SWOT Analysis

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Strengths and weaknesses, as their names imply, are internal characteristics of an organization—things that your company does well or poorly. Think of your workplace or another organization. Can you name things that the firm does well? Maybe you have a great customer service department, a good sales prospecting procedure, well-situated retail locations, a liberal return policy, dedication to R and D, or excellent product quality. These are factors over which managers have complete control, so they are considered internal strengths.

An internal strength can be considered a distinctive competence when the organization and only a few of its competitors possess that internal strength. When the strength is difficult to imitate by the organization’s competitors, then that distinctive competence creates a sustainable competitive advantage for the organization that possesses the distinctive competence. Therefore, distinctive competencies are of great value to an organization and one that organizations strive to possess and protect.

On the other hand, weaknesses are things that you don’t do well. It’s tough to conduct an honest account of weaknesses from inside an organization. Not only are you a little myopic, but also, a realistic assessment will probably be damaging to one department or another.

Examples? Maybe an organization has outdated product features, lousy supplier relationships, an understaffed marketing department, high employee turnover, or low R and D expenditures compared to industry averages.

Opportunities and threats are external environmental forces that act on an organization (they stem from the general environment that we studied in Week 1). You’ll read about Porter’s five forces model here, but remember, that model pertains to an industry as a whole. This doesn’t mean it’s unrelated to an individual organization. If the entire airline industry has few opportunities, it certainly affects Southwest. But I think Southwest is also an example of a company with many opportunities.

So savvy managers conduct their own environmental scanning—scanning the dimensions of the general environment (political/legal, sociocultural, international, economic, and technological) to see what’s ahead for their company.

Managers’ decisions and actions are constrained. External constraints come from the organization’s environment and internal constraints come from the organization’s culture.

The term external environment refers to factors and forces outside the organization affecting its performance.

  1. The economic component encompasses factors such as interest rates, inflation, changes in disposable income, stock market fluctuations, and business cycle stages.
  2. The demographic component is concerned with trends in population characteristics such as age, race, gender, education level, geographic location, income, and family composition.
  3. The political/legal component looks at federal, state, and local laws as well as global laws and laws of other countries. It also includes a country’s political conditions and stability.
  4. The sociocultural component is concerned with societal and cultural factors such as values, attitudes, trends, traditions, lifestyles, beliefs, tastes, and patterns of behavior.
  5. The technological component is concerned with scientific or industrial innovations.
  6. And the global component encompasses those issues associated with globalization and a world economy

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