conduct an internal analysis is to do a SWOT analysis which stands for strengths, weaknesses, opportunities, and threats. An internal Analysis is important because it acts as a check-up for your company’s health.

You can’t move your business forward if you don’t know where it is now, so it’s important to regularly complete an internal analysis to get a handle on its overall health.

In this article, you’ll learn about what an internal analysis is, why it’s important, and how to conduct one.

Key Takeaways

Companies perform internal analyses to determine their assets, opportunities, and threats.

There are a variety of internal analysis frameworks companies use, but the SWOT framework is one of the most common and overarching.

An internal analysis gives you an accurate view of your company’s health so you can remedy its weak spots and capitalize on its strong points.

What Is an Internal Analysis?

Why an internal analysis is important, 11 steps for how to conduct an internal analysis, internal analysis faq.

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An internal analysis is a method for determining a company’s assets, opportunities, and threats. It’s useful for identifying what has worked well and what could be modified to create a better result in the future.

There are varying structures that businesses can take on in conducting internal analysis to reach a useful conclusion. One of the most popular frameworks for conducting an internal analysis is a SWOT analysis.

SWOT stands for:

Opportunities

It is an overarching examination of how a company functions as a whole and the skills of the employees within it. This kind of analysis is useful for getting a comprehensive picture of your organization’s performance that can be used as a jumping-off point for evaluating more in-depth details.

This is the internal analysis framework that we’ll be focusing on in this article, but other frameworks that you could use include:

GAP Analysis

Strategy Evaluation

VRIO Analysis

McKinsey 7S Framework

Core Competencies Analysis

The internal analysis acts as a check-up for your company’s health. It gives key insights into the areas you are excelling in and tells you where there might be problems. Without conducting an internal analysis, you’re left in the dark, and that could make your company suffer dearly in the future.

You need details on your organization’s competency because it outlines opportunities for improvement and makes you aware of possible threats in advance. Your team can use this information to develop strategies for success and growth.

In addition to determining company cost and opportunity statistics, internal analysis establishes a baseline for individual employee competencies. This is important for evaluating their performance for strengths and weaknesses.

Once you’ve decided to use a process of internal analysis to gain into your organization’s abilities and potential threats, you next need to figure out what framework you’d like to use. If you have no prior standard for how your team is performing, it’s probably best to start with a SWOT analysis. This technique will gauge your overall strengths, weaknesses, opportunities, and threats.

Consider the following steps for implementing a successful SWOT analysis.

Outline an analysis strategy for each component. A SWOT analysis is broken down into four elements (strengths, weaknesses, opportunities, and threats). To comprehensively check all of these boxes, you’ll need to approach each component of the process individually. You’ll need a different mindset to assess strengths than weaknesses.

Determine an objective. Every analysis needs a question that’s looking to be answered. Before proceeding with a SWOT analysis, you need to think about what your team’s objective is.

Perhaps you’re interested in learning more about where your company is falling short in productivity so you can figure out a strategy for combating this issue in the future. Or, you want to consider opportunities for improving employee’s hard skills .

Conduct research. Research is a crucial part of conducting a successful internal analysis. You need to gather credible information about the industry standards before you can consider your business in relation to your competitors.

Conducting useful research for company evaluation can be done in a few ways. Using the old school method of search engines and local statistics can help get basic information on trends in the field. The news can also be helpful in a similar capacity.

Elect a facilitator. Electing a facilitator for your SWOT analysis is an optional step in the process. The benefit of putting a facilitator in charge of the proceedings is that they can provide an objective organization to the proceedings.

Brainstorm your company’s strengths. Once you’ve accomplished all the preliminary steps to completing a SWOT internal analysis, you can begin analyzing your team for each component of the process. The first element to start with is thinking about your company’s strengths based on your knowledge from research.

This stage of the process doesn’t have to be conclusive. Brainstorming a general list of what you believe your organization is doing well will be sufficient.

Strengths can refer to several things within your company. Individual employee’s impressive performance can be concluded as a strength. Having your business be in a location that sees lots of daily traffic is a broader company strength.

Some other examples of company strengths could include:

Leading in innovation

Financial resources

Product quality

Outstanding marketing

Discuss company weaknesses. While it may be a less pleasant subject matter than your organization’s strengths, it’s just as essential to discuss weaknesses during an internal analysis. Weaknesses are things that allow your competitors to get ahead of you and limit positive growth.

You should keep track of the weaknesses you uncover to assess your improvement in these areas over time. When you later resolve an issue that you discovered during an internal analysis, it can motivate your team to continue their efforts.

Examples of company weaknesses could include:

Poor customer service

Budgeting oversights

Lack of employee morale

Lack of consumer recognition

Bad quality products

Inefficiency

Consider opportunities for growth. The way a business grows is by considering the unique opportunities that its competitors haven’t utilized. They differ from strengths in that they suggest a course of action for attaining success, rather than qualities your team already possesses. Opportunities may be a little ambiguous and take some effort to foster success .

For example, your company could consider implementing a tuition reimbursement program into the benefits package for your employees to encourage your team to seek additional education. This can act as an opportunity for growth because it improves your team’s skills and increases employee satisfaction by supplying extra benefits.

Think about opportunities that are relevant to your industry that could potentially benefit your company.

Examples of opportunities include:

Creating an updated line of products

Breaking into a new market

Expanding your brand

Investment opportunities

Improving pricing and lowering costs

Assess possible threats. Threats are the external factors that can damage or hinder your business’s capacity for success. It’s best practice to get ahead of problems by considering them in advance while they’re still at this early threat stage. Your research should come in handy when discussing possible threats that could affect your company.

Examples of possible threats include:

A close, local competitor opening

Inability to recruit talent for vacant roles

Shortages of supplies

An innovative new product in your field hitting the market

New laws or regulations in your field

Decide on your priorities. Once you’ve formulated lists of your strengths, weaknesses, opportunities, and threats, you must prioritize the collection. Hopefully, you’ve been keeping a written record of each element’s subsidiaries because it’ll make it much easier to prioritize.

It’s impossible to deal with every single idea you’ve come up with. It’ll probably burn out your team without any notable results if you try. That’s why prioritization is essential.

When it comes to your team’s strengths and opportunities, decide which of these you’d like to focus more energy on continuing. On the other hand, when prioritizing your weaknesses and potential threats, think about which ones could cause more imminent damage.

Institute a strategy. The final step to running an internal SWOT analysis on your company or a specific team is to develop and institute a strategy. This plan should be about tying together all the components you’ve previously discussed.

Analyzing your organization’s pros and cons usually leads to a path of how to use one to combat the other. For example, identifying how your team demonstrates a particular strength can help deal with an impending threat.

Follow-up. While investing in your company’s growth by conducting an internal analysis is an excellent start to improving your business, it is just that: a start.

An internal SWOT analysis is the beginning of your organization’s journey towards improving itself in various areas. Simply stating your team’s statistics and formulating a strategy without ever taking action won’t help your company.

It requires continuously following up to see where you’re at in addressing your top prioritizations. You need to rejoin your team after a reasonable amount of time to elicit change and determine how implementing your strategy worked out.

If you find that issues have been checked off your list or that opportunities are coming to fruition, then it means that your improvement plans are working. If you aren’t having these results, it could be time to discuss a new course of action.

What are internal analysis methods?

Internal analysis methods include:

SWOT Analysis

What is internal and external analysis?

Internal analysis involves looking at a company and how it’s running while external analysis involves looking at the overall market or industry.

Good internal analysis likely includes relating the company’s operations to the rest of its competitors and the overall market, but it’s mainly focused on the health of the company itself.

What are the components in internal analysis?

The components in internal analysis include:

Liabilities

What does SWOT stand for?

SWOT stands for strengths, weaknesses, opportunities, and threats. Each component means:

Strengths. Your strengths will be mostly internal. This will be what each person brings to the table and what they will do to help contribute to the success of the company.

Weaknesses. This will be considered mostly internal and will be anything that needs to be addressed for the company to be successful. This will be any area that is lacking.

Opportunities. Opportunities will be mostly external. What is out there to benefit your company in any way?

Threats. This will be mostly external factors. This can by any outside threat that will directly impact your business. Often times you may not have control over this.

University of Central Florida – Industry Research Step By Step: SWOT – Internal and External Analysis

PennState Extension – Conducting a SWOT Analysis

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Sky Ariella is a professional freelance writer, originally from New York. She has been featured on websites and online magazines covering topics in career, travel, and lifestyle. She received her BA in psychology from Hunter College.

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Internal analysis: Why every business strategy should start with one

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• Organization and evaluation

Differentiate yourself from the competition.

Be able to adapt to rapidly changing market trends.

Be innovative and provide value to customers.

Effectively use available resources.

Performing an internal analysis of a company can help you to see what your organization does well and what needs improvement.

In this post, we’ll discuss what an internal analysis is, why it’s important, what the different types of internal analyses are, and how to perform an internal analysis. 

What is internal analysis?

An internal analysis is a powerful tool that can give you a comprehensive view of your company’s internal workings. It gives you insight into the resources you have, resource capabilities, organizational structure, company culture, current processes, and so on. The idea is to identify your company’s strengths and weaknesses.

When you understand your strengths, you can turn them into advantages that can help you to stand out from the competition. And knowing what your weaknesses are helps you to address them so they don’t hinder your success. 

Why is an internal analysis important?

An internal analysis is an important part of strategic management and the decision-making process. It can help guide your company to develop strategies and make decisions that align with your corporate vision and goals. In addition, an internal analysis is important for the reasons outlined below:

Identifying strengths: Your company’s strengths might be your talent pool, the quality of your products, brand recognition, customer loyalty, etc. Recognizing your company’s strengths can help you to optimize resources and increase overall performance.

