Evaluation strategic internal factors

Step 2: Evaluation strategic internal factors

Once the strategic internal factors have been identified, the next issue that arises is; what are the potential strengths and weaknesses of the organisation? A factor is considered a strength if it is a competency or a competitive advantage for an organisation. For example, Rolls Royce’s image and quality are two distinct competencies for that organisation and these competencies should be exploited to the full. A weakness, on the other hand, is something that an organisation does poorly. For any organisation operating in turbulent environment, a lack of management vision can be considered a major weakness, as this lack of vision will hamper the organisation in its attempt to keep pace with the changing business environment. What yardsticks can management use to determine whether an internal factor is a strength or weakness? Four popular yardsticks are: 

A comparison with the organisation’s performance in the past;  A comparison with competitors;

 A comparison with industry ratios;  Benchmarking

Many managers start their planning efforts by comparing their current results with the organisation’s previous years’ results. These are the capabilities and problems with which

they are most familiar. A major problem of this very popular approach, however, is that managers may compare their current performance to their own very poor results of the past. Any improvement on the poor results may then wrongly be considered strength. However, if the factor was to be compared with an industry standard or yardstick, it might in fact be a weakness.

Comparing the organisation’s capabilities with those of major competitors is a second approach that managers might use to evaluate the organisation’s strategic internal factors. Road Lodge, the one-star lodge, can compare its internal factors to that of Formula 1 hotels to determine it strengths and weaknesses. Road Lodge will compare itself in terms of factors such as occupancy rate of its hotel rooms, customer satisfaction and number of re-booking by previous customers.

Determinants of success differ from industry to industry. Each industry has its own ratios that measure success in that industry. In the hotel and tourism industry occupancy rates of hotel rooms are essential for survival in the industry.

Occupancy rates as a yardstick in the hotel industry

Average hotel occupancies fell to 10-year lows of 60.4% in 2009, down from more than 70% during the boom years of 2006, 2007 and 2008. Hotel revenues simultaneously dropped 10% from January to August 2009 year-on –year. It seems that the luxury end of the Cape Town’s hotel market has been particularly hard hit, with occupancies down to 30% for the year to date.

The five-star Mount Nelson Hotel in Cape Town can use the above yardstick (30% occupancy levels) for luxury hotels to determine whether this strategic factor is a strength or weakness to the hotel. In other words, is the Mount Nelson Hotel performing better (strength) or worse (weakness) than its competitors in terms of occupation of hotel rooms? Benchmarking is another approach that can be used to identify an organisation’s strengths and weaknesses. Benchmarking is the search for the best practices amongst the competitors and non-competitors that lead to their superior performance.

A car dealership can compare its customer satisfaction ratings to the rating of the best in the business. The spray-painting done on Boeing aeroplanes can be used as the benchmark for a car manufacturer to compare the quality of its spray-painting against. Determining the strengths and weaknesses of an organisation is not a subjective exercise.

Yardstick like the ones mentioned above- should be used to identify the organisation’s capabilities. These yardsticks are:  The organisation itself (its previous performance);  Competitors;  Industry ratios;  Benchmarks.

Although the identification (step 1) and the evaluation (step 2) of key internal factors have been discussed as two separate steps, it should be stressed that, in practice, they are not differentiated.