Corporate Appraisal Internal Analysis

Corporate Appraisal Internal Analysis



Corporate Appraisal Internal Analysis

1.        Resources and Limiting Factors

1.1       Resources

1.1.1    Resources audit identify human, financial and material resources and how they are deployed.
1.1.2    The 9Ms model categories the resources/factors as follows:




Age, condition, utilization rate, value, replacement cost, technological up-to-date?


Culture and structure, patents, goodwill, brands.


Size, skills, loyalty, career progression, structure.

Management information

Ability to generate and disseminate ideas, innovation, information systems.


Products and customers, specialized or general, regional, national, international?


Source, suppliers and partnering, waste, new materials, costs, availability, future provision.

Men and women

Number, skills, efficiency, industrial relations, adaptability, innovatory, capacity, wage costs, labour turnover.


How are activities carried out? Outsourcing, JIT, quality (six sigma; TQM).


Credit and turnover periods, cash surpluses/deficit, short term and long term finance, gearing levels, bad debts.

1.1.3    Resources are of no value unless they are organized into systems, and so a resource audit should go on to consider how well or how badly resources have been utilized, and whether the organization’s systems are effective and efficient.

1.2       Limiting factors

1.2.1    A limiting factor or key factor is a factor which at any time or over a period may limit the activity of an entity, often one where there is shortage or difficulty of supply.
1.2.2    Examples might include:
(a)        a shortage of production capacity
(b)        a limited number of key personnel, such as salespeople with technical knowledge
(c)        a restricted distribution network
(d)        too few managers with knowledge about finance, or overseas markets
(e)        inadequate research design resources to develop new products or services
(f)        a poor system of strategic intelligence
(g)        lack of money
(h)        a lack of adequately trained staff
1.2.3    Once the limiting factor has been identified, the planners should do two things:
(a)        in the short term, make best use of the resources available,
(b)        try to reduce the limitation in the long term.

2.      SWOT Analysis (TOWS Matrix)

2.1       Introduction

2.1.1    The SWOT analysis combines the results of the environmental analysis and the internal appraisal into one framework for assessing the firms’ current and future strategic fit, or lack of it, with the environment. It is an analysis of the organization’s strengths and weaknesses, and the opportunities and threats offered by the environment.

2.2       Using SWOT analysis

2.2.1    Effective SWOT analysis does not simply require a categorization of information, it also requires some evaluation of the relative importance of the various factors under consideration.
(a)        These features are only of relevance if they are perceived to exist by the consumers. Listing corporate features that internal personnel regard as strengths/weaknesses is of little relevance if they are not perceived as such by the organization’s consumers.
(b)       In the same vein, threats and opportunities are conditions presented by the external environment and they should be independent of the firm.
2.2.2    The SWOT can now be used guiding strategy formulation.
(a)        Match strengths with market opportunities
Strengths that do not match any available opportunity are of limited use while opportunities which do not have any matching strengths are of little immediate value.
(b)       Conversion
This requires the development of strategies that will convert weaknesses into strengths in order to take advantage of some particular opportunity, or converting threats into opportunities which can then be matched by existing strengths.

2.3       Weirich’s TOWS matrix

2.3.1    Weirich, one of the earliest writers on corporate appraisal, originally spoke in terms of a TOWS matrix in order to emphasis the importance of threats and opportunities. This is therefore an inherently positioning approach to strategy. A further important element of Weirich’s discussion was his categorization of strategic options;
(a)        SO strategies employ strengths to seize opportunities.
(b)       ST strategies employ strengths to counter or avoid threats.
(c)        WO strategies address weaknesses so as to able to exploit opportunities.
(d)       WT strategies are defensive, aiming to avoid threats and the impact of weaknesses.
2.3.2    One useful impact of this analysis is that the four groups of strategies tend to relate well to different time horizons. SO strategies may be expected to produce good short-term results, while WO strategies are likely to take much longer to show results. ST and WT strategies are more probably relevant to the medium term.
2.3.3    This consideration of time horizon may be linked to the overall resource picture: SO strategies can be profitable in the short term, generating the cash needed for investment in WO strategies, improving current areas of weaknesses so that further opportunities may be seized. ST and WT strategies are likely to be more or less resource-neutral, but care must be taken to achieve an overall balance.


Example 1


What types of strengths, weaknesses, opportunities and threats would a ‘no frills’ airline have?



