Learning Objectives
By the end of this lesson, learners should be able to:
- Explain the purpose of internal strategic analysis.
- Differentiate resources, capabilities, and core competencies.
- Apply the resource-based view (RBV).
- Use the VRIO framework to evaluate strategic assets.
- Analyze organizational activities using the value-chain framework.
Learning Material
What Is Internal Analysis?
Internal analysis examines an organization’s resources, capabilities, processes, culture, technology, and performance in order to identify strengths, weaknesses, and sources of competitive advantage.
Executive Definition
Internal analysis is the executive process of understanding what the organization can do exceptionally well, where it is vulnerable, and which capabilities can support sustainable strategic advantage.
External opportunities create potential; internal capabilities determine whether that potential can be realized.
The Resource-Based View (RBV)
The RBV argues that sustainable competitive advantage arises from resources and capabilities that are valuable, rare, difficult to imitate, and effectively organized.
Strategic Implication
Two firms facing the same industry conditions may perform differently because their internal capabilities differ.
Resources vs Capabilities
|
Resources |
Capabilities |
|
Assets the organization owns or controls |
Ability to use resources effectively |
|
Tangible or intangible |
Embedded in processes and people |
|
Examples: cash, brand, patents, facilities |
Examples: innovation, customer service, analytics |
Capabilities usually create greater strategic differentiation than resources alone.
Types of Resources
Tangible Resources
- Financial capital,
- Facilities,
- Equipment,
- Inventory,
- Technology infrastructure.
Intangible Resources
- Brand reputation,
- Intellectual property,
- Customer relationships,
- Organizational culture,
- Data,
- Trust,
- Leadership credibility.
Intangible assets are often more difficult for competitors to imitate.
Core Competencies
Core competencies are integrated bundles of skills, technologies, and knowledge that:
- Provide customer value,
- Differentiate the organization,
- Enable access to multiple markets,
- Are difficult for competitors to replicate.
Example
A logistics company’s core competency may be rapid, reliable distribution rather than simply owning trucks.
Executives should distinguish core competencies from ordinary operational capabilities.
The VRIO Framework
VRIO evaluates whether a resource or capability can create sustained advantage.
|
Criterion |
Key Question |
|
Valuable |
Does it improve efficiency or effectiveness? |
|
Rare |
Is it possessed by few competitors? |
|
Inimitable |
Is it difficult to copy? |
|
Organized |
Is the organization structured to exploit it? |
Interpretation
- Valuable only → Competitive parity.
- Valuable + Rare → Temporary advantage.
- Valuable + Rare + Inimitable → Potential sustained advantage.
- Valuable + Rare + Inimitable + Organized → Sustained competitive advantage.
Example: Mobile-Payment Platform
|
VRIO Dimension |
Assessment |
|
Valuable |
Yes |
|
Rare |
Initially yes |
|
Inimitable |
Network effects make imitation difficult |
|
Organized |
Strong distribution and governance |
Result: strong sustained advantage.
Dynamic Capabilities
Dynamic capabilities are the organization’s abilities to:
- Sense opportunities and threats,
- Seize opportunities,
- Reconfigure resources.
In rapidly changing environments, dynamic capabilities may be more important than existing assets.
Internal Weakness Analysis
Executives should assess weaknesses such as:
- Outdated technology,
- Talent gaps,
- Slow decision making,
- Weak data systems,
- High cost structure,
- Poor customer experience,
- Siloed culture.
Honest diagnosis is essential; executive optimism can distort internal assessment.
Value Chain Analysis
Michael Porter’s value chain identifies activities through which value is created.
Primary Activities
Inbound Logistics
Receiving and storing inputs.
Operations
Transforming inputs into outputs.
Outbound Logistics
Delivering products or services.
Marketing and Sales
Creating demand and securing customers.
Service
Supporting customers after purchase.
Support Activities
Infrastructure
Leadership, finance, governance.
Human Resource Management
Recruitment, development, retention.
Technology Development
R&D, systems, innovation.
Procurement
Sourcing and supplier management.
Competitive advantage may arise from any activity or from the way activities fit together.
Value-Chain Questions for Executives
- Which activities create the most customer value?
- Which activities drive the highest cost?
- Where are quality problems occurring?
- Which activities should be automated?
- Which activities could be outsourced?
- Where can digital technology create differentiation?
Benchmarking
Benchmarking compares organizational performance against competitors or best-in-class organizations.
Types
- Competitive benchmarking,
- Functional benchmarking,
- Process benchmarking,
- Strategic benchmarking.
Benchmarking should stimulate learning, not imitation.
Capability Gap Analysis
Compare:
- Current capabilities,
- Capabilities required by future strategy.
Example
|
Future Strategy |
Required Capability |
Current Status |
|
Digital expansion |
Advanced analytics |
Weak |
This gap becomes a strategic investment priority.
Integrating Internal and External Analysis
Strategic decisions should connect:
- External opportunities,
- Internal strengths,
- External threats,
- Internal weaknesses.
This integration leads naturally into SWOT analysis in the next stage of strategic assessment.
International Case Study: Amazon Operational Capability
Amazon’s fulfillment network, data analytics, cloud infrastructure, and customer-experience systems illustrate how integrated capabilities across the value chain can create sustained advantage.
Executive Lessons
- Advantage often comes from systems of capabilities.
- Technology and operations can reinforce each other.
- Continuous capability investment is essential.
African Case Study: Ethiopian Airlines Capability Development
Ethiopian Airlines has built competitive strength through training, maintenance capability, fleet management, operational reliability, and regional network integration.
Executive Lessons
- Capability development can overcome geographic constraints.
- Talent and operational excellence are strategic assets.
- Integrated capabilities support international competitiveness.
Executive Internal-Analysis Exercise
Select your organization and identify:
- Three valuable resources,
- Three critical capabilities,
- One core competency,
- Two major weaknesses,
- One capability gap required for future strategy.
Evaluate the core competency using the VRIO framework.
Best Practices
- Focus on capabilities, not just assets.
- Assess intangible resources explicitly.
- Use evidence rather than assumptions.
- Reassess capabilities regularly.
- Align capability investments with future strategy.
- Examine how activities reinforce one another.
Lesson Summary
Internal analysis enables executives to understand the organization’s strategic strengths, weaknesses, resources, capabilities, and core competencies. The resource-based view, VRIO framework, dynamic-capabilities perspective, and value-chain analysis provide powerful tools for identifying sustainable competitive advantage and capability-development priorities.
Lesson Quiz
- Define internal analysis.
- Differentiate resources and capabilities.
- Explain the VRIO framework.
- Define core competencies.
- Describe the primary and support activities in the value chain.
References
- Barney, J. Gaining and Sustaining Competitive Advantage. Pearson.
- Porter, M. Competitive Advantage. Free Press.
- Grant, R. Contemporary Strategy Analysis. Wiley.
- Teece, D. Dynamic Capabilities and Strategic Management.
- Harvard Business Review Strategy Collection: https://hbr.org/topic/strategy