Mitigating weaknesses: An internal analysis helps you to see areas that need improvement. Weaknesses might be things like lack of training, poor communication, outdated equipment or technology, inefficient processes, and so on. Identifying and mitigating weaknesses helps you to improve processes and be more competitive.

Making informed decisions: Making informed decisions is crucial to strategic management. What you learn from an internal analysis gives you the data and insights you need to make the right decisions that align with your company’s strengths and strategic goals. 

Optimizing resource allocation: No company has unlimited resources. An internal analysis helps you to determine how to optimally allocate resources where they will have the most positive impact. Efficient resource allocation increases efficiency and can help you maximize your return on investment.

Being adaptable: To be successful, you must be able to adapt to today’s constantly changing business environment. An internal analysis can help you to see where you might need to respond to shifts in consumer behavior, adapt to new technologies, or comply with updated regulatory standards. When you understand how your organization works, it makes it easier to effectively adapt to changes.

Internal analysis tools

There are several different types of internal analyses you can use to gain insight into your organization’s internal landscape. The type of analysis you choose to use will depend on your goals, the type of industry you work in, and your company’s unique challenges.

The following organizational analysis templates will help you to perform any type of internal analysis that aligns with your needs.

SWOT analysis

Strengths: Characteristics that give your company an advantage over the competition

Weaknesses: Characteristics that are disadvantageous in relation to the competition

Opportunities: Trends or technologies that you can use to gain an advantage over the competition

Threats: Obstacles that can impede company growth

This holistic view of your organization’s inner workings helps you to strategically plan for the direction you want your company to go. 

Gap analysis

A gap analysis is used to identify the differences—or gaps—between your organization’s current state and your desired future state. The gap analysis process involves:

Assessing your organization’s current state.

Identifying your organization’s ideal future state.

Finding the gap and evaluating solutions to bridge the gap.

A gap analysis is useful when you are looking for ways to improve performance and strengthen your organizational structure.

McKinsey 7S model

The McKinsey 7S model is a strategic planning tool developed by McKinsey & Company in the 1980s. It can help you assess and align seven interrelated internal elements so they work together in harmony toward your company’s objectives and goals. The seven elements are categorized as “hard” or “soft.”

Hard elements

The hard elements are tangible like corporate plans, strategy statements, org charts, and other documents.

Strategy: Your company’s plan to enhance competitive advantage.

Structure: Describes how your company is organized and who reports to whom.

Systems: Outlines the procedures, processes, and routines of staff that characterize how the job is done.

Soft elements

These are things like the capabilities of your employees, corporate values, and workplace culture.

Shared values: These are the core values that are reflected in the corporate culture and individual work ethic.

Style: This includes the typical behavior patterns of groups such as managers and other professionals.

Staff: This refers to the general capabilities of your employees.

Skills: This includes the organization’s core competencies and distinctive capabilities.

VRIO analysis

A VRIO analysis lets you evaluate the competitive potential of your company’s resources and capabilities by looking at their value, rarity, imitability, and organization.

Value: Does the resource or capability add value to your company’s products or services?

Rarity: How rare or uncommon is the resource or capability within your market or industry?

Imitability: Can your competition easily imitate a particular resource or capability?

Organization: Is your organizational structure set up to take advantage of the resource or capability’s full potential?

Skills and competency analysis

An analysis of your workforce’s skills and competencies helps you to understand the status of your capital. This can help you to identify areas where more training is needed and where you might need to hire talent with the skills you need. This team competency matrix template can help you get started.

How to perform an internal analysis

The following steps can help you to perform a comprehensive internal analysis.

Step 1: Set your goals

Define what you want to accomplish with your internal analysis. Establish why the internal analysis needs to be done and identify which specific areas of your organization will be examined. This will help you to focus on the relevant data so you can make informed decisions that align with your goals.

Step 2: Gather data and information

Collect data and information that is relevant to your company’s internal dynamics. Gather this data from multiple internal sources such as finance, operations, manufacturing, HR, etc. 

Step 3: Do a SWOT analysis

Perform a SWOT analysis to find your strengths and weaknesses (which are internal factors), and its opportunities and threats. The goal is to list what you believe your company is doing well and what needs to be improved, and to understand your current position and potential in the market.

Step 4: Evaluate company resources and capabilities

Explore your company’s tangible and intangible assets, skills, knowledge, core competencies, and capabilities. Identify those that contribute to your company’s success or give you a competitive advantage. This analysis will also show you areas that need more development and investment.

Step 5: Analyze processes and operations

Determine how efficient and effective your internal processes and operations are. This can include the management of your supply chain, production and manufacturing processes, quality control, administration activities, customer service, etc. An analysis will give you an overview of these operations and processes so you can more easily identify bottlenecks and inefficiencies that can be improved.

Step 6: Review your financial performance

Analyze financial statements, balance sheets, and cash flow reports to identify trends and get insight into your organization’s financial health.

Step 7: Develop and implement a strategic plan

What you’ve learned from the analysis of your data should be integrated into a strategic plan. The plan will be used to leverage your strengths, mitigate weaknesses, and seize opportunities. Make sure that your plan and implementation are aligned with your company’s mission, vision, and long-term goals.

Step 8: Monitor and revise

Part of being adaptable and agile includes a continual strategic management process. Monitor your internal factors on a regular basis and make strategic changes as needed. Your understanding of your company’s internal workings and your ability to adapt will help you to stay competitive in a continuously evolving business landscape.

An internal analysis is an important component of an ongoing strategic planning process. A thorough analysis helps your organization to navigate the complexities associated with a constantly changing business environment. The insights you gain from performing an internal analysis can help you make good decisions, create effective strategic plans, exploit strengths, mitigate weaknesses, and optimize your resources.

Want to browse more free strategic analysis templates? Check out the Lucidspark template gallery!

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Internal Analysis – Definition, Importance, Tools & How-to Guide

When you’re developing a business strategy, then it requires you to analyze various internal and external factors that are impacting the company. The internal analysis especially allows you to find out the growing areas and gain a competitive advantage. You have to know the in-depth knowledge and inner-functionality of the company while conducting the internal analysis. Today, we’ll discuss what is internal analysis; its importance, tools, and how to conduct it in detail with examples. 

Table of Contents

What is Internal Analysis?

Internal analysis is the process of analyzing various internal components of the company both tangible and intangible like; company’s processes, assets, and resources. It helps the decision-makers of the company to determine the growing areas and develop a business plan and practical business strategy. 

While developing the business strategy of the company, the management often uses both internal/ external analysis in order to see the full picture of the company that how it’s operating. 

Importance of Internal Analysis

Internal analysis is a great tool for companies to improve their main functions. Some of the reasons why internal analysis is important are as follows; 

• Strengths and Competencies. You find out the internal strengths and competencies of the company like brand loyalty, brand recognition, and other resources. The company can use its strong points in order to strengthen its market position. 
• Organizational Weaknesses. It also helps you to point out the weaknesses of the company like poor internal communication network, usage of obsolete technology, and limited employee training program. Such small weaknesses may seem insignificant, but they would slow down the company’s growth and decrease the overall profitability. 
• Know your Business Opportunities. It allows you to see the opportunities available to your business, and working on those opportunities would result in the growth of the company both internally and externally. It could be like launching a new product in the market or updating the computer system. 
• Find out Possible Threats. The internal analysis also studies the potential external threats that could hamper the company’s growth. It’s important to mention it here that the threat usually comes from external sources. You can exploit the opportunities if you minimize the weaknesses and focus on the strengths. 
• Competitive Viability. It allows you to find a small niche in the bigger market that would help you to differentiate yourself from the competitors . It usually takes a lot of time. 

Internal Analysis Tools

Businesses and companies use different analysis tools, strategies, objectives, and frameworks to recognize the main information about the structure, resources, and processes. Some of the main internal analysis tools are as follows; 

Gap Analysis 

As the name implies, the gap analysis recognizes the difference between the company’s existing operations and its goals. The reason for conducting gap analysis is to point out the weak elements in the company. However, it allows the management to see the non-performing areas of the company like production, planning, or resource allocation; and to check whether the company is performing to its full potential or not. 

Strategy Evaluation

The strategy evaluation discusses the results and implementation of strategic plans. It’s significant for the company to conduct strategy evaluation regularly during or after the implementation. For instance, you can evaluate the performance of your company quarterly, semi-annually, and annually, or as the result of implementation. It comprises of analyzing the company’s goals and checking whether it has achieved them or not. 

Swot Analysis 

The swot analysis is a very famous and common business analysis tool, and it offers you both internal and external analysis of the company. The term swot analysis comprises four main elements; strengths, weaknesses, opportunities, and threats. 

A swot analysis offers you an opportunity to see the potential opportunities in the market and how you can exploit them. It also allows you to determine and minimize the internal weaknesses in order to decrease the possibility of threat. 

For instance, swot analysis helps you to find out the strengths of your company like organizational capabilities and talented employees. Its weakness is that it depends on scarce raw materials and problematic supply chains. Like, the growth of Amazon threatens your business, and it allows you to exploit the opportunity of low-interest rates. 

VRIO Analysis 

VRIO analysis is a great tool for analyzing a company’s internal environment. Here you study various internal resources of the company and categorize each of them based on their contribution to the company. 

For instance, if you’re planning to build a strategy in order to achieve a competitive edge, then you should consider using the VRIO analysis tool. 

