Most business owners believe they know their businesses exceptionally well.

They know the customers.

They know the employees.

They know the products.

They know the competitors.

They know the bank balance.

They know which parts of the business cause headaches.

And after ten, twenty or thirty years running the organisation, they may reasonably ask:

“Who could possibly understand this business better than I do?”

That confidence can become dangerous.

Being immersed in a business every day does not necessarily mean you see it objectively.

In fact, familiarity can make weaknesses invisible.

Processes become accepted because, “That’s how we’ve always done it.”

An employee becomes indispensable because nobody has developed a successor.

A historically successful product remains strategically important long after its economics have deteriorated.

Poor margins become normalised.

Customers remain profitable according to revenue but destroy value once the true cost to serve them is considered.

Technology becomes outdated gradually enough that nobody notices the accumulating competitive disadvantage.

And a capability attributed to the organisation may actually reside entirely in the head of one founder or long-serving employee.

This is why internal strategic analysis matters.

It forces SME owners and leaders to stop looking through the business and deliberately start looking at the business.

McKinsey’s strategy framework makes a similar point, one of the essential foundations of strategy is developing deep insight into the organisation’s starting position, including where and why it creates or destroys value.

That is exactly what an effective internal strategic analysis should establish.

Before deciding where your business should go, you need an uncomfortably accurate understanding of where it stands today.

What Is an Internal Strategic Analysis? (Strategic Planning Perth)

An internal strategic analysis is a structured examination of the factors inside your organisation that determine its current performance and its capacity to execute future strategy.

It asks questions such as:

What are we genuinely good at?

Where are we weak?

Where do we create value?

Where do we destroy it?

Which customers, products and services are actually profitable?

What capabilities differentiate us?

Which resources are strategically important?

How effective are our leadership and management?

How strong are our people?

How efficient are our processes?

How effective is our technology?

How strong is our financial position?

Where are we dependent upon particular individuals?

What constrains growth?

What could competitors replicate?

And perhaps most importantly:

Does the business we have today possess the capabilities required to become the business described in our strategy?

This distinguishes internal analysis from an external strategic analysis.

External analysis examines the world surrounding the business, customers, competitors, markets, economic conditions, technology, regulation and industry structure.

Internal analysis turns the lens inward.

A sound strategy needs both.

External analysis identifies the battlefield.

Internal analysis determines whether you have the resources, capabilities and organisational fitness required to compete on it.

Why SME Owners Frequently Misdiagnose Their Own Businesses (Business Advisor Perth)

There is an uncomfortable reality in SME strategy.

Management opinion is not the same thing as strategic evidence.

Ask a leadership team about the organisation’s strengths and you may hear:

“Our people.”

“Our customer service.”

“Our reputation.”

“Our quality.”

“Our flexibility.”

“Our relationships.”

Perhaps.

But these descriptions are so common that they are almost meaningless unless supported by evidence.

If your people are a strength, what demonstrates that?

Employee retention?

Productivity?

Capability?

Leadership depth?

Engagement?

Customer feedback?

If customer service is a competitive advantage, demonstrate:

retention,

repeat purchases,

referrals,

complaints,

response times,

customer satisfaction,

share of wallet,

or pricing power.

If your reputation is genuinely exceptional, does it generate measurable preference, referrals, conversion or price premiums?

A strategic strength is not something management believes it does well.

A strategically important strength should create measurable value.

That distinction should sit at the heart of the analysis.

The 12-Step Internal Strategic Analysis Framework

Step 1, Begin With Financial Reality, Not Management Perception (Business Improvement Perth)

I would begin with the numbers.

Not because strategy is merely financial analysis, it certainly isn’t, but because financial performance provides important evidence about what is actually happening inside the business.

Review at least three to five years where reliable data is available.

Analyse:

revenue growth,

gross profit,

gross margin,

EBITDA,

EBIT,

net profit,

operating expenses,

employee costs,

working capital,

cash conversion,

capital expenditure,

debt,

return on capital,

customer concentration,

and recurring versus non-recurring earnings.

But do not stop at company totals.

