The internal environment of a business is that part over which you as a manager have control. You can influence the things that go on in the business. This presentation will give a number of tools that will help you think about the business.
The SWOT that we’ve been dealing with in other lectures has been a useful tool to helping identify key characteristics of our businesses, but it doesn’t really help guide us to choosing strategies. For that there is the TOWS matrix which will integrate some of the things we’ve used to create the SWOT. The next slide shows what the SWOT is made of.
Strengths and weaknesses are the internal side of a SWOT analysis. SWOT is a tool for auditing an organization and its environment. It is the first stage of planning and helps managers focus on key issues. Once key issues have been identified, they feed into objectives. It can be used in conjunction with other tools for audit and analysis, such Porter's Five-Forces analysis. SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. For example, a strength could be your specialist expertise. A weakness could be the lack of good genetics. Opportunities and threats are external factors. For example, an opportunity could be a developing market such as the Internet. A threat could be a new competitor in your home market. During the SWOT exercise, the four titles are often written on a page. List factors under each title. It's that simple. This presentation is only on the internal factors.
Here is the SWOT tool we introduced in the Business Environment section. SWOT is a conceptual framework for a systematic analysis that helps organize the external threats and opportunities with the internal weaknesses and strengths of the organization. To use it you simply list the strengths/weaknesses you have in your business and the opportunities and threats you face. You can use the IFAS and EFAS tables to help list those items. SWOT analysis is the simplest way to conduct environmental scanning. A SWOT analysis should result in the identification of an organization’s core competencies, and of opportunities that the company is unable to take advantage of due to a lack of, or insufficient, current resources. Let’s take this a step further and develop some useful strategies out of the assessments you’ve done, using the TOWS matrix.
The TOWS tool combines the ingredients of SWOT (our assessment of the internal and external environments, which used the EFAS and IFAS tables) in a way that can suggest some strategies. It matches external opportunities and threats facing a particular company with that company’s internal strengths and weaknesses to result in four sets of possible strategic alternatives. Have we got some examples of some strategies? SO Strategies ST Strategies WO Strategies WT Strategies Source: Adapted from Long-Range Planning, April 1982, H. Weihrich, “The TOWS Matrix—A Tool for Situational Analysis.” and Wheelen and Hunger
Now we have the TOWS matrix which uses the same basic breakdown by the external and internal analysis. But we’re going beyond basic assessment of the situation and onto strategy formulation. The next slide shows how it is organized. The model starts with threat (The T in TOWS) because in many situations a company undertakes strategic planning as a result of a perceived crisis, problem, or threat.
The Value Chain is one way to help identify core competencies in your business. The value chain is a systematic approach to examining the development of competitive advantage. It was created by Michael E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organization. The 'margin' depicted in the diagram (next slide) is the same as added value. The organization is split into 'primary activities' and 'support activities.‘
The Value Chain, or value plate illustrates how to break down the functions of a company into its activities. The bottom half of the figure contains the primary activities that the firm conducts. These include inbound logistics, or the way in which the company receives, stores, etc. its inputs. Operations is the basic activity of producing your product. Outbound logistics are the activities associated with storing and distributing your final product. Marketing and sales are all of the activities associated with attracting and keeping customers for your products. Service is the activities associated with providing support to your customers for your products including users manuals, help lines, warranties, etc. Inbound logistics and Operations relate to your suppliers. Outbound logistics, marketing and sales and service relate to buyers. As you move from left to right the primary activities move through time and adding further value to the end product. Linking these five primary activities together forms a chain. The top half of the graph represents a set of activities that are conducted to support the primary activities of the firm. These would include procurement which are all of the activities associated with negotiating, financing, and paying for all inputs necessary for the business from raw inputs used in the final product to pencil used in the accounting office. Technology development is the activities associated with research and development and included R&D in all phases of the primary activities not just R&D associated with new product development (things like process improvement research, distribution improvement research, market research activities to support marketing, etc. Human resources are the support activities associated with hiring, firing, compensating, retaining, and training personnel for the company. Finally firm infrastructure is the top management activities of the firm which include, negotiating with the government, negotiating with competitors, developing the firms long-term strategy, development and maintenance of information systems for assessing firm performance, etc. The next slides further explain the activities. What do you do with this figure? That is, what support and primary activities do you do better than your competitors and which ones do you not do so well relative to your competitors. This is a great tool for helping you assess your strengths and weaknesses in a more structured way. It helps think about ALL of the activities that you conduct in your business and critical assess whether you are doing each activity as well as you can. This figure helps you focus on specific activities that you do well relative to your competitors so that you can determine what your core competencies are relative to your competitors.
Inbound Logistics Here goods are received from a company's suppliers. They are stored until they are needed in the production. Goods are moved around the organization. Operations This is where goods are grown or produced. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine. Outbound Logistics The products are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer – whatever the next step in the industry chain.