OCAT (organization capacity assessment tool) is for non-profit organizations to study the internal environment. It analyzes the following internal dimensions of the company; 

• Adaptation and innovation 
• Shared values and culture 
• Organizational structure and infrastructure 
• Business process 
• Advocacy 
• Communication and marketing 
• Funding 
• Staff, board, and leadership
• Strategy and aspiration 

McKinsey 7S Framework 

McKinsey 7S framework is a famous tool for companies that plan to align their processes and departments. You can use this framework to determine the gap between the current state of affairs and the future proposed state. It allows you to study 7 internal aspects of the company that you can use to achieve its goals. They’re as follows; 

• Style 
• Skill 
• Shared values 
• System 
• Structure 
• Strategy 

Core Competency Analysis 

The core competency analysis tool assists businesses and companies to develop a strategy in order to gain a competitive edge. It allows you to recognize your core competencies like skills, knowledge, and resources that are adding unique value to the customers. After that, you can develop a strategy based on the key points that your company is good at and what it offers to the customers. 

How to Conduct an Internal Analysis

Here are some of the following steps in how to conduct an internal analysis; 

Define your Objectives

First of all, you have to define your objectives and reasons for performing an internal analysis. The objectives could be finding ways to lower the internal expenses and looking for new opportunities. You should know in the beginning what you’re planning to learn from the internal analysis. When you have a clear mindset, then you can find the most relevant data. 

Choose the suitable Framework

You should choose the most suitable framework for the analysis. It’s because some frameworks are good at the company’s development, and others are good at finding weaknesses. You should review different frameworks based on your company’s needs and requirements. 

Do Your Research

You should collect information from various sources like the company’s growth, competencies, and resources. It could be checking the company’s equipment, finances, and interviews. 

Use the Framework

You should present the data based on your selected framework. For instance, you’re using the framework of swot analysis, and then you should separate present information in terms of strengths, weaknesses, opportunities, and threats. 

Select Your Priorities

After putting the information in the framework, you should analyze it and compare it with the company’s goals. For instance, if your goal is to amplify the tech capabilities of the company, then you should check what type of resources and equipment you need. 

Implementation 

You should implement your plan based on the findings in order to meet your goals. If it requires the purchase of new assets, training of employees, or replacement of machinery, then you should do it. 

About The Author

Ahsan Ali Shaw

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Internal Analysis: Definition & Why It’s Important

To develop an effective company plan, you must first understand your organization. An internal analysis helps companies to focus on the areas for development and competitiveness.

It is a waste of time and effort to develop business strategies based on assumptions rather than research. Let’s ensure we’re on the same path. This post will define internal analysis, discuss its importance, and explain how to conduct one.

What is Internal Analysis?

An internal analysis is a process where all the components that interact within an organization are evaluated in order to identify failures and areas of opportunity.

The main objective of this type of analysis is to find out the strengths and weaknesses of your organization. It helps management in making decisions for the development of corporate strategy, formulation, and implementation procedures.

The internal analysis analyzes internal factors which are controllable. This means that the company can influence and control these elements. The company itself can adjust and modify internal aspects.

Types of internal analysis

Companies can conduct an internal analysis using a variety of frameworks. Each utilizes different tools, techniques, and goals. These employee strategies identify the most important information about the structure, assets, and operations. To assist you in selecting the best one, let’s see some of the most common internal analysis frameworks.

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Gap Analysis

Gap analysis finds out the gap between “where we are” (the existing condition) and where “we want to be” (the target state). It identifies the difference between a company’s goal and the existing condition of operations. It also highlights the company’s weak areas. This in-depth analysis helps to plan a sequence of actions to bridge the gaps.

Strategy Evaluation

The strategy evaluation examines the outcomes and execution of strategic plans. It is beneficial to conduct a strategy evaluation on a regular basis to ensure everyone’s understanding and their acts according to business strategic plans. You can review your company’s performance every six months or after implementing a new business strategy. An excellent strategic strategy is useless if it is not implemented. Use this framework to connect your strategy with your company’s culture.

SWOT Analysis

The SWOT analysis is a well-known and widely used business analysis tool. It provides both internal and external company analysis. The analysis is defined as 

• Opportunities

Strengths and weaknesses are considered as internal factors of a commercial firm in this research. It refers to the organization’s own strengths and weaknesses. External elements analyzing the firm’s performance are opportunities and threats. It focuses on the potential profit and market sales.

VRIO analysis

VRIO analysis is an excellent method for examining the internal environment analysis of a business. It is defined as valuable, rare, inimitable, and Organized. It facilitates the organization of company resources. VRIO is a framework that can assist you in creating long-term competitive advantages.

If you want to build a plan to get a comparative benefit, you should think about implementing the VRIO analysis tool. It will help you gain a better knowledge of your assets and the added value of your organization.

OCAT stands for Organizational Capacity Assessment Tool. It evaluates internal performance across a variety of separate areas. OCAT investigates the organizational structure in depth. Its strength is to transform organizational capabilities into strategies. This analysis increases the performance of the organization to new heights.

McKinsey 7S framework

The McKinsey 7S framework is a well-known business tool. It determines the level of synchronization between departments and processes. This framework can be used to identify the discrepancy between the present situation and the proposed future state. It helps to investigate seven internal aspects of the company to achieve its objectives. These are as follows:

• Shared values

The McKinsey 7S framework provides an effective description of the organization’s internal alignment.

Core competencies internal analysis

The core competencies analysis assists companies in developing their market advantage. This may assist in beating their competitors. This analysis helps to identify core strengths such as talents, information, and resources that provide significant benefits to clients.

This one emphasizes intangibles rather than tangible resources. It focuses on significant benefits that are also strategic and operative.

Why is an internal analysis important?

Internal analysis can help businesses strengthen their core activities. It assists corporate executives in identifying methods to enhance their operations. Identifying opportunities is one of the most essential reasons for conducting an internal analysis. So let’s get started.

Strengths of the company

Employee quality, the availability of critical resources, or customer brand familiarity are all examples of strengths. Strengths aid a company’s overall performance and sustainability, and finding strengths through an internal study is useful.

Weaknesses in the structure

Internal studies may assist in identifying a company’s weaknesses, which could include issues such as ineffective training, outdated technology, or inadequate interdepartmental communication. Weaknesses can have modest effects on the firm, such as limiting the dissemination of internal knowledge, or large implications, such as revenue loss.

Opportunities for business

An internal examination may also be used to uncover commercial prospects. A company’s opportunities generally involve both internal and external growth. Upgrading the software system or launching a new product are two examples.

To Identify Future Threats

External risks are frequently encountered. Identifying future external risks as part of an internal study. On the other hand, they may help businesses react to them by maximizing corporate strengths, fixing weaknesses, and opening up new growth prospects.

Determining market viability

A market viability study can assist you in deciding whether or not launching a firm in that market is financially viable. Finding a specialized niche within the bigger market to set the firm apart from rivals is one of the most beneficial advantages of an internal investigation. This is frequently the long-term aim of an internal examination.

How to conduct an internal analysis?

If you want to conduct an internal analysis, follow these steps to perform an effective one.

1. Set your goals.

To start an internal analysis, you need to set a goal and reason first. You must know what you want to achieve from internal analysis from the beginning. Once you have a specific purpose or goal, it is easier to identify the relevant data. The goal could be to identify new and creative company opportunities.

2. Select an appropriate framework

After setting your goal, you should select the appropriate framework to perform an internal analysis. Some frameworks are suitable to identify a company’s weak areas and others are good at development. So it is necessary to choose the right one to meet the needs. This will help you to reach your goals or objectives.

3. Conduct your research.

Do some research and collect data from all internal sources. You should gather data from multiple sources, such as the company’s performance, abilities, and assets.

4. Stick to the framework

Use the chosen framework to present the data. If you conduct a SWOT analysis, you will be able to determine the company’s strengths, weaknesses, opportunities, and threats based on your analysis. Present all the findings separately.

5. Establish your priorities.

After implementing the information, analyze the framework. Identify and compare it with the goals and objectives you set earlier. Find out all the data that will help you in making a decision to achieve the goals. If you want to improve your technological capacity, look for what equipment needs to be updated.

6. Implement the findings.

Now implement your findings based on your analysis. If you want to meet your objectives, then you should apply the changes you need. If purchasing something is required, you should do so.

Internal analysis is essential in determining a company’s future. To identify business opportunities, every company must undertake an internal analysis. Before making any changes to your business plans, take some time to examine the possible improvements for your company’s growth. Based on your goal, select and conduct a suitable internal analysis framework.

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Building a Solid Internal Business Plan: Expert Guidance and Insights

An internal business plan is like a compass for your organization, guiding your team towards common goals and strategies. In this guide, we’ll break down each component of an internal business plan in simpler terms and share expert tips to help you create a plan that keeps your team on the same page.

• Key Highlights
• An internal business plan is a roadmap that guides your team towards common goals and strategies.
• It helps align your team, make better decisions, and achieve success.
• Create a clear and concise plan with SMART goals, action steps, and communication strategies.

What is Internal Business Plan?

Differences between internal and external business plans:.

• What's the Purpose of an Internal Business Plan?
• Here's Why It Matters:

Benefits of an Internal Business Plan:

• 1. Mission and Vision: Your Organization's Purpose (Around 200 words)

2. Organizational Goals: What You Want to Achieve (Around 250 words)

3. swot analysis: understanding your internal landscape (around 300 words).