Disaggregate the business.

Analyse profitability by:

customer,

product,

service,

division,

location,

salesperson,

channel,

contract,

or business unit.

This is where internal analysis can become uncomfortable.

A $2 million customer may appear strategically important until you discover the margin is negligible, payment terms are terrible, management time is enormous and the account consumes disproportionate operational capacity.

Conversely, a relatively small product category may quietly generate exceptional margins and cash returns.

As discussed in the Business Performance Improvement Pyramid, improving business performance requires understanding the underlying levers driving revenue, margins, costs, productivity, working capital and cash flow.

Revenue tells you how large something is.

Profitability tells you whether it is economically worthwhile.

Cash flow tells you whether those profits are becoming money.

All three matter.

Step 2, Analyse Your Business Model, How Does the Business Actually Create Value? (Business Growth Perth)

Now move beyond the financial statements.

Ask:

How does this business actually create, deliver and capture value?

Examine:

customer segments,

customer needs,

value proposition,

products and services,

pricing,

sales channels,

customer relationships,

revenue streams,

cost structure,

key activities,

key resources,

key partners.

The Business Model Canvas developed by Alexander Osterwalder and Yves Pigneur provides a useful structure for this exercise.

But do not merely complete nine boxes and congratulate yourselves.

Challenge each component.

Why do customers buy from us?

Why do they stay?

What would make them leave?

Which customer segments create the most value?

Which destroy it?

What are customers really paying us for?

Where is our pricing power?

What elements of our value proposition are genuinely distinctive?

Which elements could competitors replicate next month?

What assumptions does the business model depend upon?

An internal analysis should reveal not merely how the business operates, but why its economics work.

Step 3, Conduct a Rigorous Strengths and Weaknesses Analysis (Strategic Planning Perth)

SWOT remains useful, but it is often used badly.

The internal components are:

Strengths

and

Weaknesses.

The external components are:

Opportunities

and

Threats.

The problem is that SWOT workshops often deteriorate into brainstorming.

“We have good people.”

“Technology is changing.”

“The economy is uncertain.”

“We should use AI.”

That is not strategic analysis.

For every proposed strength, ask:

What evidence demonstrates this?

Why does it matter?

Does the customer value it?

Is it stronger than competitors?

For every weakness:

What evidence demonstrates this?

What consequence does it create?

Does it materially constrain strategy or performance?

Then classify each issue by strategic importance.

A weakness that barely affects competitive performance may not deserve much management attention.

A seemingly small weakness that constrains your entire growth strategy may be critical.

The objective is not to create the longest SWOT list.

It is to identify the few internal factors that materially influence strategic success.

Step 4, Analyse Your Resources, What Do You Actually Have? (Business Advisor Perth)

Resources are the assets the organisation possesses or controls.

They include obvious tangible assets:

cash,

property,

equipment,

vehicles,

inventory,

technology,

and infrastructure.

But strategically important resources are often intangible:

brand,

reputation,

intellectual property,

data,

customer relationships,

supplier relationships,

licences,

knowledge,

contracts,

culture,

and accumulated organisational experience.

Human resources matter enormously:

leadership,

management,

technical expertise,

sales capability,

institutional knowledge,

relationships,

and specialist skills.

Now ask:

Which resources are genuinely strategically important?

Which are underutilised?

Which are deteriorating?

Which are difficult to replace?

Which are concentrated in one person?

Which could competitors readily acquire?

And which provide the foundation for competitive advantage?

Owning resources alone does not create advantage.

What matters is what the organisation can do with them.

That leads directly to capabilities.

Step 5, Conduct a Critical Capabilities Assessment (Strategic Planning Perth)

This is one of the most important components of the analysis.

A resource is something the business has.

A capability is something the business can repeatedly do.

A transport company may own trucks.

Its strategically important capabilities may instead be:

fleet utilisation,

route optimisation,

driver recruitment,

safety management,

pricing,

maintenance,

customer service,

and scheduling.

A professional-services firm may employ highly qualified professionals.