Marketing and Sales In true customer orientated fashion, at this stage the organization prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix. Service This includes all areas of service such as after-sales service, complaints handling, and so on. Marketing strategy has four components, known as the 4 P’s (Product, Price, Place and Promotion). We in agriculture have tended to think of marketing as only a factor of Price, (in terms of future/options, the market price etc). But it is much more broad. All sorts of things can be done to sell your product. This is asking your elevator manager if you can do something different. Can you deliver to the elevator at an off-peak time (an example of place)? Finding ways to solve someone else’s problem is how you create and capture value.
Procurement This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organizations). Technology Development Technology is an important source of competitive advantage. Farms need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, and many other technological developments. Human Resource Management (HR) Employees are an expensive and vital resource. An organization would manage recruitment and selection, training and development, and rewards and compensation. The mission and objectives of the organization would be driving force behind the HR strategy.
Firm Infrastructure This activity includes and is driven by corporate or strategic planning. It includes the mechanisms for planning and control such as accounting.
The customer has to be willing to write a check for what you do.
Let’s go through an example of a value chain. This one will be of a grain producing division of a farm. The next slides will identify specific actions in each activity.
Here is the bottom half of the value chain. These are the primary activities a grain farm performs as it creates and delivers its product.
These activities are the supporting activities for the value chain of a grain farm that a business has to perform in able to effectively perform its primary activities.
Business environment latest_1
“BUSINESS MAY BE UNDERSTOOD AS
THE ORGANISED EFFORTS OF
ENTERPRISES TO PROVIDE
CONSUMERS WITH GOODS &
SERVICES FOR A PROFIT”
“ENVIRONMENT REFERS TO ALL
EXTERNAL & INTERNAL FORCES
WHICH HAVE A BEARING ON THE
FUNCTIONING OF BUSINESS”
enterprises cannot function in
Open systems interact with their
Society and business enterprises are
Relationship between society and
business enterprises takes place in a
environment consist of all those
factors that have a bearing on the
Like the survival & success of individual
depends on his innate capacity like
physiological factors to cope with
environment similarly BUSINESS firm
depends on its innate strength like
Resources (Physical ,Human, Financial)
Strategy implementation involves:
Allocation of sufficient resources
(financial, personnel, time, technology
Establishing a chain of command or
some alternative structure (such as
cross functional teams)
Assigning responsibility of specific tasks
or processes to specific individuals or
managing the process which
includes monitoring results, comparing to
benchmarks and best practices, evaluating
efficiency of the process and making
adjustments to the process as necessary.
When implementing specific programs, this
involves acquiring the requisite resources,
developing the process, training, process
testing, documentation, and integration with
(and/or conversion from) legacy processes.
COMPONENTS OF THE BUSINESS
The survival of business depends on
2 set of factors :a) External Factors
b) Internal Factors
External factors Analysis
Business Opportunity & Threats
Internal Factors Analysis
Strengths & Weakness
all those organisations and
individuals who directly or indirectly affect
the activities of a company. It includes:
general forces and trends
rather than specific organisations:
Social and cultural environment
phenomena in the environment
Ongoing environmental scanning is
essential for strategy formulation
Enterprises continuously engage in
identifying and forecasting opportunities
need to proactively or
reactively respond to changing
conditions in the environment
Various sources of information are
available to assist with scanning
to spend on R&D
Fast changing Technology
High expectation of consumers.
Computers in the Office
Elimination of Jobs
,HH,& communities behave &
their beliefs e.g change in attitude towards
Public Service Provision - Roads, Water, etc..
Public Sector Unions
attitude to business
GDP, Unemployment Rate, Stock Market
Per capita income
Global / International
Deciding which market to enter and how to
End of Communism
Wars, International Strife
depends on nature
Transport & communication depends on
Trade between two regions depending
on their geographical factors
Mission & Objective
Business domain of company, priorities, direction of
development ,business philosophy ,business policy
are guided by mission & objective of the company .
E.g. Ranbaxy ‘s mission statement “To become a
research based international pharma company “
E.g. Arvind mills mission statement ” To achieve
dominance in select businesses built around our
core competencies through continuous product and
technical innovation ,customer orientation and focus
on cost effectiveness “
MANAGEMENT STRUCTURE &
Organizational structure ,the
composition of BOD ,extent of
professionalisation of management are
important factors influencing business
BOD is highest decision making body
which sets the direction for the
Internal Power Relationship
Factors like the amount of support the top
management enjoys from different levels of
employees ,shareholder and BOD have
important influence on decision and their
Human Resources –
Skills ,Quality ,Morale, Commitment ,Attitude
could contribute to Strength & Weakness of an
The image of company matters while raising
finance ,forming joint ventures or other
alliances ,entering purchase or sale contracts
,launching New Products.
Physical Assets & Facilities like production
capacity ,technology ,distribution logistics
.are among the factors which influences the
competitiveness of a firm .
e.g. Quality important aspect in Pharma
Industry particularly for global player
R & D and Technological capability
determine company’s ability to
innovate & compete.