• 4. Key Strategies: How You'll Achieve Your Goals (Around 250 words)

5. Action Plans: Who Does What (Around 350 words)

6. budget and resources: what you need (around 250 words), 7. monitoring and evaluation: keeping things on track (around 300 words), 8. communication plan: keeping everyone informed (around 200 words), common mistakes to avoid, tips to overcome challenges, measuring success, effective metrics for internal business plan success, interpreting data and making data-driven decisions:, what must an entrepreneur do after creating a business plan, 1. secure funding, 2. assemble your team, 3. execute your strategies, 4. foster communication and collaboration, 5. measure performance and analyze data.

A business plan acts as a blueprint for your organization’s future, detailing its goals, strategies, and financial projections. An internal business plan takes this concept further, focusing specifically on aligning your team and ensuring everyone understands their roles and responsibilities in achieving your shared vision.

Here’s a breakdown of the key differences between internal and external business plans:

What's the Purpose of an Internal Business Plan?

Think of an internal business plan as your team’s GPS for success. It’s all about getting everyone on the same page and heading toward the same goals. Unlike the fancy plans you show off to investors, this one is all about making sure your team knows where you’re headed and how to get there together.

Here's Why It Matters:

• Teamwork and Focus: It spells out what your gang is trying to achieve and gives everyone a clear focus on the mission.
• Smarter Choices: Helps everyone make better decisions by laying out the game plan. It's like having a playbook for your business moves.
• Using Resources Wisely: Shows where the money, people, and tech need to go, making sure everything's used just right.
• Making Everyone Accountable: Sets goals and ways to measure success so that everyone's accountable for their part.
• Happy Teams: When everyone knows what they're doing and why, it makes the team feel united and pumped up.
• Spotting Trouble Early: It's like having a radar for problems, so you can plan ahead and steer clear of disasters.

An internal business plan isn’t just a document—it’s your team’s guidebook, making sure everyone’s rowing in the same direction and making the right moves to reach those big goals.

• Improved Communication and Alignment: Creates a shared understanding of goals, strategies, and responsibilities within the organization.
• Enhanced Decision-Making: Provides a data-driven foundation for strategic decision-making and resource allocation.
• Increased Accountability and Performance: Establishes key performance indicators (KPIs) and promotes accountability for achieving goals.
• Boosted Team Morale and Motivation: A clear roadmap fosters a sense of purpose and direction for team members.
• Improved Risk Management: Identifies potential challenges and facilitates the development of contingency plans.

Overall, an internal business plan serves as a vital tool for achieving organizational goals, fostering collaboration, and ensuring long-term success.

Checkout our free sample business plans now!

1. mission and vision: your organization's purpose (around 200 words).

Your mission defines why your organization exists, while your vision outlines what you aim to achieve in the future. Keep these statements clear and inspiring, as they set the direction for your entire team.

• Expert Tip 1: "Your mission and vision should motivate and unite your team. They're your organization's North Star." - Maria Rodriguez, Management Consultant.

Lay out your short-term and long-term goals. Make them specific, measurable, achievable, relevant, and time-bound (SMART). These goals give your team a sense of purpose and direction.

• Expert Tip 2: "Goals should be like checkpoints in a race - clear and achievable. They keep your team focused and motivated." - Mark Thompson, Organizational Strategist.

Conduct a SWOT analysis to identify your organization’s strengths, weaknesses, opportunities, and threats. This helps your team understand your current position and potential challenges.

• Expert Tip 3: "SWOT analysis is like a diagnostic checkup. It helps you know where you're strong and where you need to improve." - Emily Turner, Business Analyst.

4. Key Strategies: How You'll Achieve Your Goals (Around 250 words)

Outline the strategies your organization will use to achieve its goals. These could include expanding to new markets, improving processes, or developing new products or services.

• Expert Tip 4: "Your strategies should align with your goals. They're the 'how' behind your 'what'." - David Reynolds, Strategy Consultant.

Break your strategies down into actionable steps. Assign responsibilities to specific team members, set deadlines, and define key performance indicators (KPIs) to track progress.

• Expert Tip 5: "Action plans turn ideas into actions. They make your strategies a reality." - Laura Martinez, Project Manager.

Detail the budget and resources required to execute your action plans. This includes finances, manpower, technology, and any other resources necessary for success.

• Expert Tip 6: "Budgets ensure you have the resources to implement your plans. They're like a financial roadmap." - Susan James, Financial Analyst.

Explain how you’ll monitor progress and evaluate the success of your action plans. Regular assessments help your team stay on course and make adjustments as needed.

• Expert Tip 7: "Monitoring and evaluation ensure you're headed in the right direction. It's about continuous improvement." - John Stevens, Management Expert.

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Describe how you’ll communicate the plan to your team. Transparency and clear communication are crucial to ensure everyone understands their roles and responsibilities.

• Expert Tip 8: "A well-communicated plan fosters teamwork and alignment. It's the glue that holds your organization together." - Maria Rodriguez, Communication Specialist.

While crafting and implementing your internal business plan, be mindful of these common pitfalls:

• 1. Lack of Clarity and Specificity: Vague goals and objectives lead to confusion and hinder progress. Ensure your plan outlines SMART (Specific, Measurable, Achievable, Relevant, and Time-bound) goals with clear action steps.
• 2. Ignoring Internal Analysis: Neglecting a SWOT analysis (strengths, weaknesses, opportunities, and threats) leaves you blind to internal challenges and untapped potential. Conduct a thorough assessment to gain a realistic understanding of your organization's capabilities.
• 3. Unrealistic Budgeting: Overestimating resources or underestimating costs can derail your plan. Develop a realistic budget based on accurate data and forecasts to avoid financial constraints.
• 4. Inadequate Communication: Failing to communicate the plan effectively to your team leads to misalignment and inefficiency. Foster open communication channels and ensure everyone understands their roles and responsibilities.
• 5. Rigid and Inflexible Approach: The business landscape is dynamic, so your plan should be adaptable. Be prepared to adjust your strategies and tactics as needed based on market changes, performance data, and feedback.
• Seek feedback: Enlist the help of colleagues and stakeholders to review your plan and identify areas for improvement.
• Promote collaboration: Encourage open communication and brainstorming sessions to foster innovative ideas and solutions.
• Track progress regularly: Monitor key performance indicators (KPIs) to measure progress and identify areas needing adjustments.
• Be proactive: Anticipate potential challenges and develop contingency plans to minimize disruptions.
• Embrace flexibility: Be prepared to adapt your plan as needed based on evolving circumstances.
• Goal Achievement: Track progress towards achieving your defined SMART goals.
• Financial Performance: Monitor key financial metrics like revenue, profitability, and cost-effectiveness.
• Operational Efficiency: Measure improvements in efficiency through process metrics like cycle time and error rates.
• Team Performance: Evaluate team effectiveness by tracking KPIs like productivity, engagement, and satisfaction.
• Market Share and Growth: Monitor your market share and growth rate to assess your competitive position and market penetration.
• Analyze trends and patterns: Identify trends and patterns emerging from your data to understand the underlying drivers of success or failure.
• Investigate root causes: Delve deeper into the root causes behind performance data to pinpoint areas for improvement.
• Test and experiment: Utilize A/B testing and other experimental methods to validate your assumptions and optimize your strategies.
• Communicate data insights: Share key data insights with your team to promote transparency and inform decision-making.
• Make data-driven decisions: Base your strategic decisions on evidence and insights gleaned from your data analysis.

By implementing these tips and practices, you can avoid common pitfalls and effectively measure the success of your internal business plan. Remember, a successful plan requires continuous monitoring, feedback, and adaptation to ensure it remains relevant and effective in driving your organization towards its goals. Ready to write an internal business plan but don’t know what to do? Explore WiseBusinessPlans’ professional business plan writers to get started today!

With your internal business plan finalized, it’s time to shift gears and focus on its execution. This crucial phase requires action, dedication, and strategic implementation to transform your vision into reality. Here’s what you, as an entrepreneur, must do after creating an internal business plan:

• Assess your financial needs: Review your budget and determine the funding required to execute your plan. Explore various funding options, including personal savings, loans, grants, and angel investors.
• Craft a compelling pitch: Develop a concise and persuasive pitch deck that highlights your vision, market potential, and financial projections to attract investors.
• Build relationships with potential investors: Network with individuals and organizations interested in your industry and build relationships that can pave the way for funding opportunities.
• Identify key roles: Determine the skills and expertise needed to implement your plan effectively.
• Recruit talented individuals: Find passionate and qualified individuals who share your vision and values, and build a cohesive and motivated team.
• Delegate and empower: Assign tasks and responsibilities based on individual strengths, fostering ownership and accountability within your team.
• Break down your plan into action steps: Divide your strategies into manageable tasks with clear deadlines.
• Implement best practices: Utilize proven strategies and methodologies aligned with your industry and goals.
• Monitor progress and adapt: Regularly track progress against your goals, identify areas needing improvement, and adapt your strategies as needed.
• Communicate openly and transparently: Keep your team informed of progress, challenges, and decisions.
• Encourage feedback and input: Create an environment where team members feel comfortable sharing ideas and concerns.
• Build trust and collaboration: Foster a collaborative culture that encourages teamwork and shared ownership of success.
• Track key performance indicators (KPIs): Identify specific metrics aligned with your goals and regularly track their progress.
• Analyze data and draw insights: Utilize data to identify trends, understand performance drivers, and make data-driven decisions.
• Continuously improve: Leverage data insights to identify areas for improvement and adapt your strategies to optimize performance.

By following these steps after crafting your internal business plan, leveraging a well-designed business plan template can further assist in effectively translating your vision into action, propelling your entrepreneurial journey towards success.

Hire our award-winning business plan writers now!

