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6. internal and external analysis


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6. internal and external analysis

  1. 1. Internal and External Analysis 1.SWOT ANALYSIS 2.PORTER’s 5 FORcEs 3.PEST Analysis 4.Value Chain Analysis
  2. 2. SWOT ANALYSIS • SWOT analysis is a planning tool used to understand the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business. It involves specifying the objective of the business or project and identifying the internal and external factors that are supportive or unfavorable to achieving that objective. (1) • SWOT is often used as part of a strategic planning process. SWOT is an acronym for Strengths, Weaknesses, Opportunities, Threats. (2)
  3. 3. SWOT ANALYSIS HISTORY • The origin of SWOT analysis is credited by Albert Humphrey, who led a research project at Stanford University in the 1960s and 1970s using data from many top companies. • Goal of SWOT was to identify why corporate planning failed. Humphrey and the team used the categories “What is good in the present is Satisfactory, good in the future is an Opportunity; bad in the present is a Fault and bad in the future is a Threat.”. Hence they came up with SWOT.(3) MYTH OF SWOT: Some researchers reference the 1965 publication “Business Policy, Text and Cases” from Harvard University in which a framework is used which closely resembles a SWOT analysis. Strengths, Weaknesses, opportunities, risks, environment & problems of other industries. The terms SWOT or THREATS is not used so it is myth.(3)
  4. 4. SWOT ANALYSIS PURPOSE • Reveal your competitive advantages • Analyze your prospects for sales profitability and product development • Prepare your company for problems • Allow for the development of contingency plans • A strategic option, such as entering a new market or launching a new product • A opportunity to make an acquisition • A potential partnership • Project planning and project management • An investment opportunity • Personal financial planning • Personal career development - direction, choice, change, etc. (5)
  5. 5. SWOT ANALYSIS Advantage & Limitations (6)
  6. 6. SWOT ANALYSIS Advantage & Limitations (6) (6)
  7. 7. SWOT ANALYSIS Advantage & Limitations (7)
  8. 8. SWOT ANALYSIS Advantage & Limitations • Strengths may not lead to an advantage • SWOT’s focus on the external environment is too narrow • SWOT gives a one-shot view of a moving target • SWOT overemphasizes a single dimension of strategy
  9. 9. SWOT ANALYSIS How to • Set objectives • Generate alternative strategies • Evaluate alternative strategies • Monitor results, and • Gain commitment among the stakeholders during each step of this process (7)
  10. 10. Porter’s 5 Forces HISTORY Michael E. Porter • Born in 1947. • Professors in Harvard Business School. • Introduced Porter's 5 Forces Model. • Written 18 books & over 125 Articles. (8)
  11. 11. Porter’s Chart (9)
  12. 12. Importance of The 5 Forces (9) Strategize : * Competitive advantage * Cost advantage * Market dominance * New product development * Contraction / Diversification * Price leadership * Global * Re-engineering * Downsizing * De-layering * Restructuring Measure and monitor strategy effectiveness What strategy to use? Basic knowledge of business strategy & forces that influence the decision making Industry analysis : 1) Industry relevance 2) Industry players 3) Industry structure 4) Future changes How to deal with competition?
  13. 13. Threats of New Entrants The easier it is for new companies to enter the industry, the more cutthroat competition there will be. Factors that can limit the threat of new entrants are: • How loyal are the end users? • How hard is it for the end users to switch and use another product? • Does it require a large seed capital to enter this industry? • Do entries to this industry regulated by government? • How hard is it to gain access to the distribution channels? • How long does it take for new staff to acquire the necessary skills to do the work?
  14. 14. Threat of Substitutes Threats of Substitute in the Porter’s theory actually means goods and services that does similar functions o How many close substitutes are available? o How pricy are the substitutes? o What is the perceived quality of the substitutes?
  15. 15. Rivalry among firms • How many close competitors exist in the industry? • What are the sizes of your close competitors? • What is the industry structure? Is it a fragmented, consolidated, oligopoly or monopoly industry? • What is the current industry growth rate?
  16. 16. Bargaining Power of Customers 1. How large are your buyers’ company? 2. How many companies are there for the buyer to choose from? 3. Are the buyers buying a huge volume? 4. Do you depend only on a few buyers to sustain your sales?