Its critical capabilities might include:

business development,

knowledge management,

client retention,

recruitment,

cross-selling,

project delivery,

and converting technical expertise into commercial value.

As I explained in my detailed article on conducting a Critical Capabilities Assessment, the fundamental question is:

“What must this business be exceptionally good at to execute its strategy?”

Then assess each capability:

Current strength, 1 to 5.

Required future strength, 1 to 5.

Strategic importance, 1 to 5.

Competitive position.

Capability gap.

Key-person dependency.

Development priority.

This turns vague strategic discussion into something actionable.

Step 6, Apply the VRIO Test, Are Your Strengths Really Competitive Advantages? (Business Growth Perth)

This is where you challenge your supposed strengths more aggressively.

The resource-based view of strategy, particularly the work associated with Jay Barney, asks whether resources and capabilities can create sustainable competitive advantage.

The widely used VRIO framework asks four questions.

Valuable

Does this resource or capability materially create value or help the business respond to an opportunity or threat?

Rare

Do relatively few competitors possess it?

Inimitable

Is it difficult or expensive for competitors to replicate?

Organised

Is your organisation structured and managed so that it can actually exploit the resource or capability?

Suppose management says:

“Our customer service is exceptional.”

Valuable?

Probably.

Rare?

Perhaps not.

Difficult to imitate?

Maybe not.

Organised to exploit it?

Unknown.

“Good customer service” therefore may not represent sustainable competitive advantage.

But perhaps the underlying capability is:

“A highly experienced workforce with unusually low turnover, deep customer knowledge, decentralised decision authority and proprietary systems allowing customer problems to be resolved within minutes.”

Now you may have something much more strategically interesting.

This is exactly why the distinction explored in building sustainable competitive advantage matters.

Do not ask merely what you do well.

Ask what you do well that matters, is difficult to replicate and translates into superior economics.

Step 7, Analyse Your Value Chain, Where Is Value Created and Destroyed? (Business Improvement Perth)

Michael Porter’s value-chain thinking provides another useful internal lens.

Instead of viewing the organisation as one entity, break it into the activities through which value is created.

Depending upon the business, these might include:

procurement,

inbound logistics,

production,

operations,

warehousing,

distribution,

marketing,

sales,

customer service,

technology,

human resources,

finance,

and management.

Then examine each activity.

What does it cost?

How well does it perform?

Does it create customer value?

Is it better or worse than competitors?

Where are delays?

Where is waste?

Where are errors?

Where are bottlenecks?

Where is work duplicated?

What could be automated?

What should be outsourced?

What should remain internal?

Where is intellectual property created?

Where does quality deteriorate?

Where do margins disappear?

The objective is to identify the activities that disproportionately influence:

customer value, cost, differentiation and profitability.

This can uncover a powerful strategic reality:

Your biggest opportunity may not be selling more.

It may be redesigning how existing revenue flows through the organisation.

Step 8, Analyse Your Organisation Using the 7-S Framework (Leadership Development Perth)

An organisation is much more than its organisational chart.

McKinsey’s enduring 7-S framework examines seven interdependent organisational elements:

Strategy

Structure

Systems

Skills

Staff

Style

Shared Values

McKinsey continues to describe the framework as important because organisational effectiveness depends upon the interaction of these elements, significant improvement in one area can be difficult without addressing the others.

For an SME, this is extremely useful.

Strategy

Do people actually understand where the organisation is going?

Structure

Are responsibilities, authority and reporting relationships clear?

Systems

Do processes, information, technology and management systems enable performance?

Skills

Do we possess the competencies required now and in the future?

Staff

Do we have the right people in the right roles?

Style

How does leadership actually behave?

Shared Values

What behaviours and beliefs genuinely define the organisation?

Then ask:

Are these seven elements aligned?

You may have an ambitious growth strategy but a structure designed for a business half your size.

You may want accountability but tolerate poor performance.

You may want innovation while punishing failure.

You may want managers to take responsibility while requiring the founder to approve everything.

Misalignment creates organisational friction.

McKinsey’s more recent work continues to emphasise that operating-model elements work as a system, and that alignment around value creation materially affects performance.

