Internal & External Analysis | OnStrategy Resources (2022)

SWOT Analysis

SWOT is an acronym used to describe the particular Strengths, Weaknesses, Opportunities, and Threats that are strategic factors for a specific company. A SWOT should represent an organization’s core competencies while also identifying opportunities it cannot currently use to its advantage due to a gap in resources.

The SWOT analysis framework has gained widespread acceptance because of its simplicity and power in developing strategy. Just like any planning tool, a SWOT analysis is only as good as the information that makes it up. Research and accurate data is vital to identify key issues in an organization’s environment.

Internal & External Analysis | OnStrategy Resources (1)

Get the SWOT Guide Here

For even more of a deep dive on the subject, you can watch our video on How to Perform a SWOT Analysis.

Internal & External Analysis | OnStrategy Resources (2)

Assess your market:

  • What is happening externally and internally that will affect our company?
  • Who are our customers?
  • What are the strengths and weaknesses of each competitor? (Think Competitive Advantage)
  • What are the driving forces behind sales trends?
  • What are important and potentially important markets?
  • What is happening in the world that might affect our company?
  • What does it take to be successful in this market? (List the strengths all companies need to compete successfully in this market.)

Assess your company:

  • What do we do best?
  • What are our company resources – assets, intellectual property, and people?
  • What are our company capabilities (functions)?

Assess your competition:

  • How are we different from the competition?
  • What are the general market conditions of our business?
  • What needs are there for our products and services?
  • What are the customer-market-technology opportunities?
  • What are the customer’s problems and complaints with the current products and services in the industry?
  • What “If only….” statements does a customer make?

Opportunity is an area of “need” in which a company can perform profitably.

Threat

A challenge posed by an unfavorable trend or development that would lead (in absence of a defensive marketing action) to deterioration in profits/sales.

(Video) Internal And External Analysis In Strategy: What Everyone Should Know

An evaluation needs to be completed drawing conclusions about how the opportunities and threats may affect the firm.

EXTERNAL: MACRO- demographic/economic, technological, social/cultural, political/legal / MICRO- customers, competitors, channels, suppliers, publics
INTERNAL RESOURCES: the firm

Competitor analysis is a critical aspect of this step.

  • Identify the actual competitors as well as substitutes.
  • Assess competitors’ objectives, strategies, strengths & weaknesses, and reaction patterns.
  • Select which competitors to attack or avoid.

The Internal Analysis of strengths and weaknesses focuses on internal factors that give an organization certain advantages and disadvantages in meeting the needs of its target market. Strengths refer to core competencies that give the firm an advantage in meeting the needs of its target markets. Any analysis of company strengths should be market oriented/customer focused because strengths are only meaningful when they assist the firm in meeting customer needs. Weaknesses refer to any limitations a company faces in developing or implementing a strategy. Weaknesses should also be examined from a customer perspective because customers often perceive weaknesses that a company cannot see. Being market focused when analyzing strengths and weaknesses does not mean that non-market oriented strengths and weaknesses should be forgotten. Rather, it suggests that all firms should tie their strengths and weaknesses to customer requirements. Only those strengths that relate to satisfying a customer need should be considered true core competencies.

The following area analyses are used to look at all internal factors affecting a company:

  • Resources: Profitability, sales, product quality brand associations, existing overall brand, relative cost of this new product, employee capability, product portfolio analysis
  • Capabilities: Goal: To identify internal strategic strengths, weaknesses, problems, constraints and uncertainties

The External Analysis takes a look at the opportunities and threats existing in your organization’s environment. Both opportunities and threats are independent from the organization. Differentiating between strengths/weaknesses and opportunities/threats is to ask this essential question: Would this be an issue if the organization didn’t exist? If yes, it is an issue that is external to the organization. Opportunities are favorable conditions in an organization’s environment that can produce rewards if leveraged properly. Opportunities must be acted on if the organization wants to benefit from them. Threats are barriers presented to an organization that prevent them from reaching their desired objectives.

