The organizational environment consists primarily of two components: the organization's strengths and weaknesses. A SWOT analysis (an analysis of the organization's strengths and weaknesses as well as opportunities and threats in the environment) is thus one of the first steps in the strategic management process.
SWOT is an acronym that
describes the specific Strengths, Weaknesses, Opportunities, and Threats that
are strategic factors for a particular company. A SWOT analysis should not only
identify a company's core competencies, but also opportunities that the company
is currently unable to capitalize on due to a lack of appropriate resources. To
conduct this analysis, we must first go through a series of steps.
Step
1: Assess your market
- What are the external and internal events that will have an impact on our company?
- Who are our clients?
- What are each competitor's strengths and weaknesses?
- What are the forces driving sales trends?
- What are the most important and potentially significant markets?
- What is going on in the world that might have an impact on our company?
- What are the company's strengths in order to compete successfully?
Step
2: Assess your company
- What do we excel at?
- What are the assets, intellectual property, and people in our company?
- What are our company's strengths?
Step
3: Assess your competition
- What sets us apart from the competition?
- What are our company's overall market conditions?
- What are the requirements for our products and services?
- What are the opportunities in terms of customer-market-technology?
- What are the customers' problems and complaints about the industry's current products and services?
- What kinds of "If only..." statements do customers make?
Step
4: Opportunity
It is an area of
"need" in which a company can perform profitably.
Step
5: Identify the threats
A challenge posed by an unfavorable
trend or development that would result in a decline in profits/sales in the
absence of a defensive marketing action. An assessment must be completed, with
conclusions drawn about how the opportunities and threats may affect the firm.
Step
6: Internal analysis
Competitor
Analysis: Here we identify the actual competitors as well as substitutes.
Examine your competitors'
goals, strategies, strengths and weaknesses, and reaction patterns. Choose
which rivals to attack or avoid.
Internal Strengths and
Weaknesses Analysis focuses on internal factors that give an organization
certain advantages and disadvantages in meeting the needs of its target market.
Core competencies that give the firm an advantage in meeting the needs of its
target markets are referred to as strengths. Any analysis of the company's
strengths should be market/customer focused, because strengths are only
meaningful when they help the firm meet the needs of its customers. Weaknesses
are any constraints that a company faces when developing or implementing a
strategy. Weaknesses should also be examined from a customer standpoint,
because customers frequently perceive weaknesses that a company is unaware of. When
analyzing strengths and weaknesses, being market focused does not mean that
non-market oriented strengths and weaknesses should be overlooked. Rather, it
suggests that all businesses should align their strengths and weaknesses with
customer needs. Only strengths that are directly related to meeting a customer
need should be considered true core competencies.
To examine all internal factors
affecting a company, the following area analyses are used:
Resources:
Profitability, sales, product quality brand associations, existing overall
brand, relative cost of this new product, employee capability, product
portfolio analysis
Capabilities: Goal:
To identify internal strategic strengths, weaknesses, problems, constraints and
uncertainties.
Step-7: External analysis
The External Analysis investigates the environment's opportunities and threats. Independent of the firm, both opportunities and threats exist. To distinguish a strength or weakness from an opportunity or threat, ask yourself: Would this problem exist if the company did not exist? If the answer is yes, it should be considered outside of the company. Opportunities are favorable conditions in the environment that, if properly exploited, could result in rewards for the organization. That is, opportunities are situations that exist but must be capitalized on by the firm. Threats are conditions or barriers that may prevent a company from achieving its goals.
The following area analyses are
used to look at all external factors affecting a company:
Customer
analysis: Segments, motivations, unmet needs Competitive analysis:
Identify completely, put in strategic groups, evaluate performance, image,
their objectives, strategies, culture, cost structure, strengths, weakness.
Market
analysis: Overall size, projected growth, profitability, entry
barriers, cost structure, distribution system, trends, key success factors.
Environmental
analysis: Technological, governmental, economic, cultural, demographic,
scenarios, information-need areas.
