STRATEGIC ANALYSIS

(INTERNAL AND EXTERNAL

ANALYSIS)
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5 TH L E C T U R E
 CHAPTER OUTLINES
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External Analysis
Internal Analysis
Evaluating Internal and External Analysis
 DEFINITIONS
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External analysis involves evaluation of the broad and task

environments to determine trends, threats and opportunities
and to provide a foundation for strategic direction.
Also called:
Environmental scanning
Industry analysis
Focuses on identifying and evaluating trends and events
beyond the control of a single firm, such as increased foreign
competition, an aging society, information technology, and
the computer revolution.
Reveals key opportunities and threats confronting an
organization so that managers can formulate strategies to take
advantage of the opportunities and avoid or reduce the impact
of threats
 DEFINITIONS
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Meanwhile, as for the internal analysis, it includes a

broader evaluation of all of the organizations
resources and capabilities, to determine strengths,
weaknesses and opportunities for competitive
advantage and to identify organizational
vulnerabilities that should be corrected.
 THE IMPORTANCE OF EXTERNAL STRATEGIC ANALSIS
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To identify strategic opportunities and threats in the

organizations operating environment that will affect how it
pursues its mission.
Help organization to have an assessment of the competitive
structure of the organizations industry including competitive
position of the specific organization and its major rivals.
Help organization to assess the impact of globalization on
competition within industry, country, region and continents.
Help organization to determine how macroeconomics, social,
government, legal, international, and technological factors
have an impacts towards organization.
THE IMPORTANCE OF INTERNAL STRATEGIC ANALYSIS
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It serves to pinpoint the strengths and weaknesses of

the organization such as resources, capabilities,
distinctive competencies and competitive advantage.
Help organization to achieve superior efficiency,
quality, innovation and responsiveness to its
customers.
By knowing the strengths, it can lead to superior
performance in many aspects whereas by knowing
organization weaknesses, it can improve the
performance from inferior to superior performance
 EXTERNAL ANALYSIS
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The purpose of an external audit is to develop a finite list of

opportunities that could benefit a firm and avoid threats.
External forces (Key External Forces) can be divided into five
broad categories:
a) Economic forces;
b) Social, cultural, demographic, and environmental forces;
c) Political, governmental, and legal forces;
d) Technological forces; and
e) Competitive forces.
External trends and events significantly affect all products,
services, markets, and organizations in the world
Changes in external forces translate into changes in consumer
demand for both industrial and consumer products and
services
 EXTERNAL ANALYSIS: KEY EXTERNAL FORCES
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Economic forces
Economic factors have a direct impact on the potential
attractiveness of various strategies.
For example, as interest rates rise, then funds needed for
capital expansion become more costly or unavailable.
Variables: Inflation rates, government budget deficits,
Unemployment trends etc.
EXTERNAL ANALYSIS: KEY EXTERNAL FORCES
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Social, cultural, demographic, and environmental forces

Have a major impact upon virtually all products, services, markets,
and customers.
Small, large, for-profit, and nonprofit organizations in all industries
are being staggered and challenged by the opportunities and threats
arising from these changes.
Analysis:
Population growing older
Increase in younger population
Gap between rich and poor widening etc.
Variables: Number of births, number of deaths, Social security
programs, life expectancy rates, trust in government, Government
regulation, social responsibility etc.
 EXTERNAL ANALYSIS: KEY EXTERNAL FORCES
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Political, governmental, and legal forces

Economic factors have a direct impact on the potential
attractiveness of various strategies.
For example, as interest rates rise, then funds needed for
capital expansion become more costly or unavailable.
Variables: Inflation rates, government budget deficits,
Unemployment trends, general elections etc.
 EXTERNAL ANALYSIS: KEY EXTERNAL FORCES
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Technological forces
Represent major opportunities and threats that must be
considered in formulating strategies.
Technological advancements can create new competitive
advantages that are more powerful than existing advantages.
Not all sectors of the economy are affected equally by
technological developments.
Example: The communications, electronics, aeronautics, and
pharmaceutical industries are much more volatile than the
textile, forestry, and metals industries.
Cell phone and wireless Internet access are becoming
common.
EXTERNAL ANALYSIS: KEY EXTERNAL FORCES
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Competitive forces
Collection and evaluation of information on competitors is essential
for successful strategy formulation.
Collecting and evaluating information on competitors is essential for
successful strategy formulation.
Identifying major competitors is not always easy because many firms
have divisions that compete in different industries.
Most multidivisional firms generally do not provide sales and profit
information on a divisional basis for competitive reasons.
Also, privately held firms do not publish any financial or marketing
information.
An important part of an external audit is identifying rival firms and
determining their strengths, weaknesses, capabilities, opportunities,
threats, objectives, and strategies. (Refer Figure 2.2 Porters Five-
forces Model)
EXTERNAL ANALYSIS: KEY EXTERNAL FORCES
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 EXTERNAL ANALYSIS:
The Process of Performing an External Audit
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1) The process of performing an external audit must involve as