The following area analyses are used to look at all external factors affecting a company:

(Video) What Is Internal And External Analysis In Strategic Management? ( Business Strategy )

  • Customer analysis: Segments, motivations, unmet needs
  • Competitive analysis: Identify completely, put in strategic groups, evaluate performance, image, their objectives, strategies, culture, cost structure, strengths, weakness
  • Market analysis: Overall size, projected growth, profitability, entry barriers, cost structure, distribution system, trends, key success factors
  • Environmental analysis: Technological, governmental, economic, cultural, demographic, scenarios, information-need areas Goal: To identify external opportunities, threats, trends, and strategic uncertainties

The SWOT Matrix helps visualize the analysis. Also, when executing this analysis it is important to understand how these elements work together. When an organization matches internal strengths to external opportunities, it creates core competencies in meeting the needs of its customers. In addition, an organization should act to convert internal weaknesses into strengths and external threats into opportunities.

Internal & External Analysis | OnStrategy Resources (3)

Focus on your strengths. Shore up your weaknesses. Capitalize on your opportunities. Recognize your threats.

Identify

  • Against whom do we compete?
  • Who are our most intense competitors? Less intense?
  • Makers of substitute products?
  • Can these competitors be grouped into strategic groups on the basis of assets, competencies, or strategies?
  • Who are potential competitive entrants? What are their barriers to entry?

Evaluate

  • What are their objectives and strategies?
  • What is their cost structure? Do they have a cost advantage or disadvantage?
  • What is their image and positioning strategy?
  • Which are the most successful/unsuccessful competitors over time? Why?
  • What are the strengths and weaknesses of each competitor?
  • Evaluate competitors with respect to their assets and competencies.

Size and Growth: What are important and potentially important markets? What are their size and growth characteristics? What markets are declining? What are the driving forces behind sales trends?

Profitability: For each major market consider the following: Is this a business in which the average firm will make money? How intense is the competition among existing firms? Evaluate the threats from potential entrants and substitute products. What is the bargaining power of suppliers and customers? How attractive/profitable is the market now and in the future?

Cost Structure: What are the major cost and value-added components for various types of competitors?

Distribution Systems: What are the alternative channels of distribution? How are they changing?

(Video) Strategic Analysis: External and Internal

Market Trends: What are the trends in the market?

Key Success Factors: What are the key success factors, assets and competencies needed to compete successfully? How will these change in the future?

Environmental Analysis: An environmental analysis is the fourth dimension of the External Analysis. The interest is in environmental trends and events that have the potential to affect strategy. This analysis should identify such trends and events and estimate their likelihood and impact. When conducting this type of analysis, it is easy to get bogged down in an extensive, broad survey of trends. It is necessary to restrict the analysis to those areas relevant enough to have significant impact on strategy.

This analysis is divided into five areas: economic, technological, political-legal, sociocultural, and future.

Economic: What economic trends might have an impact on business activity? (Interest rates, inflation, unemployment levels, energy availability, disposable income, etc)

Technological: To what extent are existing technologies maturing? What technological developments or trends are affecting or could affect our industry?

Government: What changes in regulation are possible? What will their impact be on our industry? What tax or other incentives are being developed that might affect strategy development? Are there political or governmental stability risks?

(Video) External Analysis Overview

Sociocultural: What are the current or emerging trends in lifestyle, fashions, and other components of culture? What are their implications? What demographic trends will affect the market size of the industry? (i.e. growth rate, income, population shifts) Do these trends represent an opportunity or a threat?

Future: What are significant trends and future events? What are the key areas of uncertainty as to trends or events that have the potential to impact strategy?

Internal Analysis: Understanding a business in depth is the goal of internal analysis. This analysis is based on resources and capabilities of the firm.

Resources: A good starting point to identify company resources is to look at tangible, intangible and human resources.

Tangible resources are the easiest to identify and evaluate: financial resources and physical assets are identified and valued in the firm’s financial statements.

Intangible resources are largely invisible, but over time become more important to the firm than tangible assets because they can be a main source for a competitive advantage. Such intangible resources include reputational assets (brands, image, etc.) and technological assets (proprietary technology and know-how).

