Internal Analysis: What Is It & How To Conduct One

What Is Internal Analysis?

An internal analysis is the process of an organization examining its internal factors to assess its resources, assets, characteristics, competencies, capabilities, and competitive advantages. This helps management during decision-making, strategy formulation, and execution processes by identifying the company's strengths and weaknesses.

Simply put, an internal analysis enables a firm to determine what it can do, increasing internal capability to manage execution and change.

An internal analysis in strategic management should serve as the foundation of any business strategy, and we'll show you how to conduct one and which tools you have at your disposal to conduct an internal assessment in strategic management.

After you've conducted your analysis, use our free customizable Internal Analysis Strategy Template to build your strategy. This ensures seamless alignment with the insights derived from your strategic analysis.

⚠️ Remember: strengths don't win alone! Knowing your company's inside-out is crucial, but strategy requires action. Cascade Strategy Execution Platform bridges the gap between assessment and execution. Talk to our experts to transform your internal analysis into a winning plan that leverages your strengths and tackles weaknesses.

Internal Analysis tools we’ll cover:

• Gap Analysis
• Strategy Evaluation
• SWOT Analysis
• VRIO Analysis
• OCAT
• McKinsey 7S Framework
• Core Competencies Analysis
• + Download our Free Internal Analysis Toolkit! This contains Excel templates of all of the above tools!

Why Is Conducting An Internal Analysis Important?

An internal analysis highlights an organization's strengths and weaknesses in relation to its internal factors, such as competencies, resources, and competitive advantage.

Once complete, the organization should have a clear idea of where it's excelling, where it's doing okay, and where its current deficits and gaps are. The analysis gives management the knowledge to leverage the company's strengths, expertise, and opportunities. It also enables management to develop strategies that mitigate threats and compensate for identified weaknesses and disadvantages.

When your business strategy is based on real findings and not assumptions, you can be confident that you're funneling your resources, time, human capital, and focus effectively and efficiently.

How To Conduct An Internal Analysis In 5 Steps

Conducting an internal environment analysis doesn't need to be as difficult as it seems (especially when you have our Internal Analysis Toolkit at your disposal).

1. Set the goal

The first step is to set the goal, this is essentially the answer as to why you're conducting an internal analysis. For example, the desired outcome of your internal analysis could be to ideate the UI direction for a new product.

👉🏻 This goal helps you remain focused during the following steps.

2. Pick a template framework

The second step is to download our Free Internal Analysis Toolkit and choose the internal analysis framework template most aligned with the problem you're trying to solve and your goal.

🔜 We’ll get more into the details of each framework in the next section to help you understand which one is the best fit!

3. Data collation

Use all internal sources to collate information to assist in achieving your goal. In the context of our example from above, research would include interviewing customer success managers, engineers, etc, to gain a better understanding of the gap between the current and desired future state of the UI.

4. Framework time

Now you take into account all of the data you collected from your research and feed it into the chosen framework. Once you have completed the framework, leverage the insights to best answer the question of why you conducted an internal analysis.

5. Create your plan

Once you have answered that question, take the insights and create a strategic plan that enables you to reach that initial goal. So in the case of our goal, to ideate the UI direction for a new product, the vision statement in our strategic plan could be something like, to create a seamless UI that improves user experience through increased retention time.

👉🏻 Here’s when you can use our free Internal Analysis Strategy Template that will allow you to build a strategic plan to execute the new insights you’ve learned.

Internal Analysis Tools

Before conducting an internal analysis, you need to decide what tools you will use. There are many tools and internal analysis frameworks, and each one can be valuable—but each one is also best for a specific purpose. The role played by internal analysis in strategic management is key to organizations having a robust strategy.

To help you choose the right framework, we've compiled a list of some of the most popular and effective ones, together with descriptions of what they'll help you achieve.

Gap Analysis

Gap analysis is an evaluation tool that allows organizations to identify performance deficiencies and internal weaknesses.

It's a simple and practical framework. It helps you compare your current organizational state to your desired future state. It helps you identify and understand the gaps between the two states and makes it easier to create a series of actions to bridge those gaps.

