Internal Analysis
Understanding a business in depth is the goal of internal analysis. This analysis is based on the resources and capabilities of the firm.
Resources: A good starting point to identify company resources is to look at tangible, intangible, and human resources.
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 the main source for a competitive advantage. Such intangible resources include reputational assets (brands, image, etc.) and technological assets (proprietary technology and know-how).
Human resources or human capital are the productive services human beings offer the firm in terms of their skills, knowledge, reasoning, and decision-making abilities.
| RESOURCE | MAIN CHARACTERISTICS | KEY INDICATORS |
| TANGIBLE | ||
| Financial | The firm’s borrowing capacity and its internal fund’s generation determine its capacity to weather fluctuations in demand and profits overtimes. |
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| Physical | The physical resources related to plant, equipment, assets, technology, raw materials. |
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| INTANGIBLE | ||
| Technological | The stock of technology in the form of proprietary technology (copyright, patents, trade secrets) and expertise in the application of technology (know-how). | |
| Reputation | Reputation with customers through the ownership of brands, established relationships with customers, the reputation of the firm’s products and services.The reputation of the company with suppliers, employees, etc. |
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| Human Resources | Training and expertise of employees determine the skills available to the firm. The adaptability of employees determines key aspects of the strategic flexibility of the firm. Commitment and loyalty of employees determine the capacity of the firm to attain and maintain a competitive advantage. |
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Capabilities
Resources are not productive on their own. The most productive tasks require that resources collaborate closely together within teams. The term 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. To identify the firm’s capabilities we will use the functional classification approach. A functional classification identifies organizational capabilities in relation to each of the principal functional areas.
| Functional Area | Capability |
| Corporate |
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| Information Management |
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| Research and Development |
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| Product Design |
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| Marketing |
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| Sales and Fulfillment |
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