Human resources or human capital are the productive services human beings offer the firm in terms of their skills, knowledge, reasoning, and decision-making abilities.

(Video) Internal Analysis

RESOURCEMAIN CHARACTERISTICSKEY INDICATORS
Tangible
FinancialThe firm’s borrowing capacity and its internal funds generation determines its capacity to weather fluctuations in demand and profits overtimes.
  • Debt-to-equity ratio
  • Ration of net cash to capital expenses
  • Credit rating
PhysicalThe physical resources related to plan, equipment, assets, technology, raw materials.
  • Resale value of assets
  • Age of capital equipment
  • Flexibility of PPE
Intangible
TechnologicalStock of technology in the form of proprietary technology (copyright, patents, trade secrets) and expertise in the application of technology (know-how).
ReputationReputation with customers through the ownership of brands, established relationships with customers, reputation of the firm’s products and services.Reputation of the company with suppliers, employees, etc.
  • Brand recognition
  • Price premium over competing brands
  • Percent of repeat buying
  • Level and consistency of company performance
Human ResourcesTraining and expertise of employees determine the skills available to the firm.Adaptability of employees determines key aspects of strategic flexibility of the firm.Commitment and loyalty of employees determines the capacity of the firm to attain and maintain competitive advantage.
  • Educational, technical and professional qualifications of employees
  • Compensation relative to industry
  • Record of labor disputes
  • Employee turnover

Capabilities

Resources are not productive on their own. The most productive tasks require that resources collaborate closely together within teams. The term organizational capabilities is used to refer to a firm’s capacity for undertaking a particular productive activity. Our interest is not in capabilities per se, but in capabilities relative to other firms. To identify the firm’s capabilities we will use the functional classification approach. A functional classification identifies organizational capabilities in relation to each of the principal functional areas.

Functional AreaCapability
Corporate
  • Financial management
  • Expertise in strategic control
  • Effectiveness in motivating and coordinating business units
  • Management of partnerships
  • Overall company management/ resource management
Information Management
  • Comprehensive and effective information system that can be used for managerial decision making
Research and Development
  • Capability in basic research
Product Design
  • Design capability
Marketing
  • Brand management and promotion
  • Promotion and exploiting reputation for quality
  • Understand of and responsiveness to market trends
Sales and Fulfillment
  • Effectiveness in promoting and executing sales
  • Efficiency and speed of fulfillment
  • Quality and effectiveness of customer service

FAQs

What is resources in internal analysis? ›

Internal analysis begins with the identification of resources and capabilities. Resources can be tangible and intangible; capabilities may have such characteristics as well. VRIO analysis is a way to distinguish resources and capabilities from core competencies.

What is internal and external analysis? ›

External analysis focuses on how external factors such as industry trends affect a business and its success. In contrast, an internal analysis focuses on the internal processes of a business, such as company culture and employee onboarding and how those factors affect the success of the business.

What tools techniques can be used for an external analysis? ›

Tools for external analysis and understanding the market
  • PESTLE Analysis. PESTLE is both simple to use and understand, and comprehensive. ...
  • LoNGPESTLE. ...
  • DESTEP. ...
  • Porter's Five Forces. ...
  • Four Corner Analysis. ...
  • Perceptual Map. ...
  • SWOT Analysis. ...
  • SOAR Analysis.

What is internal and external analysis in strategic management? ›

External analysis refers to the study of the environment surrounding the organization, its competitors, suppliers, overall macro environment, and trends. Internal analysis is the study of the organization itself. Both are necessary to determine the starting point of effective strategic management.

What are external resources? ›

An external resource is a unique resource type that does not directly store user account information. Rather, it is a resource that is external to the workings of Oracle Waveset. These resources can be desktop computers, laptop computers, cell phones, security badges, and so forth.

What is an example of an internal analysis? ›

A few of the most common examples of internal analysis frameworks include: Gap analysis: A gap analysis identifies the gap between a business goal and the current state of operations. Companies use gap analyses when they need to identify weaknesses in the business.