  17. 17. Bargaining power of Suppliers • Are there substitutes for your suppliers’ products? • Do your suppliers serve multiple industries? Does the total industry revenue accounting for only a mall portion of the supplier’s total revenue? • Do suppliers have the capacity to enter your business? • Does your company capable to enter the supplier’s business? (10)
  18. 18. PEST ANALYSIS • PEST analysis is used to identify the external forces affecting an organisation .This is a simple analysis of an organisation’s Political, Economical, Social and Technological environment. A PEST analysis incorporating legal and environmental factors. (11)
  20. 20. POLITICAL FACTORS • Trade agreements, tariffs or restrictions • Tax levies and tax breaks • Type of government regime example communist, democratic, dictatorship • Voluntary codes and practices • Market regulations (13)
  21. 21. ECONOMIC FACTORS • Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. • Overseas economies and trends • General taxation issues • Market routes and distribution trends (13)
  22. 22. SOCIAL FACTORS The social and cultural influences on business vary from country to country. It is important that such factors are observed • Lifestyle trends • Demographics • Consumer attitudes and opinions • Brand, company, technology image • Consumer buying patterns • Fashion and role models • Ethnic/religious factors (13)
  23. 23. TECHNOLOGICAL FACTORS • Competing technology development • Associated/dependent technologies • Replacement technology/solutions • Manufacturing maturity and capacity • Information and communications • Technology is vital for competitive advantage, and is a major driver of globalization. (13)
  24. 24. Advantages • Advantages • Provides a simple and easy-to-use framework for your analysis. • Involves cross-functional skills and expertise. • Helps to reduce the impact and effects of potential threats to your organization. • Aids and encourages the development of strategic thinking within your organization. • Provides a mechanism that enables your organization to identify and exploit new opportunities. • Enables you to assess implications of entering new markets both nationally and globally. (14)
  25. 25. Disadvantages • Disadvantages • Users can oversimplify the information that is used for making decisions. • The process has to be conducted regularly to be effective and often organizations do not make this investment. • Users must not succumb to 'paralysis by analysis' where they gather too much information and forget that the objective of this tool is the identification of issues so that action can be taken. • Organizations often restrict who is involved due to time and cost considerations. This limits the technique's effectiveness as a key perspective may be missing from the discussions. • Users' access to quality external information is often restricted because of the cost and time needed to collate it. • Assumptions often form the basis for most of the data used, making any decision made based on such data subjective. (14)
  26. 26. Limitations • Collecting enormous amounts of relevant data from the right sources becomes a bit of a problem, especially since most of the pertinent data must be collected from external agencies. This makes PEST analysis not only time consuming but costly as well. Also, getting the latest data and keeping the analysis updated with it becomes a problem. • Oftentimes, the factors mentioned in the analysis are based more on assumptions and less on actual facts. An analysis based on unfounded assumptions can lead to planning disasters. So, it’s important to device some method to cross-verify whether the factors mentioned in the PEST analysis. (15)
  27. 27. Value-Chain Analysis • Value-chain analysis – a strategic analysis of an organization that uses value creating activities. • Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue (16)
  28. 28. Primary activities – contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale. – inbound logistics, operations, outbound logistics, marketing and sales, and service (16)
  29. 29. Support activities • activities of the value chain that either add value by themselves or add value through important relationships with both primary activities and other support activities • procurement, technology development, human resource management, and general administration. (16)
  30. 30. The Value Chain (17)
  31. 31. TYPES OF FIRM ACTIVITIES • Primary activities: Those that are involved in the creation, sale and transfer of products (including after-sales service)  Inbound logistics  Operations  Outbound logistics  Sales and marketing  Service and support (18)
  32. 32. TYPES OF FIRM ACTIVITIES • Support Activities: Those that merely support the primary activities  Human resources  Tech. development  Procurement (18)
  33. 33. USES OF VALUE CHAIN ANALYSIS: • The sources of the competitive advantage of a firm can be seen from its discrete activities and how they interact with one another. • The value chain is a tool for systematically examining the activities of a firm and how they interact with one another and affect each other’s cost and performance. • A firm gains a competitive advantage by performing these activities better or at lower cost than competitors. • Helps you to stay out of the “No Profit Zone” • Presents opportunities for integration • Aligns spending with value processes (19)
  34. 34. Advantages Of Value Chain Analysis • A big advantage is that the value chain is a very flexible strategy tool for looking at your business, your competitors and the respective places in the industry’s value system. • The value chain can be used to diagnose and create competitive advantages on both cost and differentiation • The value chain is well known and has been a mainstay of strategy teaching in business schools for the last 20 to 25 years. The book, Competitive Advantage was published in 1985. • It can be adapted for any type of business – manufacturing, retail or service, big or small. (20)
  35. 35. Disadvantages Of Value Chain Analysis • It’s very strengths of flexibility mean that it has to be adapted to a particular business situation and that can be a disadvantage since, to get the best from the value chain, it’s not “plug and play”. . • The format of the value chain laid out in Porter’s book Competitive Advantage, is heavily oriented to a manufacturing business and the language can be off-putting for other types of business. . • The scale and scope of a value chain analysis can be intimidating. It can take a lot of work to finish a full value chain analysis for your company and for your main competitors so that you can identify and understand the key differences and strategy drivers. . • Many people are familiar with the value chain but few are experts in its use (20)
  36. 36. References 1. 2. 3. (3) 4. (5) • (6) • (7) • (8) ceid=chrome&es_sm=0&ie=UTF-8 • (9) • (9) wib4uSHsJPKAhVRc44KHar- BD8QFghFMAk& CNEzpz_Da9Q1P1mEVVrIGzgIfZAIow&bvm=bv.110151844,d.c2E • (18) • (19) 5upPKAhWDSI4KHaDNCkgQFgg2MAU& %2F0078029317%2F928803%2FChap003.ppt&usg=AFQjCNExHNmNqFZ_UiBoF2RQR4tTeDl0eQ
  37. 37. References • (10) • (11) • (13) 0ahUKEwiFxfvHtZPKAhUIB44KHR2IDBMQFggMAc&url=http%3A%2F%2Fbusinesstes.wikispace 5w • (14) • (15) • (16) 0ahUKEwi438q5upPKAhWDSI4KHaDNCkgQFggtMAM& 2Fdivisions%2Fbp%2Fapp%2Fmarakas%2Fsad%2F1e%2Fppt%2Fch03.ppt&usg=AFQjCNGB- pJWE0kFLZC3qh9oi2Gs25ZxpA • (17) UKEwj1psj8u5PKAhXKBI4KHVHyD8cQ_AUIBygB&biw=1360&bih=599#imgrc=NH22_FOAcF6gX M%3A • (20) analysis