In summary, creating an internal business plan is about providing your team with a roadmap to success. By simplifying each section and focusing on clear communication, you’ll not only set your team on the right path but also promote unity and collaboration within your organization. Your internal business plan is your tool for achieving your mission and turning your vision into reality.

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Conducting Internal Analysis: A Step By Step Guide  

• Author Survey Point Team
• Published March 1, 2023

To create killer business strategies, you need more than just assumptions. You can devise strategies that benefit your team with better research and in-depth internal analysis.  

And, if you are wondering what precisely internal analysis is, we have got you covered. Learn what it means, how to do it, and different tools you can use to analyze your company better.  

Table of Contents

Understanding Internal Analysis  

As the name suggests, internal analysis is analyzing your organization’s culture. To comprehend how your firm functions and spot potential dangers, it is necessary to analyze and evaluate everything and everyone involved. 

This technique helps you identify failures in your current strategies and understand the weakness of your company. Understanding this will enable better decision-making, strategy formulation, and implementation.  

In a nutshell, any business has a set of controllable and uncontrollable aspects. Internal analysis analyzes the internal factors that an organization can control. This allows the company to modify these aspects and improve how they affect the company.  

Why Conducting An Internal Analysis Is Important?  

Internal analysis can be a great way to identify the pain points and work collectively to improve a company’s internal functioning. Other than this, this technique can offer the following benefits:  

It Helps Identify Strengths.   

Strengths are the quality of your team, availability of all necessary resources and effective brand recognition . This process allows companies to effectively identify and work on their strengths to pave the path to success. As a result, a company’s chances of success can be increased.  

It Highlights Structural Weaknesses.   

Weaknesses in a company can arise due to several factors like improper employee training, using outdated technological resources and poor or inappropriate communication flow.  

You can drastically impact your company’s success rate by heeding key pointers. Internal analysis can help you identify such weaknesses, thus allowing you to work on them and reduce their impact on your company.  

It Allows You To Tap Into New Business Opportunities.   

The internal elements of your company can help you determine your company’s strengths.  

This can aid in the search for fresh methods by which to boost earnings. One possible conclusion from such a study is that introducing a new product would be beneficial to expanding your brand’s market share. 

You Can Identify Possible Threats.   

Generally, threats come from external factors. Identifying these external threats can help people optimize their business processes and eliminate their weaknesses, thus allowing them to succeed.  

It Helps You Stay Informed On The Viability Factor Of The Marketplace.   

One of this technique’s best and most well-known benefits is that it helps you find your niche to grow.  

And, though it is a long-term goal of internal analysis, it can definitely help you and your business grow.  

Tools Used For Internal Analysis  

Now that you know what exactly it is, let’s talk about how to do it. You can use several tools to gather the needed information and analyze your company’s internal factors.  

Here are some tools that can help you with internal analysis:  

Gap Analysis   

Gap analysis determines the gap between your company’s operations and goals. The wider the gap, the more you need to work on your strategies.  

Companies can use gap analysis to pinpoint weak organizational elements and work together to improve them.  

Management can also determine if the company is progressing towards its full potential by identifying specific departments that are not performing well.  

Strategy Evaluation   

This tool allows the company to determine the result and effectiveness of the strategies in motion. Companies should conduct a strategy evaluation before they launch their brand-new plan.  

You can evaluate your strategies quarterly or semi-annually to determine whether they are worthwhile. The objective of this evaluation is to assess the company’s goals and assess its current performance.  

SWOT Analysis   

This is perhaps the easiest and most common internal analysis method. In fact, one of the best things about this tool is that it highlights internal and external factors at once.  

The tool contains four primary elements:  Strengths, Weaknesses, Opportunities and Threats.   

A SWOT analysis allows the companies to identify their strengths and weakness, which are considered internal factors. This allows the team to work on what they can excel in and improvise where they lack.  

Opportunities and threats are external factors that companies have no control over. As you streamline your niche and highlight potential roadblocks, you will be able to tap into new opportunities.  

VRIO Analysis   

VRIO analysis is a framework for evaluating the competitive advantage of a company’s resources and capabilities. The acronym stands for  Value, Rarity, Imitability, and Organization.  

Before anything else, the framework determines if the company’s current assets and skills are beneficial. Then, it considers how common such resources are and whether or not they are shared among rival firms.  

The feasibility and impediments to imitating the resources and capabilities are also assessed. Finally, it considers whether or not the company can efficiently use its resources and strengths. 

Overall, the VRIO analysis helps companies understand their competitive position and develop strategies to sustain or improve their advantage in the market. 

OCAT  

OCAT, or  Organization Capacity Assessment Tool , is perfect for non-profit organizations that want to study their internal factors. It analyzes the following dimensions of a company:  

• Business process 
• Advocacy 
• Communication and marketing  
• Staff, leadership and board 
• Strategy and goals  
• Funding  
• Organization structure and hierarchy  
• Values and culture  
• Adoption and Innovation  

McKinsey 7S Framework   

The McKinsey 7S Framework is a model developed by the consulting firm McKinsey & Company in the 1980s. A successful organization must align seven interdependent elements. The seven elements are: 

• Strategy:  The plan that outlines how the organization will achieve its goals. 
• Structure:  How the organization is organized and the relationships between its components. 
• System:  An organization’s management and operation procedures. 
• Shared Values:  The fundamental beliefs, values, and culture that guide the organization’s behaviour. 
• Skills:  What the employees are competent at and what they can do for the organization. 
• Style:  Organizational management practices and leadership styles. 
• Staff:  The people who work for the organization, including their numbers, skills, and experience. 

According to the McKinsey 7S Framework, if an organization aligns all seven elements, it will operate effectively and efficiently and achieve its objectives.  

On the other hand, a misalignment in any of these elements can lead to poor performance and hinder the organization’s success. The framework is often used to diagnose and address organizational problems, identify areas for improvement, and implement change. 

Conducting Internal Analysis: A Step-By-Step Walkthrough  

Here are the steps to conducting an internal analysis: 

Identify the company’s objectives and goals . 

The first step is to define the company’s mission and objectives. These should be clear and concise and provide a framework for the analysis. 

Evaluate the company’s resources . 

This step involves identifying the resources available to the company, such as financial, human, and physical resources.  

Identifying the company’s strengths and weaknesses will be helpful. 

Assess the company’s capabilities . 

The next step is to assess the company’s capabilities, including its core competencies, areas of expertise, and competitive advantages. Differentiating the company from its competitors will be easier with this exercise. 

Analyze the company’s activities . 

This step involves analyzing the company’s value chain and identifying its primary and support activities. A company can improve efficiency and effectiveness by identifying these areas. 

Identify strengths, weaknesses, opportunities, and threats.  

The next step is to use the information gathered in the previous steps to identify the strengths, weaknesses, opportunities, and threats (SWOT analysis). 

Prioritize issues.  

After completing the SWOT analysis, it’s crucial to prioritize the issues and opportunities identified. Therefore, we will be able to determine which areas need the most attention. 

Develop action plans.  

The final step is to develop action plans to address the issues and opportunities identified in the previous steps. Develop strategies to maximize opportunities, overcome weaknesses, and mitigate threats as part of this process. 

To Sum Up  

An internal analysis is a critical component of strategic planning. It provides valuable insights into the company’s strengths and weaknesses and helps identify opportunities for growth and improvement. 

Q1. What is internal analysis?  

Doing an internal analysis involves taking stock of a company’s resources, capabilities, and competencies to determine their relative value and where they might use the most improvement. 

Q2. What are the key components of internal analysis?  

The key components of internal analysis include: 

• Identifying the capabilities, competencies, and resources of a company. 
• An assessment of the organization’s structure and culture. 
• Evaluating its financial and operational performance. 

Q3. How can a company conduct an internal analysis?  

Many techniques, such as the SWOT analysis, Value Chain Analysis, and Benchmarking, are available to businesses for an internal investigation.  

Data collection and analysis play a role in a number of these strategies, including financial reports, staff surveys , and market research . 

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Internal and External Analysis in Strategic Management (SWOT and PESTLE)

Find out the differences between internal and external analysis and how you can use SWOT and PESTLE models to accomplish both.

PESTLEanalysis Team

Strategic management is a popular method for running businesses which involves an analytical approach to setting goals and managing resources. Like strategic planning , strategic management often involves a good dose of business analysis. Broadly speaking, this business analysis can be categorized as either internal or external.

In this short guide, we'll walk you through the differences between internal and external analysis and show you how you can use SWOT and PESTLE models to accomplish both.

Internal Analysis for Strategic Management

What is internal analysis.

Let's start with internal analysis. As the name suggests, internal analysis focuses on evaluating all aspects of the organization itself. Although internal analysis can sometimes take into account the actions of external organizations or market-wide shifts, it is largely related to the inherent traits of the organization at hand.

For example, internal analysis can allow you to identify both strong and weak aspects of your organization, without taking into account the performance of external organizations.

Here's another way to think about internal analysis: if your organization was the only one that existed — meaning your organization had no competition — and your business environment was entirely neutral — meaning it didn't in any way affect your organization — then what factors would you consider when analyzing your organization?

Why Is Internal Analysis Important?

In the context of strategic management, internal analysis is crucial for a few reasons. Your organization might be spending too much in some areas due to internal inefficiencies, or, alternatively, your organization could be leaving money on the table. The only way to reveal these things — and get a true understanding of how resources are being used in your organization — is by means of internal analysis.

Why Use SWOT as a Tool?

The SWOT model is an excellent tool for internal analysis, since it encourages you to think about your organization and only your organization. The acronym SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, which are the four factors you take into account during SWOT analysis as you create the SWOT table .