Why is internal and external analysis important? ›

An internal analysis looks at factors within your business such as your strengths and weaknesses. Examining your internal and external analyses together gives you a complete picture of your current situation and the steps you can take to plan your marketing.

What is the difference between internal and external? ›

The difference between these two words is that anything that is external is located on the outside of something else, whereas anything that is internal is located on the inside of something and does not involve any input from the outside.

What are the methods of internal analysis? ›

Internal analysis methods include:
  • SWOT Analysis.
  • GAP Analysis.
  • Strategy Evaluation.
  • VRIO Analysis.
  • OCAT.
  • McKinsey 7S Framework.
  • Core Competencies Analysis.
11 Jul 2022

Which tool is used for analysis? ›

Microsoft Excel is the most common tool used for manipulating spreadsheets and building analyses. With decades of development behind it, Excel can support almost any standard analytics workflow and is extendable through its native programming language, Visual Basic.

Which are external analysis components? ›

External analysis means examining the industry environment of a company, including factors such as competitive structure, competitive position, dynamics, and history. On a macro scale, external analysis includes macroeconomic, global, political, social, demographic, and technological analysis.

What are the 3 aspects of internal analysis? ›

An internal analysis highlights three factors: an organization's competency, resources, and competitive advantage.

What are internal and external strategies? ›

Internal, or organic, growth strategies rely on the company's own resources by reinvesting some of the profits. Internal growth is planned and slow. In an external growth strategy, the company draws on the resources of other companies to leverage its resources.

Is SWOT external or internal analysis? ›

SWOT analysis assesses internal and external factors, as well as current and future potential. A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the strengths and weaknesses of an organization, initiatives, or within its industry.

What are examples of internal resources? ›

The internal resources relevant to this study are financial resources, human resources, information and technology, internal infrastructure (Value Chain), management and entrepreneurship.

What are 4 examples of resources? ›

Oil, coal, natural gas, metals, stone and sand are natural resources. Other natural resources are air, sunlight, soil and water. Animals, birds, fish and plants are natural resources as well. Natural resources are used to make food, fuel and raw materials for the production of goods.

What are external resources of a project? ›

External resources refer to any kind of resource that the team has to secure from outside their organization to complete their project or task. For example, if you need to bring in an independent professional to help you design a new website, they would be considered an external resource.

What are the 7 resources? ›

Every technological system makes use of seven types of resources: people, information, materials, tools and machines, energy, capital and time.

What are the 3 main types of resources? ›

Classical economics recognizes three categories of resources, also referred to as factors of production: land, labor, and capital.

What are the 2 types of resources? ›

Resources are characterized as renewable or nonrenewable; a renewable resource can replenish itself at the rate it is used, while a nonrenewable resource has a limited supply. Renewable resources include timber, wind, and solar while nonrenewable resources include coal and natural gas.

What are the two 2 components of internal analysis? ›

a. There are five main components of an Internal Analysis, including resources, capabilities, core competencies, competitive advantage, and strategic competitiveness.

Why is an internal analysis important? ›

Internal analysis can help businesses strengthen their core activities. It assists corporate executives in identifying methods to enhance their operations. Identifying opportunities is one of the most essential reasons for conducting an internal analysis.

What are internal and external factors of business environment? ›

External factors include political, economic, sociocultural, technological, environmental, and legal factors. These are factors that happen outside of the company but still, impact its ability to do business. Internal factors include culture changes, management changes, and employee morale.

What is the benefits of external analysis? ›

The external analysis allows businesses to make changes in the product, services, and strategies in order to meet the needs and wants of customers. It doesn't matter whether you're a financial analyst, marketer, or business owner, the external analysis would help your business to grow and proliferate.

What are the components of internal analysis? ›

The four areas that are essential for internal analysis are:
  • An organization's resources and capabilities.
  • The configuration and co-ordination of an organization.
  • Organizational structure and characteristics of its culture.
  • Finally the performance of the organization in terms of the strength of its products.
29 May 2013

Why is it important for a business to analyze the external environment? ›

Analyzing your company's external environment is a critical step in preparing a strategic plan. This is a complex task because it involves collecting a variety of data to get an accurate picture of the situation. Based on this analysis, the company can then make sound decisions to further its growth.