many managers and employees as possible.
2) To perform an external audit, a company first must gather
competitive intelligence and information.
a) Individuals can be asked to monitor various sources of
information such as key magazines, trade journals, and
newspapers.
b) The Internet is another source for gathering strategic
information, as are corporate, university, and public
libraries.
c) Suppliers, distributors, salespersons, customers, and
competitors represent other sources of vital information.
 EXTERNAL ANALYSIS:
The Process of Performing an External Audit
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3) Once information is gathered, it should be

assimilated, evaluated, and prioritized.
4) Key external factors should be important to
achieving long term and annual objectives,
measurable, applicable to all competing firms, and
hierarchical in the sense that some will pertain to
the overall company while others will be more
narrowly focused.
 EXTERNAL ANALYSIS:
INDUSTRIAL ORGANIZATIONAL VIEW
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Industrial Organization view is an approach that

belief the Industry or known as external factors more
important than internal factors.
Some of the elements under I/O view such as the
following:
Performance determined by industry forces
Focus on analyzing external forces and industry variables as a
basis to gain and keep competitive advantage.
Competitive advantage is determined by competitive
positioning within industry.
Each factor is essential for the organization to take into
consideration for formulating strategies
 EXTERNAL ANALYSIS
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Opportunities
A condition in the general environment that, if exploited, helps a
company achieves strategic competitiveness.

Opportunities are also conditions in the external environment that

allow a firm to take advantage of organizational strengths, overcome
organizational weaknesses and neutralize environmental threats.

Threats/Challenges
A condition in the general environment that may hinder a
companys efforts to achieve strategic competitiveness.

It is also known as a condition in the external environments that

may stand in the way of organizational competitiveness or the
achievement of stakeholder satisfaction
EXTERNAL ANALYSIS
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 EXTERNAL ANALYSIS:
SOURCES OF INFORMATION
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Information is available from Both Published and

Unpublished Sources
Unpublished sources: customer survey, market research,
speeches of professional, shareholders meeting, interview
conversation, television programs
Published sources: periodicals journals, reports, government
documents, abstracts, books, directories
Internets
 INTERNAL ANALYSIS
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All organizations have strengths and weaknesses in

the functional areas of business.
No enterprise is equally strong or weak in all areas.
Internal strengths/weaknesses, coupled with
external opportunities/threats and a clear
statement of mission, provide the basis for
establishing objectives and strategies.
 INTERNAL ANALYSIS
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Key Internal Forces (Distinctive competencies )

A firms strengths that cannot be easily matched or imitated by
competitors are called distinctive competencies.
Building competitive advantages involves taking advantage of
distinctive competencies
Strategies are designed in part to improve on a firms
weaknesses, turning them into strengths, and maybe even into
distinctive competencies.
 INTERNAL ANALYSIS:
The Process of Performing an Internal Audit
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The process of performing an internal audit closely parallels the

process of performing an external audit.
1) Representative managers and employees from throughout the
firm need to be involved in determining a firms strengths and
weaknesses.
2) Performing an internal audit requires gathering, assimilating,
and evaluating information about the firms operations.
3) Compared to the external audit, the process of performing an
internal audit provides more opportunity for participants to
understand how their jobs, departments, and divisions fit into
the whole organization.
4) Financial ratio analysis exemplifies the complexity of
relationships among the functional areas of business.
 STEPS IN PERFORMING INTERNAL ANALYSIS
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Step 1: Gather competitive intelligence &

information.
Step 2: Assimilate and evaluate the information.
Step 3: Series of meeting to identify the most S&W
factors facing by organization.
Step 4: List out the key factors.
Step 5: Prioritize the list by have it ranked from the
most important to the least important.
Step 6: Communicated and distributed a final list
widely in the organization.
 INTERNAL ANALYSIS:
RESOURCE BASED VIEW (RBV)
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The RBV approach to competitive advantage

contends that internal resources are more important
than external factors for a firm in achieving and
sustaining competitive advantage.
Resources are the sources of firms capabilities,
broad in scope and cover a spectrum of individual,
social and organizational phenomena.
Its also a firms assets.
 INTERNAL ANALYSIS:
RESOURCE BASED VIEW (RBV)
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Internal factors can be grouped into 3 categories:

a) Physical resources (plant, equipment, location,
technology, raw materials, machines, etc.
b) Human resources (employees, training, experience,
intelligence, knowledge, skills, abilities, etc.
c) Organizational resources (firm structure, planning
processes, information systems, patents,
trademarks, copyrights, databases, etc.
 ORGANIZATIONAL TANGIBLE RESOURCES
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Financial Resources
Funds allocated
The organizations ability to generate internal funds

Organizational Resources
The firms formal reporting structure and its formal planning,
controlling and coordinating systems
Physical Resources
Sophistication and location of a firms plant and equipment