This framework helps management identify if their organization is performing to its potential, and if not, why. In addition, it helps to pinpoint flaws in the company resource allocation, strategic planning, production, etc.

Why choose the Gap Analysis framework

While other internal analysis tools, such as SWOT analysis, offer a more comprehensive study of the internal environment and also external factors, Gap analysis is a better framework for fine-tuning a single process (or a selected few) instead of the company as a whole.

📚 Read more about Gap Analysis here!

Strategy Evaluation

A strategy evaluation analyzes the results of a strategic plan's implementation.

It's useful to conduct a strategy evaluation regularly to see if everyone understands and acts according to your business strategy. You might want to conduct such an evaluation every six months, every year, or after a revamped business strategy implementation. It mostly depends on the number of changes you're trying to implement.

The strategy evaluation process involves looking back at the goals of your strategic plan and assessing how well your strategic management initiatives fared in achieving them.

Why choose the strategy evaluation framework for internal analysis

Using the strategy evaluation framework for your internal analysis reveals how effectively your strategy implementation process compares to “business as usual”. You might have created a great strategic plan, but it's of no use if it's not being executed.

👉🏻 Use this framework to align your strategy with your company’s culture.

SWOT Analysis

SWOT analysis is one of the better-known and most commonly used business analysis frameworks.

It's popular due to its simplicity (it covers both internal and external factors) and its efficacy. Its name is derived from the four factors that form the SWOT matrix:

• Internal strengths
• Internal weaknesses
• External opportunities
• External threats

SWOT analysis can uncover a sustainable niche in your market and grow your market share. It allows organizations to discover external opportunities they can exploit while simultaneously identifying internal factors that cause weaknesses. It also helps to reduce the risk of impending possible threats.

Starbucks SWOT example - analyzing internal and external factors

Strengths

• Global leader in coffee and beverage retailing
• Strong brand equity and great brand recall
• One of the largest coffee houses globally, which allows it to price its products for the middle-income group

Weaknesses

• Heavy dependence on coffee beans
• Criticized in the past for procuring coffee beans from impoverished third-world farmers
• The price is still costly for many working consumers

Opportunities

• Should expand to the tier-II cities of the emerging countries in order to further increase its customer base
• Should expand its product portfolio to venture into the full spectrum food and beverage business

Threats

• Profitability is always at the mercy of the rising prices of coffee beans and the supply network
• Strong competition from the local coffeehouses and specialty stores that offer similar products at a cheaper price

Starbucks or any company can then use SWOT for its internal analysis process to develop strategic alternatives that will help it meet its goals by minimizing the company's weaknesses and threats and leveraging business opportunities and strengths.

Why choose SWOT for internal analysis

It helps organizations distinguish themselves from competitors by understanding their unique capabilities and sources of competitive advantage, which can help them compete in their given marketplace.

A SWOT analysis is also good for combining internal and external analysis. It allows organizations to identify their internal strengths and weaknesses while evaluating external opportunities and threats. This dual focus helps businesses develop strategies that leverage their unique capabilities and address potential challenges.

👉🏻 If SWOT analysis seems like the framework you need, check out our SWOT template here.

VRIO Analysis

The VRIO framework is a great tool for assessing an organization's internal environment.

It looks at an organization's internal resources and categorizes them based on the overall value they contribute to the company. VRIO is a framework that helps you create sustainable competitive advantages.

It enables you to identify your unique strengths and transform them from short-term competitive edges into sustainable performance drivers.

📚 Our VRIO framework guide shows you exactly how to do it.

Why choose the VRIO analysis framework for internal analysis

If you're looking to develop a strategy that builds on your organization's competitive advantage, VRIO analysis is the tool you need. It will give you a deeper understanding of your assets and your organization's added value.

👉 Use your free VRIO strategy template that will help you to develop and execute a strategy based on your VRIO analysis.

OCAT

The Organizational Capacity Assessment Tool was designed for non-profit organizations looking to analyze their internal environments.