What are examples of external and internal? ›

A tree is set to swing when a force is applied by the wind on it. Since the force exerted by the wind on the tree is from the outside, it is known as an external force. On the contrary, the force that helps the tree to stay in the position and prevents it from falling down is known as an internal force.

What is the difference between internal data source and external data source? ›

Internal data is information generated from within the business, covering areas such as operations, maintenance, personnel, and finance. External data comes from the market, including customers and competitors. It's things like statistics from surveys, questionnaires, research, and customer feedback.

What is external data analysis? ›

What Is External Data? External data is information that originates outside the company and is readily available to the public. External data is used to help a company develop a better understanding of the world in which they are operating.

What are three sources of internal data? ›

There are different sources of internal data and include sales, finance, marketing, and human resources.

What are the four common sources of internal data? ›

There are four types of internal data that can provide business owners and leaders with the information necessary to implement new strategies.
  • Sales Data. ...
  • Financial Data. ...
  • Marketing Data. ...
  • Human Resources Data.
26 Apr 2018

What are the two methods of analysis? ›

The two most commonly used quantitative data analysis methods are descriptive statistics and inferential statistics.

What are the 3 methods of analysis? ›

There are two main methods of Data Analysis:
  • Qualitative Analysis. This approach mainly answers questions such as 'why,' 'what' or 'how. ...
  • Quantitative Analysis. Generally, this analysis is measured in terms of numbers. ...
  • Text analysis. ...
  • Statistical analysis. ...
  • Diagnostic analysis. ...
  • Predictive analysis. ...
  • Prescriptive Analysis.
26 May 2022

What are types of data analysis? ›

In data analytics and data science, there are four main types of data analysis: Descriptive, diagnostic, predictive, and prescriptive.

What are the 4 methods of data collection? ›

In this article, we will look at four different data collection techniques – observation, questionnaire, interview and focus group discussion – and evaluate their suitability under different circumstances.

What are the types of external information? ›

The four types of external data

Based on a review of current practices, we distinguish four relevant external data types: open data, paid data, shared data, and web data.

Is VRIO internal or external? ›

The VRIO framework is an internal analysis that helps businesses identify the advantages and resources that give them a competitive edge. The VRIO framework is an acronym for the various measurements of success that relate to your business.

What are the six external environment components? ›

In particular, PESTEL reflects the names of the six segments of the general environment: (1) political, (2) economic, (3) social, (4) technological, (5) environmental, and (6) legal.

What is internal resources and capabilities? ›

What are Internal Resources and Capabilities? Firms create value by exploiting internal resources and capabilities to meet market demands. What constitutes a resource can be varied and diverse. Back to: STRATEGY & PLANNING.

What are the 5 aspects of an internal environment? ›

There are 14 types of internal environment factors:
  • Plans & Policies.
  • Value Proposition.
  • Human Resource.
  • Financial and Marketing Resources.
  • Corporate Image and brand equity.
  • Plant/Machinery/Equipments (or you can say Physical assets)
  • Labour Management.
  • Inter-personal Relationship with employees.
1 Sept 2022

What are internal and external objectives? ›

Internal Objectives are those given to the operations from within the organization – from the owners of the business or the shareholders / investors who demand operations performance for overall, profit-generating financial success. External Objectives are what the “Customers” of the operations care about.

What are the 4 types of external growth? ›

There are five ways of External Growth: Mergers, Acquisitions, Takeovers, Joint Ventures (JV) and Strategic Alliances (SA).

What are the internal and external factors that affect strategy? ›

SWOT analysis refers to strengths, weaknesses, opportunities and threats. Strengths and weaknesses are the internal factors of an organization and opportunities and threats are the external factors.

What are external factors examples? ›

External factors
  • political - For example, new legislation.
  • economic - For example, inflation and unemployment.
  • social - Changes in taste and fashion or the increase in spending power of one group, for example, older people.
  • technological - For example, being able to sell goods online or using automation in factories.