As you can see, the first two of these factors — Strengths and Weaknesses — are very much internal. Neither your competitors nor your external business environment can affect what your organization does well and what your organization does poorly: those things are entirely up to you.

With the latter two factors — Opportunities and Threats — you could argue that SWOT analysis doesn't have an entirely internal focus. However, that simply depends on how you use it. If you choose to ignore external factors (such as competitive rivalry, material costs, or government regulations), the Opportunities and Threats categories can still provide valuable insight to the internal aspects of your organization, in the context of strategic management.

Getting Started with SWOT

SWOT analysis is as easy as it sounds: listing and evaluating the Strengths, Weaknesses, Opportunities, and Threats affecting your organization. Trying to come up with these factors isn't always so easy; it takes a lot of brainstorming.

For more information, be sure to read our complete guide to conducting a SWOT analysis .

External Analysis for Strategic Management

What is external analysis.

Let's switch gears and talk about external, or environmental, analysis. Unlike internal analysis, external analysis is less about the organization itself, and more about its business environment (including its competitors). Again: the term is mostly self-explanatory — looking at external business analysis factors instead of internal ones.

So, what exactly would an example of an external factor be? The number of new competitors entering your industry, the cost of materials used to manufacture your products, or the regulatory frameworks set out by governments — these are all examples of variables which are out of your organization's control, and should be taken into account in external analysis.

One helpful way to tell whether a business analysis factors is external or not is to ask "does this factor apply to other organizations?" For example, an increased tax rate applies all organizations — not just yours — so you know it's an external factor.

Why Is External Analysis Important?

As you might expect, external analysis is also very important in the context of strategic management. When evaluating your organization's goals and resources, you absolutely need to look at the surrounding business environment. In a perfect world, it would be enough just to look inside your organization; in the real world, you need to be conscious of external forces that might affect your business' operations and throw you off course.

Why Use PESTLE as a Tool?

For analyzing external factors, the PESTLE model should be your tool of choice. PESTLE stands for Political, Economic, Sociocultural, Technological, Legal, and Environmental, which are the six categories of environmental factors you should take into account during business analysis (like in strategic management).

If you look closely, you'll see that these almost all of the factors that fall into these six categories aren't inherently related to your organization, but are related to the overarching business environment:

• Political. How are government decisions influencing your organization?
• Economic. How is the local or global economy influencing your organization?
• Sociocultural. How are changes in social and cultural norms influencing your organization?
• Technological. How is the advancement, presence, or lack of technology influencing your organization?
• Legal. How are legal issues influencing your organization?
• Environmental. How is the environment influencing your organization?

Getting Started with PESTLE

Similarly to SWOT analysis, using PESTLE analysis is surprisingly easy. Simply categorize the external factors affecting your business as Political, Economic, Sociocultural, Technological, Legal, or Environmental.

The challenge is finding those factors in the first place. It's helpful if you have some experience in your industry, which would give you a headstart on where to look. Otherwise, you'll need to do a lot of brainstorming and trawl through plenty of reports to find out which factors really affect your organization.

For more information on carrying out an external analysis like this, be sure to read our three-step guide to PESTLE analysis .

Internal and External Analysis in Strategic Management: Final Thoughts

Strategic management is a powerful way to run businesses. As a result of this approach's inherently analytical nature, it's important that you use both internal and external business analysis tools to make managerial decisions. You can do so by using the popular models of SWOT and PESTLE, which we have come to know and love in the world of business analysis.

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Internal or External Analysis? | What Is It and How to Conduct One

Have you ever wondered the question ‘what is internal and external analysis? ‘

What about why it’s so important for your business? If so, then this article will give you a step-by-step guide to conducting an internal analysis and explain why it’s so important. 

In this article

What Is An Internal Analysis?

Why should you do an internal analysis, business analysis tools you should be using, gap analysis and strategy evaluation, organizational capacity assessment tool and vrio analysis, swot analysis and core competencies analysis, how to conduct an internal analysis, establish your goal and choose a framework, research and parse your data, compare and apply, gain competitive advantage with internal analyses.

Internal analysis is a key strategic evaluation to smart business growth.

The analysis examines and assesses your organization’s competitive advantage, competencies, and resources.

This provides insight into areas for growth for your organization. It all comes down to what affects your organization.

Both internal and external factors affect your organization. Your business needs to identify your organization’s core competencies. By doing this, you’ll know where you need to focus on reaching your target market .

An internal analysis will examine the internal environment of your organization. It assesses its competitive advantages, competencies, capabilities, and resources. Your cost position is also determined in internal analysis .

As mentioned earlier, external and internal factors affect your organization. Your internal environment is the resources and abilities of your organization. These factors are measurable and include areas like marketing , production, and finance.

An external analysis should go with an internal one. Why is this an effective strategy? The external environment includes your customer insights, competitors, and the environment. With that information, you can match your strengths to external opportunities in a new market. 

By performing a thorough internal analysis, you understand your organization’s strengths and weaknesses . This knowledge will tell you where you are excelling and where your deficits are.

Internal analysis is the first step your business takes before it will develop strategies. 

You may be wondering, what is included in an internal analysis ?

There are things you need to know about your organization’s competency. Internal analysis is about exploring things like competitive viability . What makes internal analysis important is the information gathered. This information helps develop strategic planning objectives that grow and sustain your business.

Internal analysis is all about that data and identifying opportunities. The more information you have about business opportunities, the easier it is to make a strategic plan. Plans improve things across your organization, like your business’s ability to manage resources.

How do you go about identifying strengths and possible threats to your business?

Organizational weaknesses, opportunities, and threats vary across the industry. To become a strong organization, your business should use updated technology systems .

Invest in proprietary technology and frameworks that help conduct an internal analysis . These tools assess your company’s strengths. They also help business managers make a difference in your organization’s environment.

Let’s take a look at a few business analysis tools.

One of the benefits of conducting an internal analysis is identifying gaps like performance deficits. A Gap Analysis will compare your current state to your anticipated future state.

Identifying if your company functions well or not allows you to adjust business strategies. Your strategies should strengthen identified weaknesses and expand on opportunities.

Compared to a SWOT, GAP analysis is a more targeted approach that can fine-tune a single process.

Strategy Evaluation helps your business analyze the implementation of its strategic plans. This business analysis is an ongoing task done at regular intervals during implementation. 

Look back at your goals and measure how well you achieve them with this business strategy.

The OCAT is for non-profit organizations to assess the internal environment. This framework will help test and improve how a non-profit organization operates.

Some areas the OCAT measures here are funding, advocacy, aspirations, and business processes .

VRIO analysis framework assesses an organization’s internal environment. It categorizes resources based on value to the organization.

VRIO stands for Value, Rareness, Imitability, and Organization . This business strategy will highlight a company’s strengths. Optimizing this particular strength gives a competitive advantage in the industry market.

Value works like this: If a resource has value to a customer, you want to support it. If there is no value, you need to reassess your strategy . When it comes to rarity, you need to have something unique to your company. If not, you have replaceable assets.

Imitability adds a competitive advantage by assessing how expensive it is to duplicate your resources or not. The organization is all about your company structure and processes.

Do your structure and processes leverage your resources? If not, you have untapped potential your company can work on.

You may have heard of a SWOT analysis framework before. Is SWOT an internal analysis ?

SWOT internal analysis is one of the most used internal analysis tools, and it gained popularity because of its simplicity.

SWOT analysis stands for strengths, weaknesses, opportunities, and threats. The SWOT matrix helps visualize both external and internal factors. External things are opportunities and threats, while intellectual and human resources are internal.

We recently published a Tesla SWOT analysis you can use as a reference.

Weaknesses can stand in the way of your organization and success. It can include things like poor communication, old-fashioned processes, or a bad reputation. Threats don’t affect the company immediately but rather down the line. Things like trends and competitor popularity are threats.

This internal analysis helps organize these things in a simple grid format that allows you to focus on what will help grow your business. An effective SWOT analysis requires both founders and leaders of your organization to take part. 

One of the ways to create competitive advantages for your business is to create an effective strategy before they do.

Core Competencies Analysis works on internal analyses to help provide you with a framework that helps you focus on being your best.

Ok, so you now know what an internal analysis is and how it can help you identify strengths and weaknesses in business units. You have an idea of what tool for business analysis you should use, but what are the major steps in internal analysis ?

You need to know the goal of your analysis. So ask yourself these questions:

• Why am I conducting this analysis?
• Do I want to recognize internal strengths or determine weaknesses?
• Should I identify external threats?
• Are my quality control standards meeting my needs?

Now that you have your goal let’s think back to the business tools we talked about earlier. The type of framework you choose here depends on the answer to step one.

Choose the one that meets your needs and will help you achieve your goals.

Each of the frameworks has specific benefits, but the SWOT is the best one to start with.

Research is the first step in any analysis process. Conduct research like employee evaluations or use statistics and trends on market share to get your data. Once you have your data, you can use your framework to organize it.

If you focus on your competencies and what your company does well, you want to use SWOT . Compile data surrounding that framework and go over it. You may want to leverage strengths against potential threats in the next steps.

The final steps in conducting an internal analysis will have you compare your original priorities to your data.

Taking that moment to realign your original priorities with what the data says is important to creating a strategy.

Assess possible threats to your goal and create and apply strategies based on data. This strategy should support the research and framework that you set up in the previous steps.

There are many benefits to conducting research on your business, but let’s talk about the biggest one: a competitive edge . Rival businesses also use effective internal analysis strategies.

Conducting an internal analysis will give your business a competitive edge.