Step 9, Analyse Leadership, Management and Governance (Governance & Boards)

An internal analysis that ignores leadership is incomplete.

Ask:

Does the leadership team make good decisions?

Are decisions timely?

Are responsibilities clear?

Does management challenge assumptions?

Is poor performance confronted?

Are strategic priorities translated into action?

Are meetings effective?

Is there accountability?

Does management receive useful information?

Does the owner delegate?

Is there excessive founder dependence?

Does the Board, advisory board or leadership structure provide sufficient challenge?

Are risks systematically identified?

Are major decisions documented?

Is strategy reviewed regularly?

Strong governance does not require creating corporate bureaucracy.

As explored in my article on business governance, appropriate governance can create clarity, accountability, better decision-making and greater resilience in an SME.

One particularly revealing question is:

“What important decision would this business struggle to make effectively if the founder were unavailable for three months?”

The answer tells you something about organisational maturity.

Step 10, Analyse Your People and Key-Person Dependencies (Leadership Development Perth)

Do not simply count employees.

Assess organisational depth.

For every strategically important role, ask:

Is the right person in the role?

What does high performance look like?

How are they performing?

What skills are missing?

Who could succeed them?

What happens if they resign tomorrow?

Which relationships do they personally control?

What knowledge disappears with them?

Which processes depend upon them?

This is particularly important in founder-led and family-owned businesses.

The business may believe it owns:

customer relationships,

supplier relationships,

technical expertise,

pricing knowledge,

sales capability,

or operational knowledge.

But if all of that resides in one person’s head, the organisation does not truly own the capability.

It is borrowing it from an individual.

Your internal analysis should therefore map key-person dependency and succession risk.

Step 11, Analyse Systems, Technology, Data and AI Readiness (Business Improvement Perth)

Technology should not be assessed by asking:

“Do we have modern software?”

Ask:

Does technology make the organisation better?

Can management access reliable information quickly?

Is there one version of the truth?

Are systems integrated?

How much work is manually duplicated?

How much decision-making depends upon spreadsheets maintained by one employee?

Can customer profitability be measured?

Can productivity be measured?

Can managers see KPIs in time to act?

Are cybersecurity controls appropriate?

Where could automation eliminate low-value work?

Where can AI improve analysis, customer service, marketing, administration, forecasting or decision support?

Where could technology create competitive advantage rather than merely administrative efficiency?

Data itself may also be a strategic resource.

But having vast quantities of data is irrelevant if the business cannot convert it into better decisions.

Step 12, Assess Your Ability to Change, Not Merely Your Ability to Operate (Strategic Planning Perth)

A traditional internal analysis tells you what the business is good at today.

A more sophisticated analysis asks whether the organisation can change what it is good at tomorrow.

David Teece’s dynamic-capabilities framework is particularly useful here.

It considers an organisation’s higher-level ability to:

Sense

Identify changes, threats, customer needs and emerging opportunities.

Seize

Mobilise resources and act upon worthwhile opportunities.

Transform

Reconfigure the organisation as conditions change.

This is enormously relevant to SMEs.

Some businesses are excellent at sensing.

They see every opportunity.

But they cannot execute.

Others execute exceptionally well but continue executing a business model the market is leaving behind.

Others recognise change and begin responding, but legacy systems, people, structures or culture prevent transformation.

Teece emphasises that sensing, seizing and transforming should operate continuously as customers, technologies and competitors change.

Therefore add three questions to your internal analysis:

How good are we at recognising change?

How good are we at acting upon it?

How good are we at changing ourselves?

Your ability to adapt may ultimately be more valuable than any capability you currently possess.

The Internal Strategic Analysis Scorecard (Strategic Planning Perth)

I recommend consolidating the analysis into a practical scorecard.

But scoring alone is not enough.

For every score, add:

Evidence

What proves the rating?

Strategic implication

Why does it matter?

Required action

What are we going to do about it?

Do Not Make the Classic SWOT Mistake (Strategic Planning Perth)

After completing the analysis, you should now be in a much stronger position to identify genuine internal strengths and weaknesses.

