Why is the process of conducting an internal and external analysis on a regular basis important for any size company? The process of an internal and external analysis on a regular basis is important for any size company because it allows the company to know where it stands at the moment and determines the development and forecasts of those factors that will influence the organizational success. This is also known as environmental scanning where the external and the internal environments are scanned for information like ongoing trends patterns, occasions and changes going around and the effect it has to both these environments.
External analysis: These analyses are performed outside the firm and depend on the following factors: a, MACRO: technological, demographic/economic, political/legal and social/cultural, national and global environment b. MICRO: competitors, suppliers, customers, publics, channels etc. Internal Analysis: This analysis is performed within the firm that includes the employees, management and the shareholders, resources, organisational structure etc.
SWOT Analysis The most common way of analyzing this external and internal environment is by performing the SWOT analysis.
SWOT is an acronym used that describes Strengths, Weaknesses, Opportunities, and Threats that are strategic elements for a firm. A SWOT analysis should not only result in the identification of a corporation’s core competencies, but also in the identification of opportunities that the firm is not currently able to take advantage of due to a lack of appropriate resources. (Wheelen, Hunger pg 107)
The External analysis comprises of the Opportunities and Threats that the company needs to identify or focus on for its profitability and development of defensive actions.
* Opportunities: This analyzes the area where the firm can identify its opportunities so as to have a competitive advantage over its competitors. Once identified, the firm has to work on them to make it one of its strengths. Its main aim is to find an area where they need to develop to be profitable. * Threats: These are the threats that the firm faces from outside the firm and can be from any of the external sources. The firm has to be prepared to tackle these threats by developing strategic decisions when required so that it does not affect their profitability or sales.
The Internal analysis focuses on the internal environment of the organisation and analyzes the Strengths and Weaknesses of the company. * Strengths: These are the core competencies of the firm that provides them the advantage of achieving their goals. These should be aligned in meeting the customer requirements because at the end of the day, it is the customer whom they serve. Therefore, it should be customer focussed and market oriented.
* Weaknesses: These refer to the firm’s limitations in fulfilling their strategic decisions or failure to implement them. It has to be analyzed from the customer’s point of view so as to get a clear idea. These steps need to analyze the firm’s resources and the capabilities to meet their goals and identify events and trends that might impact the strategic plans and decisions of the company.
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