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Introduction
Any successful business organization would operate with a strategic management where vision and
mission is defined. Vision and Mission of such an organization is formulated based on the
environmental factors. In order to determine the environmental factors an analysis is undertaken.
This analysis is could be termed as an environmental analysis.
Environmental Analysis is one of the strategic planning techniques to scan or to evaluate the factors
that are suitable and not suitable for an organization. The factors could be organization’s resource
capabilities, relative cost position and competitive strength versus rivals.1 These strategic
management tools serve an organization to illuminate its resource strengths and deficiencies, its
market opportunities, the outside threats to its future profitability and its competitive standing
relative to rivals.2
1
Thomason and Strickland, Strategic management- concepts and cases, 2001, p.115
2
Ibid., p.115
3
L M Prasad, Business Policy: Strategic Management, 2005, p.133
2
Any business organization operates under two main factors: internal factors and external factors. A
business organization being a system operates in some contexts which lie within its control is known
as internal factor. The internal factors may be viewed as strengths or weaknesses depending upon
their impact on the organization's objectives. What may represent strengths with respect to one
objective may be weaknesses for another objective.
A business organization being a system operates in some environment which lie outside its control is
known as external factors. This environment could be depicted in the following structure:
Environmental Scan
Environment
al Scan
Internal External
Analysis Analysis
Opportunitie
Strengths Weaknesses Threats
s
Political factors include government regulations and legal issues and define both formal and informal
rules under which the firm must operate. These are important factors particularly in a mixed
economy like India and its affects the working of business organizations significantly.4 Some
examples include:
• Tax policy
• Employment laws
• Environmental regulations
• Trade restrictions and tariffs
• Political stability
Economic Factors
Economic factors affect the purchasing power of potential customers and the firm's cost of capital.
Economic environment covers those factors which give shape and form to the development of
economic activities and may include factors like nature of economic system, general economic
conditions, various economic policies and various production factors.5
• economic growth
• Interest rates
• Exchange rates
• Inflation rate
Social Factors
Social factors include the demographic and cultural aspects of the external macro-environment.
Social and cultural environment consists of attitudes, beliefs, desires, expectations, education and
customs of the society at a given point of time.6
These factors affect customer needs and the size of potential markets. Some social factors include:
• Health consciousness
4
L M Prasad, Business Policy: Strategic Management, 2005, p.144
5
L M Prasad, Business Policy: Strategic Management, 2005, p.142
6
L M Prasad, Business Policy: Strategic Management, 2005, p.147
4
Technological Factors
Technological factors can lower barriers to entry, reduce minimum efficient production levels, and
influence outsourcing decisions. These may include inventions and techniques which affect the ways
of doing things that is designing, producing and distributing products. 7
• R&D activity
• Automation
• Technology incentives
• Rate of technological change
• External Opportunities and Threats
The research studies show that organizations which undertake constant environmental analysis
perform better in their business. Therefore, this analysis helps the management to formulate business
strategies.
7
L M Prasad, Business Policy: Strategic Management, 2005, p.146
8
Ian Wilson, Benefits of Environmental Analysis in Kenneth J Albert (ed.), The strategic
management handbook
The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis may
be used in any decision-making situation when a desired end-state (objective) has been defined.
Examples include: non-profit organizations, governmental units, and individuals. SWOT analysis
may also be used in pre-crisis planning and preventive crisis management. SWOT analysis may also
be used in creating a recommendation during a viability study.
It is also a scan of the internal and external environment and an important part of the strategic
planning process. Environmental factors internal to the firm usually can be classified as strengths (S)
or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats
(T). Such an analysis of the strategic environment is referred to as a SWOT (sometimes referred to as
TOWS) analysis.
Genesis of SWOT9
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. The SWOT framework was described in the late 1960's by Edmund P. Learned, C.
Roland Christiansen, Kenneth Andrews, and William D. Guth in Business Policy, Text and Cases
(Homewood, IL: Irwin, 1969).
The General Electric Growth Council used this form of analysis in the 1980's. Because it
concentrates on the issues that potentially have the most impact, the SWOT analysis is useful when a
very limited amount of time is available to address a complex strategic situation.10
9
www.NetMBA.com/Strategic Management/SWOT Analysis
10
www.hubpages.com/hub/SWOTanalysis
6
The SWOT analysis provides information that is helpful in matching the firm's resources and
capabilities to the competitive environment in which it operates. It is otherwise described as
opportunity/issue analysis; this is a widely used tool for situation audit. It encourages managers to
summarize the position in terms of: Strengths, Weaknesses, Opportunities and Threats.11
Strengths
A firm's strengths are its resources and capabilities that can be used as a basis for developing a
competitive advantage over its competitors.12 It is an inherent capacity that is in relation to the
environment. For an organization to be a success it requires strength and it gives strategic advantage
to gain more than the competition.
1. patents
2. strong brand names
3. good reputation among customers
4. cost advantages from proprietary know-how
5. exclusive access to high grade natural resources
6. favorable access to distribution networks
Weaknesses
In some cases, a weakness may be the flip side of a strength. Take the case in which a firm has a
large amount of manufacturing capacity. While this capacity may be considered a strength that
competitors do not share, it also may be a considered a weakness if the large investment in
manufacturing capacity prevents the firm from reacting quickly to changes in the strategic
environment.
Opportunities
The external environmental analysis may reveal certain new opportunities for profit and growth.
OPPORTUNITY can be accomplished and can help to consolidate and strengthen the organization.
It’s a favorable condition in the organization’s environment which enables it to strengthen its
position.14
Threats
Changes in the external environmental also may present threats to the firm. Also when the
opportunities are not utilized properly it can cause problem to the organization which causes threat. It
is unfavorable condition in the organization’s environment which causes a risk/damage to an
organization’s position.15
14
L M Prasad, Business Policy: Strategic Management, 2005, p.133
15
L M Prasad, Business Policy: Strategic Management, 2005, p.133
8
SWOT analysis may tend to persuade business organizations to compile lists rather than think about
what is actually important in achieving objectives. It also presents the resulting lists uncritically and
without clear prioritization so that, for example, weak opportunities may appear to balance strong
threats.
Conclusion
BIBLIOGRAPHY
4. L M Prasad, Business Policy: Strategic Management, New Delhi: Sultan Chand &
Sons, Educational Publishers, 2005
6. www.hubpages.com/hub/SWOTanalysis
Submitted to
Dr John G, M.Com, MPhil, PhD
By
Department of Commerce
St. Joseph’s College (Autonomous)
Tiruchirappalli – 620 002
December 2, 2009
Seminar
on