But resist the temptation to dump everything into SWOT.

Your final SWOT should be a summary of analysis, not the analysis itself.

For example:

Weak SWOT

Strength, Good employees

Better Analysis

Strength, Operations management capability

Evidence, senior operations team averages nine years’ tenure, customer OTIF performance 98%, employee turnover below industry benchmark, operating margin consistently exceeds principal competitors.

Strategic implication, provides a platform for geographic expansion.

Now the statement is strategically useful.

Similarly:

Weak SWOT

Weakness, Sales

Better Analysis

Weakness, Founder-dependent new-business acquisition

Evidence, founder generated 73% of new business during the previous 24 months, no documented sales process, CRM utilisation inconsistent, no salesperson independently generating more than 10% of new revenue.

Strategic implication, growth strategy cannot scale without developing organisational sales capability.

That is the level of specificity you want.

The Internal Strategic Analysis Pyramid (Business Improvement Perth)

A simple way to visualise the exercise is:

STRATEGIC POSITION

What are we genuinely capable of achieving?

↑

COMPETITIVE ADVANTAGE

Why should we win?

↑

CRITICAL CAPABILITIES

What must we be exceptionally good at?

↑

ORGANISATION

Leadership, people, culture, structure, governance

↑

OPERATING SYSTEM

Processes, technology, data, systems

↑

ECONOMIC ENGINE

Revenue, margins, costs, cash, capital

↑

RESOURCES

People, assets, knowledge, relationships, brand, IP

Each layer supports the layer above.

If the foundations are weak, strategic ambition eventually collides with organisational reality.

Turn Analysis Into Strategic Issues, Not a 70-Page Report (Business Advisor Perth)

This is where many strategic-analysis exercises fail.

Management completes:

financial analysis,

SWOT,

VRIO,

value chain,

capability assessment,

customer analysis,

people analysis,

technology analysis,

and numerous workshops.

The result is 137 observations.

Then everybody wonders:

“So what?”

The purpose is not information accumulation.

It is strategic diagnosis.

At the end of the internal analysis, reduce everything to perhaps five to ten critical strategic issues.

For example:

1. Founder dependency is preventing scale.

2. Revenue is growing, but declining gross margins are destroying operating leverage.

3. Our strongest competitive advantage is technical expertise, but 60% of that expertise resides in three employees approaching retirement.

4. Our growth strategy requires a sales capability we currently do not possess.

5. Our systems cannot support the planned doubling of transaction volume.

6. Twenty percent of customers generate most economic profit while a substantial tail consumes disproportionate resources.

7. Management structure has not evolved with the size of the business.

Now you have strategic issues management can actually address.

Separate Symptoms From Root Causes (Business Improvement Perth)

This is critical.

Suppose:

Profit is declining.

That is a symptom.

Why?

Gross margin has fallen.

Why?

Discounting has increased.

Why?

Salespeople are discounting to win business.

Why?

Their incentives reward revenue rather than margin.

Why?

Management historically prioritised growth.

The problem was not “declining profitability”.

The underlying problem may be incentive design and strategic priorities.

Or:

Employee turnover is high.

Why?

Managers are poor.

Why?

They were promoted because they were excellent technicians.

Why?

The business has no management-development capability.

Again, the symptom is not the strategic issue.

Use repeated “Why?” questioning until you reach something management can meaningfully change.

Test Your Conclusions Against Evidence and Dissent (Executive Leadership Perth)

There is another danger.

The internal analysis may simply reproduce the CEO’s existing beliefs in a more sophisticated format.

Avoid that.

Invite disagreement.

Ask employees.

Ask customers.

Ask frontline managers.

Ask departing employees.

Ask external advisers.

Examine data that contradicts management’s beliefs.

Ask:

What are we assuming?

What evidence would prove us wrong?

What are employees reluctant to tell us?

What has management normalised that an outsider would immediately question?

What business problem have we been explaining away for years?

An experienced independent Business Advisor or Board member can be particularly useful here, not because an outsider automatically understands the business better, but because they may be less emotionally attached to its historical assumptions.

