KEY TAKEAWAY

We examined the importance of keeping our focus on profitability as the ultimate key to understanding an organization’s strengths and weaknesses. Remembering that all internal decisions and actions have a cost, a benefit, or both is critical to understanding the operational excellence of a firm.

Internal analysis begins with the identification of resources and capabilities. Resources can be tangible and intangible; capabilities may have such characteristics as well. VRIO analysis is a way to distinguish resources and capabilities from core competencies. Specifically, VRIO analysis should show you the importance of value, rarity, inimitability, and organization as building blocks of competitive advantage.

Finally, this unit introduced the basics of controls, the process by which an organization influences its subunits and members to behave in ways that lead to attaining organizational goals and objectives. When properly designed, controls lead to better performance by enabling the organization to execute its strategy better. Managers must weigh the costs and benefits of control, but some minimum level of control is essential for organizational survival and success.