  • Airports used are better than those used by competitors
  • Strong management skills
  • Lower costs than established airlines
  • Ease of booking flights
  • Recognised logo
  • IT facilities
  • Good employee relations
  • Airports used are worse than those used by the big carriers
  • Punctuality
  • Cash flows
  • No established safety record
  • Poorer-than-average customer service



  • Strong business demand for cheap air fares
  • Strong leisure demand for cheap air fares
  • The internet
  • Many secondary airports underused
  • Higher airport charges
  • Stringent security checks
  • Entry of subsidiaries of big carriers

3.       Value Chain

3.1       Definition of value chain

3.1.1    The value chain describes those activities of the organization that add value to purchased inputs. Primary activities are involved in the production of goods and services. Support activities provide necessary assistance. Linkages are the relationships between activities.


Example 2


Outline different ways in which the restaurant can create value.

Here are some ideas. Each of these options is a way of organizing the activities of buying, cooking and serving food in a way that customers will value.

  • It can become more efficient, by automating the production of food, as in a fast food chain.
  • The chef can develop commercial relationships with growers, so he or she can obtain the best quality fresh produce.
  • The chef can specialize in a particular type of cuisine (e.g. Japanese, Korean).
  • The restaurant can be sumptuously decorated for those customers who value atmosphere and a sense of occasion, in addition to a restaurant’s purely gastronomic pleasures.
  • The restaurant can serve a particular type of customer (e.g. students).

3.2       The components of value chain

3.2.1    Porter grouped the various activities of an organization into a value chain. Here is a diagram.

3.2.2    The margin is the excess the customer is prepared to pay over the cost to the firm of obtaining resource inputs providing value activities. It represents the value created by the value activities themselves and by the management of the linkages between them.

3.3       Primary activities

3.3.1    Primary activities are directly related to production, sales, marketing, delivery and service.



Inbound logistics

Receiving, handling and storing inputs to the production system: warehousing, transport, inventory control and so on.


Converting resource inputs into a final product: resource inputs are not only materials. People are a resource, especially in service industries.

Outbound logistics

Storing the product and its distribution to customers: packaging, testing, delivery and so on; for service industries, this activity may be more concerned with bringing customers to the place where the service is available; an example would be front house management in a theatre.

Marketing and sales

Informing customers about the product, persuading them to buy it, and enabling them to do so: advertising, promotion and so on.

After sales service

Installing products, repairing them, upgrading them, providing spare parts and so forth.

3.4       Support activities

3.4.1    In addition to the primary value chain activities, there are also secondary activities or support activities. Porter identified these as:




These are activities concerned with buying the resources for the entity – materials, plant, equipment and other assets.

Technology development

Product design, improving processes and resource utilization.

Human resource management

Recruiting, training, managing, developing and rewarding people; this activity takes place in all parts of the organization., not just in the HRM department.

Firm infrastructure

This relates to the organisation structure and its management systems, including planning and finance management, quality management and information systems management.

3.4.2    Support activities are often seen as necessary ‘overheads’ to support the primary value chain, but value can also be created by support activities. For example:
(a)        Procurement can add value by identifying a cheaper source of materials or equipment
(b)        Technology development can add value to operations with the introduction of a new IT system
(c)        Human resources management can add value by improving the skills of employees through training.
(d)        Corporate infrastructure can help to create value by providing a better management information system that helps management to make better decisions.

3.5       Methods of adding value

3.5.1    There are different ways of adding value. There is an important link between value and CSFs for products and services.
(a)        One way of adding value is to alter a product design, and include features that might meet the needs of a particular type of customer better than products that are currently in the market. A product might be designed with added features. Market segmentation is successful when a group of customers value particular product characteristics, and are willing to pay more for a product that provides them.
(b)        Value can be added by making it easier for the customer to buy a product, for example by providing a website where customers can make purchases. Bookstores can add value to the books they sell by providing sales outlets at places where customers often want to buy books, such as airport terminals.
(c)        Value can be added by promoting a brand name. Successful branding might give customers a sense of buying products or services with a better quality.
(d)        Value can be added by delivering a service or product more quickly. For example, a private hospital might add value by offering treatment to patients more quickly than other hospitals in the region.
(e)        Value can also come from providing a reliable service, so that customers know that they will receive the service on time, at the promised time, to a good standard of performance.

3.6       Value creation and strategic management

3.6.1    By adding value more successfully, a firm will improve its profitability, by reducing costs or improving sales. Some of the extra benefit might be passed on to the customer, in the form of a better-quality product or service or a lower selling price. If so, the business entity shares the benefits of added value with the customers, and gains additional competitive advantage.
3.6.2    Added value does not have to be given immediately to customers (in the form of lower prices) or shareholders (in the form of higher dividends). The benefits can be re-invested to create more competitive advantage in the future.
3.6.3    There is a link between:
(a)        corporate strategy, which should aim to add value for the customer
(b)        financial strategy, which should aim to add value for the shareholders and
(c)        investment strategy, which should aim to ensure that the entity will continue to add more value in the future.