Strategic analysis should not make management comfortable.

It should make reality clearer.

Practical Internal Strategic Analysis Process for SME Owners (Strategic Planning Perth)

A practical process might therefore look like this:

1. Collect the evidence

Financial, customer, operational, employee and market data.

↓

2. Analyse financial performance

Understand where economic value is created and destroyed.

↓

3. Analyse the business model

Understand how value is created, delivered and captured.

↓

4. Identify genuine strengths and weaknesses

Evidence, not opinion.

↓

5. Analyse resources

What does the organisation possess?

↓

6. Assess critical capabilities

What can it repeatedly do exceptionally well?

↓

7. Apply VRIO

Which strengths could underpin competitive advantage?

↓

8. Analyse the value chain

Where is value created, lost or constrained?

↓

9. Analyse organisational alignment

Strategy, structure, systems, staff, skills, style and shared values.

↓

10. Analyse leadership, people and governance

Can the organisation operate effectively without excessive dependency?

↓

11. Assess technology and data

Are they enabling or constraining strategy?

↓

12. Assess dynamic capability

Can the organisation sense, seize and transform?

↓

13. Identify root causes

Why are the problems occurring?

↓

14. Prioritise strategic issues

What genuinely matters?

↓

15. Translate diagnosis into strategic choices

What must we protect, fix, build, stop or change?

That final step is crucial.

Analysis has no value until it changes a decision.

Five Questions Every SME Owner Should Be Able to Answer Afterwards (Business Advisor Perth)

When your internal strategic analysis is complete, you should be able to answer five questions clearly.

1. What are we genuinely exceptional at?

Not what we like to believe.

What does the evidence demonstrate?

2. What is holding the business back?

What internal constraints prevent stronger performance or growth?

3. Where do we create and destroy economic value?

Which customers, products, activities and capabilities drive real returns?

4. What capabilities must we develop for our strategy to work?

Where is the gap between current organisational capability and future strategic requirements?

5. What could break this business?

Founder dependency?

Customer concentration?

Cash?

Leadership?

Technology?

People?

Margins?

Systems?

If management cannot answer those questions, it probably does not yet understand the organisation deeply enough to make major strategic decisions confidently.

Key Takeaways (Strategic Planning Perth)

An internal strategic analysis should be evidence-based rather than opinion-based.

Financial analysis should examine customers, products, divisions and activities, not merely consolidated results.

Business-model analysis explains how value is created, delivered and captured.

SWOT should summarise rigorous analysis rather than substitute for it.

Resources and capabilities are different, what you own matters less than what you can consistently do with it.

Critical capabilities should be assessed against future strategic requirements.

VRIO helps test whether apparent strengths could underpin sustainable competitive advantage.

Value-chain analysis helps identify where value is created, lost and constrained.

McKinsey’s 7-S framework provides a useful lens for examining organisational alignment.

Leadership, governance, culture, technology and key-person dependency belong inside strategic analysis.

Dynamic capabilities add another important question, can the organisation sense, seize and transform as circumstances change?

The final output should not be hundreds of observations.

It should be a small number of critical strategic issues requiring decisions and action.

FAQs About Conducting an Internal Strategic Analysis (Strategic Planning Perth)

What is an internal strategic analysis?

An internal strategic analysis is a structured examination of the resources, capabilities, financial performance, business model, people, processes, systems, culture, leadership and other internal factors affecting a business’s strategic position and ability to execute its strategy.

Why should an SME conduct an internal strategic analysis?

It helps management identify genuine strengths, weaknesses, capability gaps, performance constraints, key-person risks and potential sources of competitive advantage before making major strategic choices.

What is the difference between internal and external strategic analysis?

Internal analysis examines factors primarily within the organisation’s control. External analysis examines customers, competitors, markets, economic conditions, regulation, technology and other external forces.

Is SWOT an internal strategic analysis?

Only partly. Strengths and weaknesses address internal factors, while opportunities and threats are external. SWOT is best used to summarise deeper analysis rather than replace it.

What should be included in an internal strategic analysis?