OCAT assesses how well your organization performs across the following 10 internal dimensions::

• Aspirations
• Strategy
• Leadership, Board & Staff
• Funding
• Marketing & Communications
• Advocacy
• Business Processes
• Infrastructure & Organizational Structure
• Culture and shared values
• Innovation and adaptation

The results of the assessment help non-profits evaluate and improve their organizational capabilities.

Why choose the OCAT framework for internal analysis

OCAT dives deeper into organizational structure and internal state than most other frameworks. Its power lies in translating organizational capacities into strategies that boost organizational performance to a new level.

McKinsey 7S Framework

McKinsey 7S is ideal for organizations looking to determine the state of alignment between departments and processes. The model can assess an organization's current state compared to a desired future state and evaluate the gaps and inconsistencies between them.

McKinsey 7S prompts you to analyze seven internal aspects that should be aligned if your organization is to reach its full potential. These seven aspects are:

• Strategy
• Structure
• Systems
• Shared Values
• Skills
• Style
• Staff

Why choose the McKinsey 7S framework for internal analysis

This framework provides an honest view of the organization's internal alignment. It examines various internal elements, from the company's culture to its staff, leadership capabilities, and process efficiency.

📚 Read more about the McKinsey 7S framework in our article.

Core Competencies Analysis

The core competencies analysis helps organizations shape their unique advantage, which can help them overtake the competition.

The basic premise of the analysis is to identify the organization's core competencies—the combined resources, knowledge, and skills of an organization that provide unique value for its customers. Once an organization has identified its core competencies, it can implement strategies that focus specifically on its strengths and the added value it provides.

Why choose the Core competencies framework for internal analysis

Compared to other types of analyses, this one puts a greater emphasis on intangibles instead of focusing solely on tangible resources. It focuses on unique advantages that also make strategic sense.

👉🏻 Check out this article to learn how to perform a core competency analysis.

📚 Learn about other competitive analysis frameworks in our article—6 Competitive Analysis Frameworks: How to Leave Your Competition In the Dust

Are Internal And External Analysis Connected?

Internal environment analysis and external analysis are like yin and yang. Doing one without the other paints an incomplete and one-sided picture.

Evaluating the external environment, your market, and industry conditions highlight potential opportunities and threats. Evaluating the internal environment, company's assets, and capabilities highlights organizational weaknesses and strengths.

🔀 Combining both findings gives you a broader perspective and a holistic picture of your organization's situation.

Both are needed if you want to create a winning business plan that takes into account internal and external factors.

When should you conduct internal and external analysis?

Internal and external scans should always be done before you start developing your strategy. But even if you already have your strategy in place, you can use these tools to inform your strategy for the next iterations since they always provide interesting insights.

If you're in the process of creating a new strategic plan and have skipped this step, pause and complete the internal and external scans first. You can then confidently continue the strategy creation process and correct any potential misassumptions.

If you're unsure where to begin, great tools for conducting an external scan are Porter's 5 Forces and the PESTLE analysis framework. These frameworks will help you analyze your organization's environment, trends, and different external factors that will affect your profitability and growth prospects.

Internal Analysis Toolkit

Download our Free Internal Analysis Toolkit to access convenient, structured templates that help you identify your current position and the gaps you need to close for success. Each template includes instructions to guide you through the process and is in Excel format, ready for immediate use.

Here’s what you will get inside this toolkit:

1. One-pager guide that walks you through the toolkit
2. Gap Analysis Template
3. SWOT Analysis Template
4. VRIO Analysis Template
5. McKinsey 7S Framework Template
6. Core Competencies Analysis Template
7. Bonus gift  :)

Execute Your Internal Analysis Plan With Cascade

Transforming insights from your internal analysis into actionable strategies is where the real value lies. Cascade's Strategy Execution Platform bridges the gap between assessment and execution, ensuring your strategic plan doesn't just sit on paper but drives real results. With Cascade, you can seamlessly align your team's efforts, track progress, and adapt to changes in real-time.

👉 Sign up for free or book a demo to see how Cascade can help you turn your internal analysis into a winning execution plan.