Analyzing the Internal Environment

and Establishing Long-Range Objectives

Contents:
How well the Present Strategy Working
SWOT Analysis
SWOT Analysis Framework
SWOT Analysis Factors
Step-by-Step Summary of a SWOT Analysis
SWOT Analysis and Organizational Objectives
Identifying Company Strengths and Resource Capabilities
Potential Internal Weaknesses
Potential External Opportunities
Potential External Threats
Core Competence of a Company
Company Value Chain
Support Activities
The companies Price And Cost Competitive
The signs of competitive Strengths And Weaknesses
Areas Covered by an Internal Environmental Analysis
Factors determining the Strategic Significance of Strengths and Weaknesses
Introduction:
Winning business strategies are grounded in
sustainable competitive advantage. A company
has competitive advance whenever it has edge
over rivals in attracting customers and defending
against competitive forces. There are may routes
to competitive advantage, but the most basic is
to provide buyers with what they perceive as
superior value-a good product at a low price, a
superior that is worth paying more for, or a
best-value offering that represents an attractive
combination of price, features, quality, service
and other attributes buyers find attractive
delivering superior value-what ever from it
takes-nearly always requires performing value
chain activities differently than rivals and building
competencies and resource capabilities that are
not readily matched.
How well the Present Strategy
Working
This involves evaluating the strategy from a
qualitative standpoint (competences, internal
consistency, rationale and suitability to the
situation) and also from a quantitative standpoint
(the strategic and financial results the strategy is
producing). The stronger a company's current
overall performance the less likely the need for
radical strategy change. The weaker a company
performance and /or the faster the changes in its
external situation the more its current strategy
must be questioned.
SWOT Analysis:
SWOT is an acronym for an organization’s
strengths, weaknesses, opportunities, and
threats. The underlying assumption of a SWOT
analysis is that managers can better formulate a
successful strategy after they have carefully
reviewed the organization’s strengths and
weaknesses in light of the threats and
opportunities presented by the environment. A
SWOT analysis emphasizes that organizational
strategies must result in a good fit between the
organization’s internal and external environments.
SWOT analysis is a simple framework for
generating strategic alternatives from a situation
analysis. It is applicable to either the corporate
level or the business unit level and frequently
appears in marketing plans.
SWOT Analysis Framework:
The SWOT analysis can be shown in a diagram. This
diagram focuses the situation analysis firstly of two
types, internal and external analysis. Internal analysis
is again been divided into two, strengths and
weaknesses. Similarly, external analysis has been sub
divided into opportunities and threats.
The internal and external situation analysis can produce
a large amount of information, much of which may not
be highly relevant. The SWOT analysis can serve as an
interpretative filter to reduce the information to a
manageable quantity of key issues.
The SWOT analysis classifies the internal aspects of the
company as strengths or weaknesses and the internal
situational factors as opportunities or threats.
Strengths can serve as foundation for building a
competitive advantage, and weaknesses may hinder it.
However, this framework is glanced in the following
figure.
However, this framework is glanced in the following figure.

Situation Analysis

Internal Analysis External Analysis

Opportunitie
Strengths Weaknesses Threats
s

SWOT
Profiles
SWOT Analysis Factors:
Identifying Company Strengths and
Resource Capabilities.
Strength is something a company is good at
doing or a characteristic that gives it enhanced
competitiveness. Strength can take any of several
forms.
A skill or important expertise: Low cost
manufacturing capabilities, strong ecommerce
expertise, technological know‑how.
Valuable physical assets: state of the art plants and
equipment, attractive real estate locations,
worldwide distribution facilities, ownership of
valuable natural resource deposits, cutting edge
computer network, and information systems.
Valuable human assets: An experienced and
capable workforce, talented employees in key
areas motivated and energetic employees.
 Valuable organizational assets: Proven quality
control systems, proprietary technology, key
patents, mineral rights, a base of loyal
customers.
Valuable intangible assets: Brand name image,
company reputation, buyer goodwill or a
motivated and energized workforce.
Competitive capabilities: Short development times
in brining new products to market, a strong
dealer network, strong partnerships with key
suppliers. An achievement or attribute that puts
the company in a position of market advantage:
Low overall costs, market share leadership, a
superior product, a wide product selection.
Alliances or cooperative ventures: Fruitful
collaborative partnerships with suppliers and
marketing allies that enhance the company own
competitiveness.
Step-by-Step Summary of a SWOT
Analysis
SWOT analysis has several steps. These steps
include Broad External Environmental Analysis,
Competitive Analysis, Internal Environment
Analysis. All these four steps have many areas.
These are mentioned in the following table.
Step-1
Broad External
Environmental Analysis
Areas for Analysis
1. Political
2. Economic
3. Social
4. Technological
Procedure
1. Identify the key forces that
are most likely to affect
the organization.
2. Monitor information on
the key environmental
forces.
3. Select the method to be
used in forecasting
these forces.
4. Forecast the trends in
these forces.
5. Identify the threats and
opportunities for the
organization on the
basis of the forecast of
these forces.
Step-2
Competitive
Analysis
Areas for Analysis
1. Industry structure
2. Individual Competitor
Procedure
1. Analyze the competitive
nature of the industry.
2. Identify and analyze
competitors
3. Identify key strengths
and weaknesses of the
organization as
compared to those of
its competitors.
4. Identify the threats and
opportunities for the
organization on the
basis of its industry
competitiveness.
Step-3 Step-4
Internal Environment SWOT Analysis
SWOT
Analysis
Areas for Analysis Areas for Analysis
1. Financial position 1. Strengths
2. Product/service position 2. Weaknesses
3. Product/service quality 3. Opportunities
4. Marketing capability 4. Threats
5. Research and development Procedure
capability 5.Assess the attractiveness of
6. Organizational structure the organization’s
7. Human Resources situation
8. Condition of facilities and 6. Draw conclusions
equipment regarding the need for
9. Past objectives and strategic action.
strategic
Procedure
10. Analyze each of above
areas
12. Identify the internal
strengths and
weaknesses as a result of
the analysis
SWOT Analysis and Organizational
Objectives:
SWOT analysis has relationships with
organizational objectives. If SWOT analysis is
properly done, organizational objectives may be
achieved easily. Otherwise organizational
objectives may be hampered. The relationship is
shown in the following diagram. The diagram has
4 stages.
 Broad
environmental
analysis
Opportunities
and
threats