4.       Value Network

4.1       Difference between a value chain and value network

4.1.1    A value network, also called a value system, is the sum of the value chains in all the firms in a supply chain.
4.1.2    A value network can be defined as ‘any web of relationships that generates tangible and intangible value through complex, dynamic exchanges between two or more individuals, groups or organisations’.

4.2       Elements in a value network

4.2.1    For many business entities, the value network is more complex than a chain of suppliers, from raw materials to end product. Other entities are also included in the value network. These can be categorised as:
(a)        Intermediaries. These are entities that provide outsourced services (such as outsourced book-keeping or outsourced logistics management) and support services (such as public relations advisers).
(b)        Complementors. These are entities that provide additional and complementary products or services.

4.2.2    The elements in a value network are shown in the diagram below.


Example 3


A company produces the consoles (handsets) and operating system software for computer games.

  • It buys raw materials and components from suppliers for the assembly of the consoles.
  • Intermediaries: It sells its products globally, and in some countries it outsources the sales function to other companies. It also outsources some of the software production to specialist software companies.
  • Complementors: The success of the company’s product depends largely on the availability of computer games that customers can play on the console. Computer games are written and supplied by independent companies, including subsidiaries of film studios.
  • The entity’s customers. The consoles are supplied to retail organisations in most countries of the world.

All these elements make up a single value network.

4.3       The strategic significance of value networks

4.3.1    The concept of the value network or value system has an important implication for each firm in the supply chain/value network. Value can be created (and lost) in any part of the value network. To achieve competitive advantage, it is often necessary to work with other entities in the value network in order to create extra value.
4.3.2    The concept of a value network is particularly important for value systems that do not consist of a simple chain of suppliers from raw materials through to finished products. It is very useful, for example, in many service industries where securing and retaining customers or suppliers depends on the activities of other entities.
4.3.3    An entity should try to improve the efficiency and effectiveness of its own activities in creating value within its own value chain.
4.3.4    However, it should also consider the entire value network, and think about how value might be added across the network, not just within its own internal value chain. A value network must operate with the efficiency and effectiveness of a self contained individual entity. To do this, it is necessary to manage relationships with other entities in the network.


Example 4


  • Toyota is well-known for close involvement with its suppliers. The company works with suppliers to improve their methods and the quality of their output; and to develop new, improved materials and components for input into its own operations. The relationship has benefits for all parties, but tends to be unequal, with Toyota dominating the operations of a large number of semi-captive suppliers.


  • Li & Fung aim for more equal relationships with the large number of clothing manufacturers they deal with. It guarantees to take at least 30% of a supplier’s output in order to build a close relationship that can be built on to improve innovation and learning. But it also tries to limit its purchases to no more than 70% of a supplier’s output in order to avoid creating a dependent organization whose managers are influenced more by fear than by trust.


5.       Critical Success Factors for Products and Services

5.1       Definition of a critical success factor

5.1.1    Critical success factors (CSFs) are factors that are essential to the strategic success of a business entity. They have been defined as: ‘those components of strategy in which the organisation must excel to out-perform competition’ (Johnson and Scholes).
5.1.2    When management are analysing a market and customers in the market, they should try to understand which factors are essential to succeed in business in the market, and which factors are not so important. Strategic success is achieved by identifying the CSFs and setting targets for performance linked to those critical factors.


Example 5


A firm of accountants has an office in a major UK city. The partners are considering an expansion of the business, by opening another office in another city 50 miles away.

The partners want to expand their business, but they are cautious about investing in a project that might not succeed and might cost them a lot of money. They have a meeting to discuss the factors that would be critical to the success of a new office. They prepare the following list of factors:

  • Employing top-quality accountants for the new office.
  • Charging lower fees than other accountancy firms in the city.
  • Obtaining a minimum number of corporate clients.
  • Obtaining a minimum number of private (individual) clients.
  • Offering a full range of audit and accountancy services.
  • Locating the new office in attractive city-centre premises.

All these factors could be important, and might help the new office to be a success. However, not all of them might be critical to the success of the venture.

If the partners can agree which factor or factors are critical to success, they can concentrate on setting reasonable targets for each key factor and making every effort to ensure that those targets are achieved.

