Internal Analysis – Firms own capabilities

Customer and competitive analysis are key steps in strategic positioning. Just as important is a clear, unbiased evaluation of a firm’s own capabilities. A critical assessment of a company’s strengths and weakness can be a painful process for management. It forces to identify things they have done well and can continue to do well and requires them to identify weaknesses and limitations. Without a factual assessment, however, it will not be possible to objectively develop a firm’s strategy. Internal analysis begins with an examination of the firm’s performance. The second step is an assessment of strengths and weaknesses in each functional operation. To be effective an internal analysis can not be ignored significant aspect of a firm’s overall performance.

Performance Analysis Evaluation of past performance is invaluable since it provides insight into the firm’s strategy and success. This evaluation must consider performance in terms of financial performance as well as market standing.

Functional Strengths and Weaknesses: The first area of concern is production. Even non-manufacturing firms should consider production capabilities in the sense of their cost structure, flexibility of operations, capacity, and similar concerns. These aspects of operations determine the ability of a firm to adapt to different strategic options.

The second area is finance and whether the firm has or can acquire needed funds. The firm’s balance sheet conditions, liquidity, and overall financial ‘health’ influence its ability to implement its strategy. Consider, for example, the ability of Wal-Mart as opposed to a small local retailer to develop and implement an expansion strategy.

Marketing is a third area of concern. A firm’s product reputation, name recognition, customer loyalty, distribution channels, and the like may be strengths or weaknesses that will affect its strategic position.

The fourth general area is management itself. The capabilities quality and even the depth of management talent are important in determining a firms’ ability to develop and implement strategy. For example, a major reason for Coleman’s divestiture of the popular Hobie Cat line of sailboats was the lack of management expertise and experience in the distribution channels for that product. In fact, several studies of business in the distribution channels for that product category. In fact, several studies of business performance in the past decade have indicated that the most successful firms stick close to the knitting limiting themselves to the areas in which management has its experience ad expertise.

Environmental Analysis: Environmental analysis is concerned with identifying trends, opportunities, threats, and limitations that will affect and influence a firm’s strategic position. The socio-cultural, technological, economic and legal environments that strategic planners must accommodate are discussed while considering this analysis. Particular attention is given to the legal environment not because it is more important than the others, but because culture, economics, and technology and their affect on specific decisions in channel design.

Socio cultural Environment: The socio-cultural environment, perhaps more than any other, is directly involved with shaping the nature of consumers’ needs and preferences. Such factors as changing cultural values or social norms have a major impact on individual preferences for products and the way in which those products are distributed. Consider, for example, the trend toward consumer for convenience in satisfying hunger. This trend has had a major impact on all levels of the food distribution cannel. An increasing share of the consumer’s food dollar has shifted to away home eating establishments Restaurants and fast food outlets have significantly increased their share of the food dollar. Food manufacturers and processors have responded by focusing more attention on the distribution channels required to each those outlets. Simultaneously grocery stores and supermarkets have responded to this competition by introducing more convenience for consumers through such deices as in-store bars and deli prepared food sections.

Second example of socio-cultural impact is visible in increased concern for health and physical well-being. This, concern coupled with increasing cost of traditional means of health care has led to the development of new forms of distribution for health care services. Hospital satellite clinics and visiting nurse programs are two manifestations of these changes.

These are only two examples of the impact of culture on distribution channels. Other cultural trends such as the desire for immediate gratification increased numbers of females in the workplace. Concern for physical fitness and changes in family structure all has their implications for strategy development in general and distribution channels in particular.