An organizational appraisal is a process of monitoring an organisation’s internal environment to identify strengths and weaknesses that may influence the firm’s ability to achieve goals. The internal environment of an organisation includes forces that operate inside the organisation with specific implications for managing organisational performance. Internal environment factors, come from within. Those factors, collectively define both trouble spots that need strengthening and the core competencies that the firm can build. During the late 1980s and early 1990s, interest in the role of strategy in building competitive advantage resulted in a shift of focus towards the internal aspects of the firm (also known as a corporate appraisal or organisational appraisal).

Even where the industry was unattractive and generally unprofitable, firms that came out with superior products enjoyed good profits. For example, when TVS motor company parted ways with Suzuki after 19 years of coexistence, analysts had almost removed the company from their radar screens. In a highly competitive two-wheeler market, they felt the company had very little steam left to get ahead. But with Victor, a product of five years of R&D effort, TVS rode back to success with a vengeance and is still going strong. A systematic internal analysis helps a firm:

• To find where it stands in terms of resources, strengths and weaknesses
• To exploit opportunities that are in line with its capacities
• To assess the capability gaps and take steps to enhance its capabilities to achieve its growth objective

Internal environment relates to all the elements within the organisation’s boundaries which include human resources, other resources, mission, culture, etc.

Important aspects of an organisation’s internal environment

1. Organizational aspects

• Structure
• Communication network
• Record of success
• Hierarchy of objectives
• Policies, procedures and rules
• The ability of the management team

2. Personnel aspects

• Labour relations
• Recruitment practices
• Training programs
• Performance appraisal systems
• Incentive systems
• Turnover and absenteeism

3. Marketing aspects

• Market segmentation
• Product strategy
• Pricing strategy
• Promotion strategy
• Distribution strategy

4. Production aspects

• Plant facility layout
• Research and development
• Use of technology
• Purchasing of raw materials
• Inventory control
• Use of subcontracting

5. Financial aspects

• Liquidity
• Profitability
• Activity
• Investment opportunity

6. Managerial aspects

• Management style
• Management competence
• Managerial values and norms