5.2       Marketing and CSFs for products and services

5.2.1    The previous example considers the CSFs for a new business venture (a new office for an accounting firm). Strategic planners might want to identify the CSFs for a particular product or service.
5.2.2    These are the features that the product must have if it is to be a success with customers.
5.2.3    The CSFs of a product or service must be related to customer needs. They are the features of a product or service that will have the main influence on the decisions by customers to buy it.


Example 6


A parcel delivery service (such as DHL or FedEx) might identify critical success factors as:

  • collecting parcels from customers quickly, as soon as possible after the customer has asked for a parcel to be delivered
  • providing rapid and reliable delivery.

5.3       CSFs and key performance indicators (KPIs)

5.3.1    An organization can measure how well it is achieving the critical success factors through the use of KPIs. CSFs represent what an organization needs to do in order to be successful. KPIs are the measures that use to assess whether or not the CSFs are being achieved.
5.3.2    KPIs are quantifiable measurements that management can use to monitor and control progress towards achieving its CSFs.
5.3.3   In practice, the term KPI tends to be overused and is used to describe any kind of measurement. However, in order to be useful they should clearly identify the information needs required to demonstrate how well the organization is doing in achieving its overall strategy. They should:
(a)        Reflect the performance and progress of the organization
(b)        Be measurable
(c)        Be comparable – i.e. can be compared to a standard such as budgeted figures, or prior year data
(d)        Be usable – i.e. provide data that can be acted upon.



Example 7


An organization may have a critical success factor of providing the highest level of customer service. Appropriate KPIs may relate to the speed of the delivery time, the number of repeat business transactions from existing customers, or the scores achieved in customer satisfaction surveys.

Question 1
FTL is a wholly owned UK subsidiary of GTC of the USA. FTL manufactures and sells tyres under a number of different brand names.

(a)     Firespeed, offering high product quality, at a price which offers good value for money.
(b)     Freeway, a cheap brand, effectively a standard tyre.
(c)     Tufload, for lorries and commercial vehicles.

FTL has a good relationships with car firms and distributors.

GTC is rather less focused: not only does it make tyres and some other components, but it also owns a chain of car service centres specializing in minor maintenance matters such as tyre replacement, exhaust fitting, and wheel balancing.

FTL has experienced a fall in sales volume, partly as a result of competition from overseas producers, in what is effectively a mature market. Moreover, sales of new cars have not been as high as had been hoped, and consumers are more reluctant than before to part with their money.

FTL’s managers have had meetings with GTC’s managers as to how to revive (復甦) the fortunes of the company. FTL would like to export to the US and to Asia. GTC has vetoed (否決) this suggestion, as FTL’s tyres would compete with GTC’s. Instead, GTC suggests that FTL imitate GTC’s strategy by running a chain of service stations similar to GTC’s service stations in the US. GTC feels that vertical integration would offer profits in its own right and provide a distribution network which would reduce the impact of competition from other tyre manufacturers. GTC has no shortage of cash.

You are a strategic consultant to FTL.




(a)     Discuss the principal factors in the external environment that would influence FTL’s strategic choice.                                                                                                  (6 marks)
(b)     Describe the barriers to entry that FTL might face if it decided to enter service centre business.                                                                                                              (6 marks)
(c)     Assess whether FTL’s existing strategic capability gives it good chance of success in the service business.                                                                                           (8 marks)


Source: https://hkiaatevening.yolasite.com/resources/QPMBNotes/Ch4-InternalAnalysis.doc

Web site to visit: https://hkiaatevening.yolasite.com/

Author of the text: indicated on the source document of the above text

If you are the author of the text above and you not agree to share your knowledge for teaching, research, scholarship (for fair use as indicated in the United States copyrigh low) please send us an e-mail and we will remove your text quickly. Fair use is a limitation and exception to the exclusive right granted by copyright law to the author of a creative work. In United States copyright law, fair use is a doctrine that permits limited use of copyrighted material without acquiring permission from the rights holders. Examples of fair use include commentary, search engines, criticism, news reporting, research, teaching, library archiving and scholarship. It provides for the legal, unlicensed citation or incorporation of copyrighted material in another author's work under a four-factor balancing test. (source: http://en.wikipedia.org/wiki/Fair_use)

The information of medicine and health contained in the site are of a general nature and purpose which is purely informative and for this reason may not replace in any case, the council of a doctor or a qualified entity legally to the profession.


Corporate Appraisal Internal Analysis


The texts are the property of their respective authors and we thank them for giving us the opportunity to share for free to students, teachers and users of the Web their texts will used only for illustrative educational and scientific purposes only.

All the information in our site are given for nonprofit educational purposes


Corporate Appraisal Internal Analysis



Topics and Home
Term of use, cookies e privacy


Corporate Appraisal Internal Analysis