Unit 1: Business and the Business

Environment
By: Saad Naseer
LO4 Determine the internal strengths and weaknesses of specific
businesses and their interrelationship with external macro factors.

• Frameworks for analysis

• Internal vs external factors

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Frameworks for Analysis
• SWOT Analysis
SWOT (strengths, weaknesses, opportunities, and threats) analysis is a
framework used to evaluate a company's competitive position and to
develop strategic planning. SWOT analysis assesses internal and
external factors, as well as current and future potential.
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Components of SWOT Analysis
• Strengths
Strengths describe what an organization excels at and what separates it from the competition:
a strong brand, loyal customer base, a strong balance sheet, unique technology, and so on. For
example, a hedge fund may have developed a proprietary trading strategy that returns
market-beating results. It must then decide how to use those results to attract new investors.
• Weaknesses
Weaknesses stop an organization from performing at its optimum level. They are areas where
the business needs to improve to remain competitive: a weak brand, higher-than-average
turnover, high levels of debt, an inadequate supply chain, or lack of capital.
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• Opportunities
Opportunities refer to favourable external factors that could give an
organization a competitive advantage. For example, if a country cuts tariffs, a
car manufacturer can export its cars into a new market, increasing sales
and market share.
• Threats
Threats refer to factors that have the potential to harm an organization. For
example, a drought is a threat to a wheat-producing company, as it may
destroy or reduce the crop yield. Other common threats include things like
rising costs for materials, increasing competition, tight labor supply. and so
on.
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Strengths Weaknesses
1. What is our competitive advantage? 1. Where can we improve?
2. What resources do we have? 2. What products are underperforming?
3. What products are performing well? 3. Where are we lacking resources?

