Strategic Management - Importance of Internal Factor Analysis

Importance of Internal Factor Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Internal Factor Analysis Summary

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

2. The internal factor can be controlled and influenced.

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

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

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