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Internal Environmental Analysis

Internal environmental analysis is the conscious and objective search for the organizational strengths and weaknesses that are likely to provide a competitive advantage or disadvantage. Within the strategic management process, three important questions must be answered: (a) What should we do? (b) What can we do? and (c) What do we want to do? The answer to the first question is provided by an analysis of the external environment. What we want to do is provided by the mission, vision, and values. Internal environmental analysis addresses the question of what we can do.

Internal environmental analysis is an integral part of situation analysis, the first stage of strategic planning. The goal of situation analysis is, as the name implies, to help strategic planners understand the present situation. Therefore, situation analysis is essentially a process of data gathering and analysis, so internal environmental analysis involves collecting and analyzing information about an organization’s strategic capacity. The process of internal environmental analysis requires that planners look inside their organization and identify the organization’s strengths and weaknesses. This information, in association with other types of data (external strategic issues, mission, vision, and so on), is collected and analyzed as part of situation analysis and becomes the basis for strategy formulation. In all likelihood, the strategy formulated will require that changes be made. Any assessment of the probable success of the strategy requires a thorough understanding of the organization’s strengths and weaknesses.

Identifying Strengths and Weaknesses

The first step in internal environmental analysis is the identification the organization’s strengths and weaknesses. There are two important considerations in this step. First, one must determine how to conduct the search. The most commonly used approach is to think of the organization in terms of a number of functional subsystems such as clinical operations, marketing, community relations, human resources, finance and accounting, information systems, and so on. The organization’s value chain can also be used for organizing the search. Customarily, once the subsystems are identified a list of strengths and weaknesses for each subsystem is developed.

The second consideration relates to the “depth of the probe” or the extent to which each subsystem is searched. Using a radar screen analogy, we first scan the various subsystems looking for possible strengths and weaknesses. When we identify possible strengths and weaknesses, it is necessary to probe deeper to see which strengths have the potential to make us effective competitors in our market and which weaknesses must be corrected if we are to remain competitive. When these competitively relevant strengths and weaknesses are identified, each one must be carefully evaluated and we must decide the best way to maximize the competitive potential of the strengths and the best way to minimize the disadvantage created by the weaknesses.

Some Important Cautions about Internal Environmental Analysis

Internal environmental analysis creates several important challenges for strategic planners. First, internal analysis requires an open mind. It is difficult for leaders and employees who believe strongly in their organization to objectively assess “what we do well and what we do not do well.” It is equally difficult for demoralized leaders and employees to see the good things that take place in the organization. Effective internal environmental analysis requires that organizational members step back and take an objective look at strengths and weaknesses so they can focus on the actions needed to capitalize on strengths and minimize the adverse affects of weaknesses.

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