Opportunities Threats
1. What new technology can we use? 1. What regulations are changing?
2. Can we expand our operations? 2. What are competitors doing?
3. What new segments can we test? 3. How are consumer trends changing?
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• How to Do a SWOT Analysis
A SWOT analysis can be broken into several steps with actionable items before
and after analysing the four components. In general, a SWOT analysis will
involve the following steps.
• Step 1: Determine Your Objective
A SWOT analysis can be broad, though more value will likely be generated if the
analysis is pointed directly at an objective. For example, the objective of a SWOT
analysis may focused only on whether or not to perform a new product rollout.
With an objective in mind, a company will have guidance on what they hope to
achieve at the end of the process. In this example, the SWOT analysis should
help determine whether or not the product should be introduced.
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• Step 2: Gather Resources
Every SWOT analysis will vary, and a company may need different data sets to support pulling
together different SWOT analysis tables. A company should begin by understanding what
information it has access to, what data limitations it faces, and how reliable its external data
sources are.
In addition to data, a company should understand the right combination of personnel to have
involved in the analysis. Some staff may be more connected with external forces, while
various staff within the manufacturing or sales departments may have a better grasp of what
is going on internally.
• Step 3: Compile Ideas
For each of the four components of the SWOT analysis, the group of people assigned to
performing the analysis should begin listing ideas within each category. Examples of
questions to ask or consider for each group are in the table below.
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• Internal Factors
What occurs within the company serves as a great source of information for the strengths and weaknesses categories of the
SWOT analysis. Examples of internal factors include financial and human resources, tangible and intangible (brand name) assets,
and operational efficiencies.
Potential questions to list internal factors are:
• (Strength) What are we doing well?
• (Strength) What is our strongest asset?
• (Weakness) What are our detractors?
• (Weakness) What are our lowest-performing product lines?
• External Factors
What happens outside of the company is equally as important to the success of a company as internal factors. External
influences, such as monetary policies, market changes, and access to suppliers, are categories to pull from to create a list of
opportunities and weaknesses.
Potential questions to list external factors are:
• (Opportunity) What trends are evident in the marketplace?
• (Opportunity) What demographics are we not targeting?
• (Threat) How many competitors exist, and what is their market share?
• (Threat) Are there new regulations that potentially could harm our operations or products?
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• Step 4: Refine Findings
With the list of ideas within each category, it is now time to clean-up the
ideas. By refining the thoughts that everyone had, a company can focus on
only the best ideas or largest risks to the company. This stage may require
substantial debate among analysis participants, including bringing in upper
management to help rank priorities.
• Step 5: Develop the Strategy
Armed with the ranked list of strengths, weaknesses, opportunities, and
threats, it is time to convert the SWOT analysis into a strategic plan. Members
of the analysis team take the bulleted list of items within each category and
create a synthesized plan that provides guidance on the original objective.
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• TOWS Analysis
A TOWS Analysis is an extension of the SWOT Analysis framework that
identifies your Strengths, Weaknesses, Opportunities and Threats but
then goes further in looking to match up the Strengths with
Opportunities and the Threats with Weaknesses. It’s a great next step
after completing your SWOT and allows for you to take action from the
analysis.
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Adding the relationship between the internal and external factors makes
TOWS a much more useful matrix than a standalone SWOT and an obvious
next step. The main purpose of a TOWS Analysis is to:
• Reduce threats
• Take advantage of opportunities
• Exploit strengths
• Remove weaknesses
A well thought out TOWS can not only provide you with detail of your
SWOT, but also some data to make a decision about your overall direction.
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The big difference between a TOWS and a SWOT is the relationships between the internal and external
factors, examining how they link up, impact and influence each other...
• Strengths to Opportunities:
The S-O focuses around how you can exploit your strengths in order to respond to the potential
opportunities in the market.
• Strengths to Threats:
The S-T examines how strengths can be used to mitigate or remove the threats to the business, and in
some cases look at how threats can be transformed to opportunities.
• Weaknesses to Opportunities:
The W-O can be the hardest consideration, as it doesn’t always come naturally. Consider how your
opportunities can remove your weaknesses.
• Weaknesses to Threats:
The W-T highlights how weaknesses can play into, develop or enhance the threats of the business.
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What are the advantages of TOWS?
TOWS has a number of advantages:
• It’s simple to understand and complete
• It provides a good analysis of both internal and external issues
• It focuses on the positive and negative
• It leads to actions to improve your current position
What are some of the limitations of TOWS?
The limitations of TOWS are:
• It can be too broad to be used to make decisions
• It doesn’t contain a way to weight the importance or the element of risk
• It takes longer to complete than other frameworks
• You need a good knowledge of both internal and external issues to complete it
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• Internal vs external factors:
Internal factors are;
• Products
• Pricing
• Costs
• Profitability
• Performance
• Quality
• People
• Skills
• Adaptability
• Brands
• Services
• Reputation
• Processes
• Infrastructure.
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• Key external factors that inform opportunities and threats, including
the competitive environment and government intervention, that
influence organisations and business operations can be identified by
analysing Micro and Macro Environment.
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Micro Environment Analysis
• Competitive Analysis
Competitive analysis is the process of identifying organizations in the market that
offer similar products or services. An effective competitive analysis helps an
organization look at itself from the perspective of the competitor and the
customer and helps determine where and what can be improved.
• Supplier Analysis
Supplier analysis refers to the process of analysing and approving different
suppliers within an organization. This is done through quantitative and qualitative
research elements. The goal of a supplier analysis is to ensure that only the best
suppliers continue to provide the organization with everything it needs.
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• Customer Analysis
The customer analysis is a very important part of every marketing department and a
permanent part of the business plan.
Such analysis provides insights into the target audience, determines customer needs
and defines how the product or service meets those needs. Customer analytics are
usually divided into two parts:
1. Behavioural Analysis
2. Demographics Analysis
• Stakeholder Analysis
All people, both internal and external, who are involved in a project or organization
are called stakeholders. A stakeholder analysis is the process of identifying all these
people and then categorizing them.
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• Market Analysis
The market analysis consists of several parts. Some of these fall under
the micro-environment, others under the macro-environment. Read
more about the macro environment of companies here.

Macro Environment Analysis is conducted using PESTLE Analysis

Covered in LO3.