Depending upon the business, it should examine financial performance, business model, resources, capabilities, competitive advantage, value-chain activities, leadership, people, organisational structure, processes, technology, data, culture, governance and adaptability.

What is the difference between a resource and a capability?

A resource is something the business possesses or controls. A capability is its repeatable organisational ability to use resources to perform an activity or achieve an outcome.

What is a Critical Capabilities Assessment?

It identifies the relatively small number of capabilities the organisation must perform particularly well to execute its strategy, then evaluates current strength against the level required. A more detailed methodology is provided in my Critical Capabilities Assessment article.

What is VRIO analysis?

VRIO tests whether a resource or capability is valuable, rare, difficult to imitate and supported by an organisation capable of exploiting it. It is commonly used to investigate potential sources of sustained competitive advantage.

What is value-chain analysis?

Value-chain analysis examines the activities through which an organisation creates and delivers value, helping management identify where differentiation, cost advantage, inefficiency or value destruction occurs.

What is the McKinsey 7-S Framework?

The classic framework examines strategy, structure, systems, skills, staff, style and shared values as interconnected elements affecting organisational effectiveness and change.

What are dynamic capabilities?

David Teece describes dynamic capabilities around sensing opportunities and threats, seizing opportunities and transforming the organisation to maintain competitiveness as circumstances change.

How should an SME assess its financial position strategically?

Look beyond total revenue and profit to margins, cash flow, working capital, capital expenditure, return on capital and profitability by customer, product, service, location, division and channel.

How can an SME identify its genuine competitive advantages?

Identify resources and capabilities that create customer or economic value, compare them with competitors and test whether they are scarce, difficult to replicate and supported by the organisation.

How do you identify key-person dependency?

Ask which important customers, processes, relationships, knowledge or decisions would be materially disrupted if a particular individual suddenly left the business.

How often should an internal strategic analysis be conducted?

A comprehensive review normally belongs within the strategic-planning cycle, but material changes in performance, leadership, ownership, technology, competition or the business model should trigger reassessment.

Who should participate in an internal strategic analysis?

Owners and senior management should normally participate, but valuable evidence can also come from frontline employees, customers, financial information, operational data and appropriately experienced independent advisers.

What should the final output of an internal strategic analysis look like?

Not simply a lengthy report. The analysis should culminate in a prioritised set of strategic strengths to protect, weaknesses to address, capabilities to develop, risks to mitigate and critical strategic issues requiring decisions.

Conclusion, Before You Decide Where Your Business Is Going, Understand What Business You Really Have (Strategic Planning Perth)

Strategy discussions naturally gravitate towards the future.

Where should we grow?

What markets should we enter?

What products should we launch?

What technology should we adopt?

What acquisitions should we make?

How much bigger could we become?

Those are exciting questions.

But they are not the first questions I would ask.

Before deciding where the business should go, I would want to know:

What is actually happening inside this business today?

Where is money really being made?

Where is value being destroyed?

What do customers genuinely value?

What capabilities make us successful?

Which supposed strengths are actually ordinary?

Which weaknesses threaten our strategy?

Where are we dependent upon individuals?

What is constraining performance?

Can our systems support growth?

Does our management structure suit the business we are trying to become?

Can we adapt as markets and technology change?

And what uncomfortable truths have we been avoiding because they challenge the way we have always understood our business?

McKinsey’s strategy work places diagnosis of the company’s starting position at the foundation of strategy for good reason.

You cannot intelligently decide how to get somewhere until you understand where you are starting from.

And that is the real purpose of internal strategic analysis.

It is not SWOT.

It is not another spreadsheet.

It is not a workshop designed to produce coloured Post-it notes.

It is a disciplined attempt to understand the economic engine, resources, capabilities, people, systems, leadership, culture and competitive strengths of the organisation as they really are, rather than as management would like to believe they are.

Done properly, it should sometimes confirm what you already know.

Sometimes surprise you.

Sometimes concern you.

And occasionally force you to rethink your strategy entirely.

That is not a weakness of the process.

That is precisely why you conduct it.