Need for Organization

Competitive al
analysis strategic
long-range
Strengths action
objectives
and
weaknesses
Internal
organizational
analysis
Potential Internal Weaknesses

1. No clear strategic direction

2. Obsolete facilities
3. Sub par profitability
4. Lack of managerial depth and talent
5. Missing some key skills or competencies
6. Poor track record in implementing strategy
7. Plagued with internal operating problems
8. Falling behind in R&D
9. Too narrow a product line
10. Weak market image
11. Weak distribution network
12. Below average marketing skills
13. Unable to finance needed changes in strategy
14. Higher overall unit costs relative to key competitors
Potential External Opportunities

1 .Ability to serve additional customer groups or

expand into new markets or segments.
2. Ways to expand product line to meet broader
range of customer needs.
3. Ability to transfer skills or technological know‑how
to new products or businesses
4. Integrating forward or backward factors
5. Falling trade barriers in attractive foreign
markets.
6. Complacency among rival firms.
7. Ability to grow rapidly because of increasing in
market demand
8. Emerging new technologies
Potential External Threats:
1 . Entry of lower cost foreign competitors.
2. Rising sales of substitute products
3. Slower market growth
4. Adverse shifts in foreign exchange rates and trade
policies of foreign governments.
5. Costly regulatory requirements
6. Vulnerability to recession and business cycle.
7. Growing bargaining power of customers or suppliers.
8. Changing needs of customers or suppliers
9. Changing buyers needs and tastes
10. Adverse demographic changes.
Core Competency of a Company

A core competence is something a company does

especially well in comparison to its competitors. One of
the trade secrets "of first‑rate strategic management is
consolidating a company's technological production and
marketing know- how into core competencies that
enhance its competitiveness. Core competencies
empower a company to build competitive advantage.
There are many types of core competencies, such as
1. Excellent skills
2. Technical know‑how
3. Capability to better service
 4. Unique formula
5. Unusual innovativeness / innovation
6. Better skills
7. Superior technology
8. Research on customer needs
9. Outstanding skills in product uses
10. Integrating expertise
11. Effective sales force
Company Value Chain:

The primary analytical tool of strategic cost analysis is a

value chain identifying the separate activities,
functions, and business process that are performed in
designing, producing, marketing, delivering, and
supporting a product or service. A company's value
chain identifies the primary activities that create value
for customers and the related support activities.

Representative company value chain: Primary

activities:

Purchased supplies and inbound logistics:

Activities, costs, and assets associated with purchasing
fuel, energy, raw materials, parts components,
merchandise and consumable items from vendors.
■ Operations: Activities, costs and assets associated
with converting inputs into final product form
(production, assembly, packaging, equipment
maintenance, facilities, operations, quality assurance,
and environmental protection).

■ Distribution and outbound logistics: Activities,

costs and assets dealing with physically distributing the
product to buyers.