Goal: To
identify external opportunities, threats, trends, and strategic uncertainties
The SWOT Matrix aids in visualizing
the analysis. It is also critical to understand how these elements interact
when carrying out this analysis. When an organization matches its internal
strengths with external opportunities, it develops core competencies in meeting
its customers' needs. Furthermore, a company should take steps to turn internal
weaknesses into strengths and external threats into opportunities.
What should business executives do?
You will learn about the types of issues that must be addressed in order to comprehend the business environment. Firstly
- Concentrate on your strong points.
- Strengthen your weaknesses.
- Take advantage of your opportunities.
- Recognize your dangers.
Determine
now
- Who do we compete with?
- Who are our most and least fierce competitors?
- Manufacturers of substitute goods?
- Can these competitors be classified into strategic groups based on their assets, competencies, or strategies?
- Who are the prospective competitors? What are their entry barriers?
Next,
assess
- What are their goals and strategies?
- What is their pricing strategy? Is there a cost advantage or disadvantage for them?
- What is their strategy for image and positioning?
- Who have been the most successful/ineffective competitors over time? Why?
- What are each competitor's strengths and weaknesses?
- Competitors' assets and competencies should be evaluated.
- We need to ask the following questions in relation to the given points:
Size
and development: What are the most important and potentially
significant markets? What are their growth and size characteristics? Which
markets are in decline? What are the forces driving sales trends?
Profitability:
Consider the following for each major market: Is this a profitable business
area for the average company? How fierce is the competition among existing
businesses? Assess the threats posed by potential entrants and substitute
products. How much bargaining power do suppliers and customers have? What is
the market's current and future attractiveness/profitability?
What
are the major cost and value-added components for different types of
competitors?
Distribution
systems: What are the alternative distribution channels? How are
they evolving?
Market trends: What are the
market trends?
What are the key success factors, assets, and competencies required to
compete successfully? What will happen in the future?
Environmental
analysis: The
fourth dimension of the External Analysis is environmental analysis.
Environmental trends and events that have the potential to influence strategy
are of particular interest. Such trends and events should be identified in this
analysis, and their likelihood and impact should be estimated. It is easy to
become bogged down in an extensive, broad survey of trends when conducting this
type of analysis. It is necessary to limit the analysis to areas that are
important enough to have a significant impact on strategy.
This analysis is divided into
five sections: economics, technology, politics, law, socio-culture, and the
future.
Economic: What
economic trends might influence business activity? (Interest rates, inflation,
unemployment, energy supply, disposable income, and so on.)
Technological: How
far have existing technologies matured? What technological advancements or
trends are influencing or may influence our industry?
Government: What
regulatory changes are possible? What effect will this have on our industry?
What tax or other incentives are being considered that could influence strategy
development? Are there any threats to political or government stability?
What are the current or
emerging trends in lifestyle, fashion, and other cultural components? What are
the consequences? What demographic trends will have an impact on the industry's
market size? (Rate of growth, income, population shifts) Are these trends an opportunity
or a threat?
What are the major trends and
events in the future? What are the
key areas of uncertainty in terms of trends or events that could have an impact
on strategy?
Internal examination: Internal
analysis seeks to gain a thorough understanding of a company. This analysis is
based on the firm's resources and capabilities.
Resources:
Looking at tangible, intangible, and human resources is a good place to start
when identifying company resources.
Financial resources and physical assets are identified and valued in the firm's financial statements, making them the easiest to identify and evaluate.
Intangible resources are mostly
invisible, but they become more important to a company over time than tangible
assets because they can be a major source of competitive advantage. Intangible
assets include reputational assets (brands, image, and so on) and technological
assets (proprietary, technology and know-how).
Human resources, also known as
human capital, are the productive services that humans provide to businesses in
terms of their skills, knowledge, reasoning, and decision-making abilities.
Capabilities
Resources
are not productive on their own. The most productive tasks necessitate
close collaboration among resources within teams. The term organizational
capability refers to a company's ability to carry out a specific productive
activity. Our interest is not in capabilities in and of themselves, but in
capabilities in comparison to other firms. The functional classification
approach will be used to identify the firm's capabilities. A functional
classification identifies organizational capabilities in terms of each of the
major functional areas.
