This chapter looks at several ways managers achieve greater objectivity and rigor as they analyze their company’s internal resources and capabilities. Managers often start their internal analysis with questions like, how well is the current strategy working? What is our current situation? What are our strengths and weaknesses? SWOT analysis is a traditional approach that has been in use for decades to help structure managers’ pursuit of answers to these questions. SWOT does have some limitations related to depth and the risk of overlooking key considerations.
Two techniques for internal analysis have emerged that overcome some of the limitations of SWOT analysis, offering more comprehensive approaches that can help managers identify and assess their firm’s internal resources and capabilities in a more systematic, objective, and measurable manner. Value chain analysis has managers look at and disaggregate their business as a chain of activities that occur in a sequential manner to create the products or services they sell.
The third approach covered in this chapter is the resource-based view (RBV). RBV is based on the premise that firms build competitive advantage based on the unique resources, skills, and capabilities they control or develop, which can become the basis of unique, sustainable competitive advantages that allow them to craft successful competitive strategies.
Finally, the chapter covers four ways objectivity and realism are enhanced when managers use meaningful standards for comparison regardless of the particular analytical framework they employ in internal analysis. The chapter is followed by two appendixes. The first provides a useful inventory of the types of activities in different functional areas of a firm that can be sources of competitive advantage. The second covers traditional financial analysis to serve as a refresher and reminder about this basic internal analysis tool....