■ Sales and Marketing: Activities, costs and assets

related to sales force efforts, advertising and
promotion, market research and planning, and
dealer/distributor support.
Support Activities:

Research, Technology and systems Development:

Activities, costs and assets relating to product R&D,
process R&D, process design improvement, equipment
design, computer software development,
telecommunication systems.
Human Resources Management: Activities costs and
assets associated with the recruitment, hiring, training,
and developmental and compensation of all types of
personnel labor relations activities.
General Administration: Activities , costs and assets
relating to general management, accounting and
finance , legal and regulatory affairs, safety and
security, management information systems.
The Companies Prices And Costs Competitive

One is telling sign of whether a company's s situations strong or

precarious is whether its prices and costs are competitive with
industry rivals. Strategic cost analysis and value chain analysis are
essential tools in benchmarking a company's prices and costs
against rivals, determining. The cost disparities can range from
tiny to competitively significant and can step from any of several
factors:

Differences in the prices paid for raw materials, components parts,

energy and other items purchased from suppliers. Differences in
basic technology and the age of plants and equipment. Differences
in production cost from rival to rival due to different plant
efficiencies different learning and experiences curve effects.
Differences in marketing costs, sales and promotion expenditures,
advertising expenses, warehouse distribution costs, and
administrative costs. Differences in inbound transportation costs
on purchased items and outbound shipping costs sold. Differences
in forward channel distribution costs. Differences in rival firm's
exposure to the effects of inflation, changes in foreign exchange
rates.
THE SIGNS OF COMPETITIVE STRENGTH AND
WEAKNESS
Signs of Competitive Strength:
1. Important core competencies
2. Strong market share ( or a leading market share)
3. A pacesetting or distinctive strategy
4. Growing customer base and customer loyalty
5. Above average market visibility
6. In a favorably situated strategic group
7. Concentrating on fastest growing market segments
8. Strongly differentiated products
9. Cost advantages
10. Above average profit margins
11. Above average technological and innovational
capability
12. A creative, entrepreneurial alert management
13 In position to capitalization on opportunities
Signs of competitive weakness:

1. Confronted with competitive disadvantages

2. Losing ground to rival firms
3. Below average growth in revenues
4. Short on financial resources
5. A slipping reputation with customers
6. Training in product development
7. In a strategic group destined to lose ground
8. Weak in areas where there is the most market
potential
9. A higher cost producer
10. Too small to be a major factor in the marketplace
11. Not in good position to deal with emerging threats
12. Weak product quality
13. Lacking skills and capabilities in key areas.
Areas Covered by an Internal
Environmental Analysis:
Internal environmental analysis evaluates relevant
factors in an organization in order to determine its
strengths and weaknesses. The nine areas that
organizations should analyze in performing an internal
environmental analysis are:
1. Financial position
2. Product / service position
3. Product / service quality
4. Marketing capability
5. Research and development capability
6. Organizational structure
7. Human resources
8. Condition of facilities and equipment
9. Past and current objectives and strategies
1. Financial position:
Financial analysis is a comprehensive term that
refers to any use available financial data to
evaluation that financial position of an
organization.
2. Product / service position:
For a business to be a successful, it must be
acutely aware of its product or service position in
the marketplace. Without this type of
information, no business can survive very long in
today’s competitive environment. When assessing
an organization’s product / service position,
managers need not to first determine the market
share of its major product and or / services.
3. Product / service quality:
Product / service quality has become a major
issue in almost all markets today. If a product /
service is to survive and growth, it must be
perceived in the marketplace as providing high
quality relative to its price.
4. Marketing capability:
Closely allied with an organization’s product
position is its marketing capability. Marketing
capability include its distribution channels, the
types of advertising and promotions used, and
identification of the specific markets being
targeted.

5. Research and development capability:

Every organization, whether it has a formal
research and development department or not,
must be concerned about it ability to develop new
product and services. For some industries, such
as computers and medical technology, the
research and development department (R&D)
capability of a business is critical if it is to
survive.
6. Organizational structure:
All organizations produce and market their products
through an organizational structure. This structure can
either help or hinder an organization in achieving its
objectives. To assess an organization’s internal
strengths and weaknesses, its structure must be
evaluated.
7. Human resources:
All the activities of an organization are significantly
influenced by the quality and quantity of its human
resources. Effective human resource systems can give
an organization a very real competitive edge in
attracting and retaining high-quality personnel.
 8. Condition of facilities and equipment:
The condition of an organization’s facilities and
equipment can either enhance or hinder its
competitiveness. An evaluation of the facilities
and equipment should also include an evaluation
of the production / service processes used.
9. Past and current objectives and
strategies:
In general, it can be said that past and current
objectives and strategies are a strong indicators
of future objectives and strategies. Four basic
questions need to be answered in this area:
■ What have been the organization’s major
objectives in the relatively recent past?
■ Has it achieved these objectives?
■ What strategies have it employed in the relatively
recent past?
■ Have these strategies been successful?
Factors determining the Strategic Significance of
Strengths and Weaknesses

How do strengths
compare with accepted
standards of excellence?

Favorably Unfavorably

STRENGTHS WEAKNESSES

Can strengths
be How do strengths and
easily weaknesses compare with competitors
matched or
and industry standards of excellence?
imitated

DISTINCTIVE
Provides Necessary Necessary skill
COMPETENCE an edge skill
not present

COMPETITIVE BUSINESS
KEY
ADVANTAGE REQUIREMENT VULNERABILITY
 Thank You

For Attending

This Session