Access to raw materials

Technological Resources
Stock of technology, such as patents, trademarks, copyrights, and
trade secrets
 ORGANIZATIONAL INTANGIBLE RESOURCES
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Human Resources
Knowledge
Trust
Managerial capabilities
Organizational routines
Innovation Resources
Ideas, Scientific capabilities, Capacity to innovate
Reputational Resources
Reputation with customers: Brand name, perceptions of product
quality, durability, and reliability.
Reputation with suppliers: For efficient, effective, supportive, and
mutually beneficial interactions and relationships.
COMPONENTS OF INTERNAL ANALYSIS LEADING TO COMPETITIVE
ADVANTAGE AND STRATEGIC COMPETITIVENESS
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Value chain analysis in private
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 Value chain analysis in government
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Objective 1 Objective 2 Objective 3

(Organization 1) (Organization 2) (Organization 3)

Mission
 Value chain analysis in government
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Public value analysis
Financial impacts on current or anticipated
income, asset values, liabilities, entitlements,
and other aspects of wealth or risks to any of the
above
Political impacts on personal or corporate
influence on government actions or policy, role
in political affairs, or influence in political parties
or prospects for current or future public office
Social impacts on family or community
relationships, social mobility, status, and
identity.
Strategic impacts on economic or political
advantage or opportunities, goals, and resources
for innovation or planning
Ideological impacts on beliefs, moral or ethical
commitments, alignment of government actions
or policies or social outcomes with beliefs, or
moral or ethical positions
Stewardship impacts on the publics view of
government officials as faithful stewards or
guardians of the value of the government itself in
terms of public trust, integrity, and legitimacy
Stakeholder analysis
Involving multiple participants with
wide knowledge of the stakeholder
environment
Looking widely to identify all
relevant stakeholders through
brainstorming and related methods
to stimulate divergent thinking and
include multiple opinions and
information sources
Identifying multiple stakeholder
roles, internal and external to the
organization setting
Identifying stakeholder expectations,
influence potential, past and future
participation possibilities, and level
of interest
INTEGRATING STRATEGY AND CULTURE
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Organizational culture a pattern of behavior that

has been developed by an organization as it learns to
cope with its problem of external adaptation and
internal integration, and that has worked well
enough to be considered valid and to be taught to
new members as the correct way to perceive, think
and feel.
Challenges?
 RESOURCES AS THE FIRMS CAPABILITIES
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Capabilities represent the capacity to deploy

resources which lies in the firms employees
(competitive advantages and functional expertise)
Functional expertise as follows:
a) Management
b) Marketing
c) Finance/accounting
d) Production/operations
e) Research and development
f) Management information systems etc.
The links among resources, capabilities, and competitive
advantage
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A Functional Classification of Organizational Capabilities
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 MANAGEMENT
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Planning Organizing Motivating

Staffing Controlling
 MARKETING
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Selling Product and

Customer
products or service
analysis
services planning

Pricing Distribution

Marketing can be described as the process of defining, anticipating,

creating, and fulfilling customers needs and wants for products and
services
 FINANCE
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Investment Financing
decision decision

Dividend
area
The functions of finance/accounting comprise three decisions: the
investment decision, the financing decision, and the dividend decision.
 RESEARCH AND DEVELOPMENT
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Organization jointly explore; assess and decide the

what, when, where, why and how much of R&D
Priorities, cost, benefits and rewards associated with
R&D are discussed openly and shared
Internal R&D an organization operates its own
R&D activities
Contract R&D independent researchers @
independent agencies
 MANAGEMENT INFORMATION SYSTEM
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Collects, codes, stores, synthesizes and present

information in such a manner that it answers
important operating and strategic questions
 INTERNAL ANALYSIS
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During the last 4 decades, Malaysia has transformed itself

from a commodities-dependent economy into a major
world source for electronic and computer parts
Strengths Malasysia is the world's largest produces of rubber, palm
oil, pepper and tropical hardwoods, and is still a net
exporter of crude oil. All this provides a solid platform for
economic growth

Malaysia's relative insulation from global energy price

shocks is being eroded. It isnow likely that within the
next few years Malaysia will become a net importer of oil.
Weaknesses Malaysia's economic openness can be as much of a
burden as a benefit, since it confers a high degree of
vulnerability to global growth and capital flows.
 EXTERNAL ANALYSIS
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The opportunity for private-sector-led growth will improve as the

government continues divestment of state shareholdings in order
to raise funds to narrow the budget deficit.
Opportunities
Malaysia's majority Muslim population and the government's
ongoing efforts to boost Islamic finance could see Malaysia
become a major financial hub over the medium-term horizon.

Wages are higher in Malaysia than in a number of its competitors,

such as China and Vietnam, which could be a long-term hindrance
to economic expansion. To maintain its competitive edge,
Threats Malaysia needs a steady stream of inward investment.
Malaysia's dependence on migrant labour, particularly for low-
skilled jobs, poses a threat to long-term economic stability.