Can SWOT be used for external analysis? ›

Strengths and weaknesses are often internal to your organization, while opportunities and threats generally relate to external factors. For this reason, the SWOT Analysis is sometimes called internal-external analysis and the SWOT matrix is sometimes called an IE matrix.

How can a SWOT analysis be useful for both internal and external? ›

SWOT analysis is one very effective tool for the analysis of environmental data and information – for both, internal (strengths, weakness) and external (opportunities, threats) factors. It helps to minimize the effect of weaknesses in your business, while maximizing your strengths.

What are internal resources? ›

What Are Internal Resources Of A Business? Internal factors are inner strengths and weaknesses, which are either tangible or intangible, that an organization exhibits. It is believed that these elements can strongly affect a company's performance and the capability of meeting its objectives.

What is a resource analysis? ›

Resource analysis stands for the steps you take to identify and realistically evaluate all the resources at your disposal (resource availability) to reach a specific objective or deliver a project.

What is the concept of resources? ›

A resource is any physical material constituting part of Earth that people need and value. Natural materials become resources when humans value them. The uses and values of resources change from culture to culture and from time to time. Resources are spatially distributed varying in quantity and quality.

What are internal resources examples? ›

The internal resources relevant to this study are financial resources, human resources, information and technology, internal infrastructure (Value Chain), management and entrepreneurship.

What are the four internal resources? ›

These four qualities are value, rarity, inimitability, and organizational support. Value is concerned with the value placed on resources and competences by a customer or an organization.

What are three sources of internal data? ›

There are different sources of internal data and include sales, finance, marketing, and human resources.

What are examples of internal sources of data? ›

Examples of internal data include sales data, website data, customer information and financial data. Since you're responsible for collecting, maintaining and storing internal data, it's more reliable, accurate and credible as compared to external data.

What is resources and its type? ›

A resource is a physical material that humans need and value such as land, air, and water. Resources are characterized as renewable or nonrenewable; a renewable resource can replenish itself at the rate it is used, while a nonrenewable resource has a limited supply.

What are resources in assessment? ›

A resources assessment is the process of gathering information about the resources available to address a particular need or risk.

What are resource tools? ›

Resource planning tools, or resource management software are a type of project management tool that aids in planning and scheduling. Such a tool allows you to plan and allocate resources. You can also track which resource is working on what project when they are doing so, and for how long.

What are the 7 types of resources? ›

Seven types of resource management are: (1) Forest resource management (2) Water resource management (3) Mineral resource management (4) Land resource management (5) Energy resource management (6) Wildlife management (7) Agriculture resource management.

What are the 6 types of resources? ›

Air, water, food, plants, animals, minerals, metals, and everything else that exists in nature and has utility to mankind is a 'Resource'.

What are importance of resources? ›

Resources are important for the development of any country. For example, to generate energy, one need fossil fuels; and for industrial development, we require mineral resources. 6. Irrational consumption and over utilisation of natural resources has led to socio-economic and environmental problems.

What is an example of an internal analysis? ›

A few of the most common examples of internal analysis frameworks include: Gap analysis: A gap analysis identifies the gap between a business goal and the current state of operations. Companies use gap analyses when they need to identify weaknesses in the business.

What are examples of external and internal? ›

A tree is set to swing when a force is applied by the wind on it. Since the force exerted by the wind on the tree is from the outside, it is known as an external force. On the contrary, the force that helps the tree to stay in the position and prevents it from falling down is known as an internal force.

What is internal resources audit? ›

Resource audit is an internal strategic analysis technique used to understand the current state of an organisation's resources and competencies. It helps to identify what the organisation currently has that we can build on and what are the areas that it needs to improve upon.

Videos

1. Evaluating the Business' Internal & External Environments
(Debbie Motilewa)
2. External and internal Strategy analysis (Antonio Ghezzi)
(Polimi OpenKnowledge)
3. External Analysis
(GreggU)
4. External Analysis: PESTEL Framework | Strategic Management
(Business School 101)
5. Understanding Internal Analysis
(Ma'am Fab)
6. Strategy formulation - Internal analysis: resources and capabilities
(College of Business Management)

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