Tuesday, March 9, 2010
A scan of internal and external environment is an important part of strategic management process.
Environmental factors internal to the firm can be classified as strengths (S) and weaknesses (W).
And those external to the firm can be classified as opportunities (O) and threats (T).
Such an analysis of the environment is referred to as SWOT Analysis
A firm’s strengths are its resources and capabilities that can be used as basis for developing a competitive advantage.
Strong brand names
Good reputation among customers
Low Cost Structure
The absence of certain strengths may be viewed as a weakness.
Lack of patent protection
Weak brand name
Poor reputation among competitors
High cost structure
The external environmental analysis may reveal certain new opportunities for profit and growth
An unfulfilled customer needs
Arrival of new technology
Loosening of regulations
Removal of international trade barriers
Changes in the external environment also may present threats to the firm.
Shifts in tastes away from the firm’s products.
Emergence of substitute products
S-O Strategies Pursue opportunities that are a good fit to the company’s strengths.
W-O Strategies Overcome weaknesses to pursue opportunities.
S-T Strategies identify the ways that the firm uses its strengths to reduce its vulnerability to external threats.
W-T Strategies establish a defensive plan to prevent the firm’s weaknesses from making it highly susceptible to external threats.