Strategic Analysis: External and Internal Environment
External and internal analysis
External analysis scans the macro environment (PESTLE: political, economic, social, technological, legal, environmental) and the industry (Porter's Five Forces: rivalry, new entrants, substitutes, buyer power, supplier power). Industry life cycle and strategic groups sharpen competitor analysis. Internal analysis assesses resources and capabilities using VRIO (valuable, rare, inimitable, organised) and the value chain, which separates primary activities (inbound logistics, operations, outbound logistics, marketing and sales, service) from support activities. Core competence is a bundle of skills that is hard to imitate and adds customer value.
Worked example
A pharma firm holds a patented molecule with strong clinical results, scarce scientific staff and an organisation built around licensing. VRIO: valuable (patients and payers want it), rare (patent), inimitable (legal and tacit knowledge barriers), organised (licensing unit exists). Conclusion: sustained competitive advantage, so the firm should exploit it through licensing rather than sell the patent. If the patent expired, the resource would no longer be rare or inimitable and the advantage would erode.
Traps
A SWOT list is not analysis; each strength or threat needs a consequence and a response. Five Forces is industry-level, PESTLE macro-level: do not mix them. VRIO requires all four tests; valuable alone gives parity, not advantage. Value-chain analysis is not a list of departments; it traces activities that create margin.