SWOT ANALYSIS: EXTERNAL AND INTERNAL FACTORS
SWOT Analysis is one of the effective analytical tools to evaluate a situation. The situation may be strategic related or capabilities related. SWOT Analysis is often used along with Strategic planning and it forms one of the key critical success factors in a Strategic Planning Process.
S.W.O.T. is an abbreviation for Strengths, Weaknesses, Opportunities and Threats. It consists of four factors each clearly has its own identity and purpose. S.W.O.T is commonly classified as External and Internal Factors. For the External factors, it consists of the Opportunities and Threats, whereas the Internal Factors are Strengths and Weaknesses.
The external factors refer to elements that are normally outside your own control and most of the time deal with external environmental factors. Example factors are: political, economic, societal and technological in short commonly known as P.E.S.T. Within the S.W.O.T., Opportunities and threats belong to this category.
On the other hand, internal factor refers to factors that are internal in nature and normally within your own control. Examples of factors are capabilities related factors such as production capability, market knowledge, management of distributors etc. Within the S.W.O.T., Strengths and Weaknesses are internal factors.
In real life application, how do you differential between all the four factors. To explain, let me illustration it with a situation as below:
Company A is losing market share over the last 1 year
Using S.W.O.T., you need to identify as many contributing elements pertaining to “losing market share” in accordance to the four factors. Of course, if you perform the S.W.O.T. in a team, brainstorming tool is used.
Say, you are able to establish these elements, you need to categorize them into the four S.W.O.T. listed below:
In summary, with some basic understanding of S.W.O.T. Analysis, the chances for you to develop a strategy or solution to this above situation will add value to your organization.
How to collect relevant data for the S.W.O.T.?
In order to use SWOT Analysis for Strategic Planning, an understanding of how to collect data for the factors is necessary.
To collect data for the Strengths in relation to competitors, the following guides can be used;
- What are the advantages of your company over your competitor?
- What are some of the customer benefit you can offer?
- What are some your customer relationship?
- What are some of the offers to customer your can fulfilled?
- What are some of the low cost operation capabilities?
- What are your financial strengths?
Similar to the Strengths, Weaknesses is another internal factor that deals with the weaknesses of the operation. The impact of weaknesses is more urgent when compared with competitors who are ahead of a firm. The following guides can be used to identify weaknesses;
- What are some of the setback with your company or operation?
- What are some of the “outdated” or inefficient equipment?
- What are some of the bad customer experience?
- What are some of the repeated operation failure?
- What are some of the escalated cost components?
When dealing with external factors, a firm needs be objectives-driven. For opportunities, a firm should keep focus on external factors that have influence on the market and sales opportunity that are not within its control. The following guides could be of help;
- Political or Policy changes that may spur development
- Economic situation that encourage spending.
- Societal stability that may encourage harmony (more spending)
- Technological advancement that can accelerate your operation
In the area of Threats, the following guides may help;
- Any new entrance to your industry?
- Any form of substitutions or alternatives
- What are some of the Political changes that influence the economy?
- Policy imposed that cost more in the long run
- Economic downturn in your own targeted market
- Societal instability
- Obsolete technology that hinder speed to market
Then strategies can be formulated given all of the above.