Your strengths are your people, technology, and your market share. A business that has high intellectual human capital is a competitive one.

Your organization needs valuable knowledge about your strengths to know how to use them best. The best way to do that is with an internal analysis .

Knowing ahead of time where your potential pain points are and reviewing buyer personas are part of a successful marketing campaign . By researching and using a framework that supports your campaign, your company will generate effective marketing and you can even do so with a qualified digital marketing agency to help you out.

It isn’t enough to talk about strategy. Your business leaders have to follow up to continue addressing your weaknesses. You want to measure your success and see that your plans are working. This process benefits more than the business. It benefits everyone, from employees to customers.

Recognize company strengths and weaknesses in your organization by conducting internal analysis today.

Anne-Gaëlle is a self described "third culture kid" who trained as a journalist before dedicating herself to all matters marketing. Finding digital marketing strategy particularly inspiring she loves it when it's integrated with her second passion: sport. Just ask her about Perrier's especially awesome adverts at Roland Garros!

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What is an Internal Analysis? GAP, SWOT & The Importance of Internal Analysis

CEO Avada Commerce

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Before designing a specific plan to advertise a product or promote the business, it is crucial to do informative research digging into every aspect of the company. Besides external elements like customer insights, environment, or competitors, business owners also need to care about internal analysis , which provides essential data about the organization’s competency, cost position, and competitive viability in the marketplace.

Knowing its importance to businesses, we have this post today that will cover the definition, guides, and reasons why you should conduct internal analysis . If you are about to develop strategic planning objectives to grow your company or advertising campaign, let’s dive in!

What is an Internal Analysis?

Internal Analysis is basically an examination of the internal factors of a company within its industry. Data that is taken from the internal analysis will bring about more knowledge of its basic competencies and the desirable improvements. Relying on this type of information, businesses will know what to do to meet customers’ demands and interests in their target market.

Now, let’s take a better look at what internal analysis focuses on.

The internal elements that were mentioned refer to the strengths and weaknesses of a company. The strengths are what a company can do better than others, enabling it to take advantage of possible opportunities existing in the market. On the other hand, weaknesses look at the company’s minus point, indicate future threats, and prevent the firm’s available strategies.

Different from external factors that vary according to environment and competitors, internal factors are considered controllable factors. That means the company has an impact and control over these factors. Being personal and physical, internal factors can be changed and modified by the company itself.

Internal environment includes the individual resources and capabilities of a company. They might be:

• The technology, patents, designs, financial, managerial resources, and more.
• The business’s ability to generate superior quality, organize supply chains, and access to the input.
• Intangible assets (company’s name, company’s image, foreign tie-up, and more)

Internal aspects can be evaluated since they also consist of functional areas of marketing, finance, production, human resources, research and development, and general management.

When doing internal analysis, business marketers identify the competencies of their companies to take advantage of opportunities and solve the problems resulting from the threats. Once they know their competencies, new ideas and strategies can be created to improve the product and grow the sales.

It is essential to determine a company’s strengths and weaknesses before setting up or changing anything of the strategies. By conducting the internal analysis, managers and marketers will have a better knowledge of what devote to sales, prices, profits, market share, or the relations between them and other essential aspects.

Sometimes, two competitors working in the same industry and targeting the same customer group share the internal strengths and weaknesses. However, most of the time, they have a different internal environment.

• What is a Gap Analysis?
• What is Marketing Audit?
• What is International Marketing?
• What is Market Research?

The Importance of Internal Analysis

Internal analysis is suggested to all business managers since it results in a total understanding of the company is working well and the shortage and gaps. From then, businesses can develop strategies to stop possible threats and alter the identified weaknesses. In particular, here are the reasons why you should conduct an internal analysis.

Determining strength and competency

One key reason you should use an internal analysis is that it provides you with data about your firm’s level of strength and competency. It is important to know what your superior characteristics to focus on.

When a company invests money in updated technology systems and equipment used to fulfill their work and product the services, they will find it easier to increase sales and planning strategies. What’s more, the strength and competency of a company can be determined by analyzing its expertise, capabilities, and resources of the organization itself. The more solid the brand identity is, the stronger the competency will be.

Determining organizational weaknesses

Opposite to the strong organization, the weak one hardly applies updated technology. They are regarded as weak when they don’t have enough expertise, and their assets are defective.

In addition to the strengths, the internal analysis also identifies organizational weaknesses existing within the firm. That is, it will help managers figure out which aspects of the organization need improving and altering and which goals are not being realized.

When the shortages and minus points are indicated clearly, you can take a look at your planned strategies and make possible changes to get over wrong objectives and get rid of organizational weaknesses that stop the company from developing typically.

Determining cost position and opportunity

Additionally, an internal analysis can identify the cost position and incoming opportunity of a business.

When it comes to cost position, it consists of the business’s ability to gain profits, manage resources, and transfer special value to its consumers. Their competitor often unmatches the way they fulfill those missions. When conducting an internal analysis, business managers will have a chance to find out the cost position of their firms within the industry market and their possibilities to approach and engage new opportunities in the intended environment.

In terms of new opportunities, they may be capital business relationships, future relationships in overseas markets, and acquirement of the potential competitors. Using a detailed internal analysis means that you have a better understanding of the way you prepare and the specific strategies to take advantage of opportunities for business growth.

Predicting approaching threats

The higher you are in your industry’s position map, the more threats you have to suffer from. To maintain your business’s position in the long term, you have to be always aware of it since this is an ongoing task.

More and more organizations take a step in your market to join the competition. While the newbies easily get attraction from consumers thanks to their innovations and potential to quickly develop, old companies like you might find it challenging to hold the position firm.

What’s more, the world is changing dramatically with multiple new trends and events. They can bring opportunities to grow businesses, but sometimes they are approaching threats.

That’s why business managers should have an internal analysis that will provide them with useful information predicting the rising chance of risk, which will help you promote your strengths, prepare for threats, and keep your company developing. With the help of internal analyses, you will surely be aware of changes within your market, the economic, technological, political, social factors, and even strategies of your rival businesses that can damage your marketplace position.

Determining competitive viability

Finally, an internal analysis that is set up well can help you discover the competitive viability of you in your marketplace.

A company is considered competitive and viable when it has the services or products that other competitors find hard to match. A competitively viable company directly force its competitor business to change their strategies and make more moves to get the products that are as good as its services. Those competitively viable companies often apply edge proprietary technology to their supply chains and enforced quality control standards.

A competitively viable organization often own high intellect human capital for themselves when it comes to human resource factor. They are well-qualified and skillful, whom are the best employees having excellent expertise and innovations devoting to their generating operations. What’s more, the competitively viable businesses also have consistently increased sales, climbing market shares, and own high-efficient supply chains.

An internal analysis should be used to identify your supplier network’s success and performance, brand credibility, customer trust, and sales level. That information taken from a detailed internal analysis can be used as an essential metric to adjust the existing business strategies, improve the quality of services, and turn into a stronger participant in your industry competition.

GAP Internal Analysis

What is gap internal analysis.

Gap Internal Analysis is a review to determine the gap between the optimized allocation and integration of inputs and the current allocation level. Easily put, Gap internal analysis refers to the following tasks:

• Comparing the latest level of performance of the firm or strategic business unit with the intended objectives.
• Identifying, advocating, or recording the different changes in business demands as well as possibilities.

Via the data from Gap internal analysis, businesses will know when and what to do to adjust the existing strategy to reduce the gap, especially when the business has not performed well to approach the set goals.

The main factor Gap internal analysis look at is any areas having opportunities for business growth. That is, people doing Gap analysis will spend time on the gap between actual or anticipated values and the values that business is looking forward to reaching. The gap in business performance, or Performance gap , happens when the organization cannot fulfill the objectives that are already set.

Once the Gap analysis is done well and effectively, businesses can draw out the best campaigns or business moves to close the gap. In case the business managers don’t start creating new strategies to close the gap, the internal gap analysis means nothing.

You must have heard about the five-year objective or ten-year objective, right? They are often set by companies when they want to plan for their future results. To meet that set goals, they often work hard to discover where and how to reach them via the current performance level. Then the variance between the business of today and that of five years or ten years later will be the gap.

That’s how the performance gap is found. When deciding to have a gap internal analysis, business managers or marketers often make a comparison of the predicted level of sales and market shares of the company and the level of profit that the shareholders are expecting to gain.

Four elements of Gap internal analysis

The action of finding the gap between the current performance and the desired goal is also known as planning gap . To plan the gap well, business people need to consider the four elements as follow:

• Element #1 - Product-line Gap: This is a portion of the gap that is decided by each product within the whole product line.
• Element #2 - Distribution Gap: When this element of gap happens, it must be due to the defective distribution process.
• Element #3 - Usage Gap: This kind of gap results from the lack of usage of the products or services.
• Element #4 - Competitive Gap: Lastly, this element of the gap is because the business fails in setting and promoting the marketing strategies, which leads to the loss of sales to their rival businesses.

Some businesses face all of the above elements of the gap, so they need a unique set of actions to close the general gap.

Steps in Gap internal analysis

There are three steps in conducting a successful gap in internal analysis:

• Step 1 - Determining the current strategy : Let’s predict the environment that the current strategy is depending on and identify it.
• Step 2 - Predicting the future : Here, you should think about the incoming environment and look back on the assumptions and predictions that you have made in step 1. Are there any differences? What are they? Is there any gap?
• Step 3 - Analysing the significance of the gap : After recognizing the performance gap that exists, you need to assess the level of this gap between the current and future environments for the company. Identify to see whether it is worth making changes in set goals or not. If there is a change in strategies, will things turn to the positive side? Will the changes in strategy reduce or close the gap?

