What Is an Internal Analysis and How to Conduct One
By Indeed Editorial Team
Updated November 16, 2022
Published September 29, 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Developing a comprehensive business plan requires you to know the answer to "What is an internal analysis?" A successful business strategy requires internal analysis to identify organizational strengths and weaknesses. By understanding internal analyses, you can increase your organization's competitiveness and advance your career as an internal auditor. In this article, we discuss the definition of internal analysis, share why these analyses are important, provide you with a guide to help you conduct an analysis and answer several FAQs related to internal analyses.
What is internal analysis?
Internal analysis refers to the examination of your company's internal processes, such as resources, assets and processes. These analyses help members of upper management identify areas of growth and ensure they make informed decisions. An internal analysis helps decision-makers to revise business strategies and plans. Collaborating with other professionals to combine the company's business plan with your internal analysis enables a holistic view of the company's functions. When conducting an internal analysis, you first have to choose a framework. Every framework includes its own tools, strategies and objectives to analyze internal processes. Here are some analysis frameworks to consider:
Gap analysis identifies your company's current performance with its desired performance. It refers to the gap between your goal and current operations. These analyses identify weaknesses in businesses and identify areas of improvement. If a company doesn't meet performance expectations, you collaborate with other professionals to determine how to use resources and improve performance.
Strategy analysis occurs when you perform internal assessments at regular intervals. This evaluation tool determines whether your company meets the goals outlined in the business plan. Strategic analysis contributes to your employer's decision-making process by providing them with this information.
SWOT analysis refers to existing strengths, weaknesses, opportunities and threats. This framework identifies both strengths and weaknesses within company operations. This method provides a holistic view of these operations and delivers an overview of your company's abilities. A SWOT analysis evaluates both internal and external components of company processes and develops projections about the company's future.
VRIO refers to valuable, rare, inimitable and organized. This analysis categorizes resources depending on particular traits. Use this analysis when you need to assess company resources to determine which are most valuable. VRIO analysis evaluates these resources regardless of their phase within the strategic model. It also identifies whether resources are easy to exploit and whether they're valuable or easy to imitate.
OCAT analysis refers to the Organizational Capacity Assessment Tool. This analysis assesses your company's internal performance with various factors and dimensions. The goal of this analysis is to determine strengths and weaknesses within the company. This tool also evaluates how the company's capacity changes over time.
Core competencies analysis
Core competencies analysis identifies which capabilities are most valuable to the company. It also determines which of the company's strengths are unique. This is important because unique competencies differentiate your company from others. When you identify these competencies, your employer then maximizes them and builds an advantage.
Why is an internal analysis important?
Here are some of the most important reasons for conducting an internal analysis:
Internal analysis identifies strengths, which helps upper management make informed decisions that improve the organization, and by extension, your work environment. Strong organizations promote system optimization and ensure all equipment is functional. Optimized systems increase productivity by eliminating potential obstacles. These analyses ensure that the organization meets its financial goals, strategic planning objectives and resource objectives. Internal analyses promote strong competencies that establish brand identity and capabilities.
An internal analysis identifies company weaknesses and outdated technology. This causes you to reflect upon ways to improve your processes and reduce resource consumption to increase efficiency. These analyses are opportunities to improve the organization and revise the company's business plan to overcome deficiencies.
Performing an internal analysis establishes your company's viability and competitiveness in its industry. Viable businesses are unique and provide innovation to customers and clients and growth and stability for employees. These companies require optimal efficiency and reduced resource consumption. Because these analyses identify a company's supplier network's effectiveness, sales and customer satisfaction, management can consistently improve the business.
These analyses determine the cost of your organization's processes based on its place in its industry market, along with determining potential business opportunities. They also identify its ability to attract future clients and customers. An internal analysis requires employers to manage resources and reduce expenses, which provides them with more money to develop the business. This establishes whether the company has the resources necessary to obtain business opportunities.
How to conduct an internal analysis
Here's how to conduct a proper internal analysis:
1. Set objectives
Remember to set objectives for your internal analysis, which helps you to determine the best methodology for your analysis. For example, consider finding new business opportunities and decreasing internal expenses. Consider the reason behind your analysis when setting your objectives. If your employer requires information about expenses across multiple departments, communicate with department leaders and review reports to present your findings to your employer.
2. Choose your framework
Choose the framework for your internal analysis to determine the best way to conduct the evaluation. This is important because different frameworks are better for identifying deficiencies in various departments. Review which frameworks are accessible and which ones you need to meet company needs. This helps you reach your objective more efficiently.
3. Conduct research
When conducting your internal analysis, you need to research your company's internal processes. Identify your company's resources, competencies and various areas of growth to generate reports after the analysis. If you don't know which methods to use for research, consider using employee interviews, reviewing financial reports and conducting assessments about the company's physical equipment.
4. Follow your framework
Remember to follow the framework you choose to generate the necessary data. For example, those using SWOT analysis need to create four different lists. These lists use every SWOT element as a heading. When gathering data with this framework, identify the strengths, weaknesses, opportunities and threats of internal processes. List this information systemically to create reports.
5. Set priorities
When you complete your framework and gather the necessary data, compare your findings to your established objective. Your data needs to help you and your employer make decisions. For example, those who want to increase technical capabilities need to identify which equipment requires updates. Consider which employees have suggestions for company improvements and how you can help meet their needs.
6. Apply findings
When you accumulate your findings, develop a plan that helps you meet objectives. During the conclusion of your internal analysis, you need to replace old machinery and find solutions for any issues with resources, equipment and other internal processes. When necessary, offer training to employees to ensure they navigate internal processes appropriately.
Frequently asked questions about internal analysis
Here are common FAQs about internal analysis:
What is the difference between internal and external analysis?
Internal analysis identifies opportunities for growth within your company's internal processes. External analysis identifies external factors that impact your business. These analyses identify threats within your company's immediate environment. For example, an external analysis is necessary if you work for a food company that changes their food product storage processes to comply with federal regulations.
Related: What Is External Analysis? (With Its Elements and Benefits)
Which questions do internal analyses ask?
There are several questions asked by internal analyses. They require you to examine the company's assets, along with which assets are strongest. Consider how the business differs from others within your industry and which resources are unique. When possible, you need to identify sustainable methodologies and processes to increase your company's competitiveness.
What is an example of an internal analysis?
When conducting a VRIO analysis, you determine which resources are rare and valuable. For example, computer science professionals frequently work with innovation and recent research that increases their competitiveness. This innovation is an example of a factor that differentiates your company from others.
What are the three steps of a SWOT analysis?
Here are the steps required to complete a SWOT analysis:
Identify factors. To begin, brainstorm factors related to your analysis, like strengths, weaknesses, opportunities and threats. Develop an in-depth assessment of these factors and how they contribute to your company's internal processes.
Analyze factors. When you complete your brainstorming, analyze these factors by combining similar factors and removing unnecessary data. From here, prioritize each factor depending on the rank order.
Identify risks. When completing your analysis, identify all positive and negative risks. Negative risks identify threats, while positive risks identify opportunities.
Now that you know the answer to the question "What is an internal analysis?" you will be better prepared to grow your skills and advance your career in strategic analysis.
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