Read more: What is a Gap Analysis?

How to conduct Gap internal analysis?

When it comes to what Gap internal analysis review, business managers should take into account business-level strategies, functional level strategies, corporate-level strategies, and environmental position.

To prevent yourself from making the wrong changes that your consumers don’t expect, you should spend time finding out whether the performance gap exists. Therefore, before adjusting any areas of your strategies, ask yourself the following questions first:

• Is there any gap existing between current business performance and the state of affairs that your business is expecting in the future?
• Is this performance gap worth noticing, or it is just a small one that you should not pay too much attention to?
• Are your staff and the whole organization stimulated enough to close the gap with you?
• Are you planning something to reduce the gap? Or do you believe that there will be potential ways to close the gap?

When noticing the reasons leading to the failed performance are spread throughout the firm, Gap internal analysis seems to be the most suitable tool you should use to determine alternative strategies. In some situations, you can also look at Portfolio analysis to trace this failed performance to the business’s desired portion instead.

To shorten or reduce the performance gaps, a business manager can take some strategic activities that follow:

• Making a small or large change in the current strategic arrangement for the business units.
• Including more units to the business portfolio.
• Don’t hesitate to get rid of defective business units that are doing unsatisfactorily.
• Taking care of the business climate and conditions to improve its quality, which is suitable for the existing poor performance.
• If you make possible changes to improve your strategies, but the gap remains unchanged, consider your objectives. If they are too high to reach or unrealistic, reducing corporate performance goals.

SWOT Internal Analysis

What is swot internal analysis.

Swot internal analysis is an important analysis and review of strengths and weaknesses, opportunities, and threats relevant to the internal and external environment factors impacting the success of a business. It is known as S(trengths) - W(eaknesses) - O(pportunities) - T(hreats) analysis.

In this analysis, strengths and weaknesses are regarded as internal factors of a business firm. They may include the financial, technological, and managerial environment. Whereas, opportunities and threats are called external factors while analyzing the firm’s performance. Those external factors come from the outside environment, such as new trends, changes in laws, markets, social, technology, and rival businesses’ moves.

Strengths and weaknesses analysis refers to the strong points and weak points of the organization itself. In contrast, pportunities and threats analysis focus on the profit and market sales that can be achieved. Strengths and weaknesses are analyzed with an attempt to evaluate the firm and adjust it to meet the demands of the external environment.

On the other hand, what opportunities and threats look at is the profit taken from chances in the industry market or can be lost due to looming threats. That means they are likely to focus on the estimation of the external environment of business. For example, they can review falling demand, new competitors, technology advancements, government regulation, changing tastes and habits of consumers, etc.

Four elements of Swot

You have known what SWOT stands for, now let’s take a deeper look at the detailed meanings of strengths, weaknesses, opportunities, and threats:

• S - Strengths : It is what a company can do well to get a strategic advantage over rival competitors. Strengths can be the availability of valuable resources or the company’s ability to use those resources in a better way than its rivals do.
• W - Weaknesses : On the other hand, weaknesses are shortages or limitations of a firm that can bring about strategic constraint or disadvantages. While strengths are the availability of something, then weaknesses are the non-availability of useful resources or the fact that the firm cannot manage the resource to perform particular actions. That is the shortcoming of an organization to do something better than others within the industry.
• O - Opportunities : They are not decided by the company itself but the external environment. Opportunities are favorable trends or conditions that a firm can take advantage of to strengthen their brand, position, and sales.
• T - Threats : Opposite from opportunities, threats are unfavorable events or conditions that may result in a high chance of risk or cause damages to the organization. Those threats can be severe that the firm cannot be equipped enough to suffer from.

Importance of Swot internal analysis

Swot analysis is an effective tool to determine when and how the business can reach its intended goals as well as discover new products and new market chances. It is not only an internal determination but also an external one that allows businesses to identify the strategic actions to make, which can meet the demands of its business environment.

In general, Swot internal analysis is used with an attempt to:

• Find out the weak points of the company in terms of current skills and particular resources.
• Profit from the strengths of the business to meet its goals more quickly and easily.
• Take advantage of opportunities in the business environment that can bring about high profits.
• Identify possible threats to get rid of business hazards.
• Focus on the particular areas of the company that are profitable and can be exploited completely.
• Focus on the shortages to design more defensive planning to avoid any downfall, especially those related to sales and market shares.

Swot internal analysis refers to the firm’s current relations and its environment as well as concerns about the possible effects of the strategy adjustment. As a result, it is suggested for businesses, especially those focusing on corporate, functional, and competitive strategy levels. Data taken from Swot analysis is surely useful and informative that helps business people draw out suitable decisions in changing their strategies. It is because that the organization becomes proactive instead of being reactive. They will seek to handle the difficulties from the environment, which is likely the basic target of businesses’ strategies.

Swot analysis does include a more specific type that is known as the organizational analysis . This kind of analysis will look at major elements related to the organization, such as business structure, production process, marketing, financial situation, leadership, personnel, company brand, credibility, position, and more. Swot analysis, on the other hand, reviews economic factors, environmental factors, social situations, political factors, state of competition, state of technology, laws, incoming trends, consumer demands, import, export, foreign exchange issues, and more.

Swot analysis is made when important members of a company (main executives, functional heads, etc.) brainstorm those relevant factors, but it is not a brainstorming session. Swot analysis is more systematic in which a business manager can indicate an image of his firm before they choose a particular strategy. They come together to predict and research the possible elements that can impact the business in the long run. They clarify the perspective of the firm at a specific point in time.

By analyzing the Swot model, business people get a static image of the organization under the impacts of environmental conditions.

Therefore, Swot analysis can help the business in the following strategic actions:

• Highlight the strengths that the organization is expecting to take advantage of.
• Get rid of weaknesses that force the company to dangers and risks made by the outside environment.
• Indicate the shortages in the company’s present skills and resources.
• Change the negative elements like threats and weaknesses into a new chance to exploit.
• Exploit the strengths of the firm appropriately to take the right opportunities within the industry market.

Swot Matrix

To analyze the relationships of four elements of Swot analysis more intensely, experts designed a 2 x 2 matrix to represent them. There are some key points you need to keep in mind before understanding Swot matrix, which are:

• Positive considerations are the strengths and opportunities
• Negative considerations are the weaknesses and threats
• The swot matrix looks at four types of strategies. They are SO, WO, ST, and WT
• Swot matrix is considered a matching tool for managers in business analyzing process

The Swot matrix is a conceptual and systematic framework that refers to match opportunities and threats as external factors with strengths and weaknesses as internal factors for the organization. When combining them, they turn into four couples of different strategic alternatives with different benefits.

• Set 1 - SO Strategies : This couple is made of the strengths and opportunities. The related strategy is to promote the strengths of the company that are connected to its environmental opportunities. The basis of this strategy is using internal strengths to exploit external opportunities of the organization. This strategy focuses on strengths and opportunities. Therefore, when there’s a weakness, the firm using this strategy will try to turn such weaknesses into strengths. Also, when there’s a threat happening, the firm will focus on opportunities and avoid such threats instead of getting rid of them.
• Set 2 - WO Strategies : In this strategy, the business will spend time getting over weaknesses and tapping its opportunities. It is kinda strange when business doing this strategy will improve the internal weaknesses rather than strengths by taking advantage of external opportunities. To be more specific, when having internal weaknesses in some aspects of the business, the firm will build up such competencies internally. Additionally, they can take advantage of opportunities that are existing in the external environment.
• Set 3 - ST Strategies : Businesses using ST strategy will use internal strengths to reduce or eliminate external environmental threats. As you can see, the critical point of ST strategy is maximizing the effect of internal strengths and minimizing the external environmental threats at the same time.
• Set 4 - WT Strategies : The last set is called defensive strategies that are used to suffer from both negative factors. They are the internal weaknesses as well as external threats. In this strategy, businesses need to focus on retrenchment, joint ventures, and liquidation strategies to respond to those incoming factors.

Each position within the Swot matrix indicates different objectives and positions of business. That’s why the Swot matrix is used more and more to bring about multiple strategic alternatives. Being a strategic tool to plan for the future actions of business before coming up with any changes.

When setting up a Swot matrix, an organization will identify the position that they are at and set the goal of moving from one position to another wanted position in such a matrix. The Swot matrix is often used before launching a particular strategy for a strategic business unit. However, the Swot matrix sometimes also takes place in preparation for the whole company.

Criticism behind Swot matrix

Although Swot internal analysis has multiple advantages, there are still opposed opinions criticizing the Swot analysis, especially the Swot matrix. Here are the most common negative comments about it:

• Being a static evaluation of the business, the Swot matrix just looks at a particular time.
• Conducting the Swot matrix means that business people are overfocusing a single internal or external element when formulating strategies.
• Swot matrix is more about single elements rather than how to reach a competitively viable position that seems to be the main target of a business within the market place.

For that reason, when conducting business analysis to help promote the company, a strategist and managers have to spend more time preparing multiple swot matrix for different periods of time and different business objectives.

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• What is Stealth Marketing?
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Internal analysis is undeniably important for any business. When conducting an internal analysis, business people will have a chance to look into their companies better in terms of internal factors like strengths, shortage, opportunities, etc. Spend time and build for yourself a detailed and useful internal analysis before making any changes or launching any marketing strategy.

Hopefully, this post helps you answer everything you wonder about internal analysis and the importance of it for your business’s future. If we miss something, do not hesitate to leave us a comment in the section below. Share it with your friends if you find it helpful and visit our site for more interesting articles.

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