Marketing resource quality of work force
(sales team) ,brand ,logistics have a
direct bearing on marketing efficiency .it
also helps in brand extension, New
Financial policies ,financial positions capital
structure are also important internal
environment affecting business performance
,strategies and decisions
(PRODUCT / MARKET GROWTH
TYPES OF GROWTH:
IGOR ANSOFF’S PRODUCT/MARKET EXPANSION GRID
Penetration (Current Market –Current
Encourage current customers to buy more.
Attract competitors customers to switch to
Convince non users who resemble current
users to start using the company’s product
E.g - Pepsodent, Colgate
Channel expansion : If only present in
consumer market, then look at institutional
sales also. Geographical expansion: Opening
retail outlets in other areas.
e.g --- Mc-Donalds, Shoppers’ Stop
development Strategy :
Introduce products with new features
Introduce different quality versions
Alternative product forms Introduce
products with new features
e.g – LG in colour TVs– Flat TVs, Plasma TVs,
LCD TVs, Projection TVs.
Integration (V I) : When an organization
starts making new products that serve its own
needs , vertical integration takes place.
V I are of two types--Forward and Backward integration
Backward integration : When a company starts
making some or all of its material requirements
(Inputs ) it is backward integration.
Forward Integration : moves the company
nearer to the ultimate consumer.
E.g If Tata Indica starts making tyres --backward integration
If Sona Steering starts making cars--- its forward
1) It ensures smooth supply of materials
2) Better control on quantity and quantity.
3) Results in economies of scale
1) The cost of making may be higher then
the cost of buying
2) Exiting the business in future may be more
1) It creates a captive demand for the
2) It generates additional profits .
e.g Raymond’s getting into ready made
shirts –(Park Avenue, Parx)
1) The new business may not succeed
Integration : Integration at the
same level of business –
e.g HLL buying TOMCO
Or sister concerns of the same company
can be combined into one entity.
types of diversification:-1) Concentric Diversification Strategy :
company makes products that have
technological and / or marketing synergies
with existing product lines , even though
the product may appeal to a new class of
e.g--- A audio cassette/CD company may
start making computer CD --A washing machine company starts
Diversification strategy :
Company searches for new products that
serve the same customer though
technologically unrelated to its current
e.g – A cassette manufacturing company
starts making tray to hold the cassette.
A CD company starts making CD boxes
Diversification : When an
organization seeks new businesses that have no
relationship to the company’s current
technology, products or markets its known as
: ITC ( Cigarettes, Hotels, Paper )
TATA ( Steel, salt, cement, power, tea,
retail, hotels,coffee chain, software)
TTK ( Pressure cookers,
chemicals, contraceptives, pharmaceuticals)
Anchor (consumer electronics, Toothpaste, talcum
powder, electrical switches)
Porter's Five Forces
(Assessing the Balance of
Power in a Business Situation)
Porter’s 5 Forces tool is a
simple but powerful tool for
understanding where power lies
in a business situation. This is
useful, because it helps you
understand both the strength of
your current competitive
position, and the strength of a
position you’re looking to move
a clear understanding of where
power lies, you can take fair advantage
of a situation of strength, improve a
situation of weakness, and avoid taking
wrong steps. This makes it an
important part of your planning toolkit.
Conventionally, the tool is used to
identify whether new products, services
or businesses have the potential to be
profitable. However it can be very
illuminating when used to understand
the balance of power in other situations
Here an individual assess how easy it is for
suppliers to drive up prices. This is driven by
the number of suppliers of each key input, the
uniqueness of their product or service, their
strength and control over you, the cost of
switching from one to another etc.. The fewer
the supplier choices you have, and the more
you need suppliers' help, the more powerful
your suppliers are.
is easy for buyers to drive prices down.
Again, this is driven by the number of buyers,
the importance of each individual buyer to
your business, the cost to them of switching
from your products and services to those of
someone else etc. If you deal with few,
powerful buyers, they are often able to dictate
terms to you.
the number and capability of competitors – if
there are many competitors, and they offer
equally attractive products and services, then
most likely one will have little power in the
situation. If suppliers and buyers don’t get a
good deal from you, they’ll go elsewhere. On
the other hand, if no-one else can do what
you do, then you can often have tremendous
Threat of Substitution
is affected by the ability of your
customers to find a different way of
doing what you do – for example, if you
supply a unique software product that
automates an important process,
people may substitute by doing the
process manually or by outsourcing it. If
substitution is easy and substitution is
viable, then this weakens your power.
Threat of New Entry
is also affected by the ability of people to
enter your market. If it costs little in time or money
to enter your market and compete effectively, if
there are few economies of scale in place, or if
you have little protection for your key
technologies, then new competitors can quickly
enter your market and weaken your position. If
you have strong and durable barriers to entry,
then you can preserve a favorable position and
take fair advantage of it.
S Humphrey, one of the founding
fathers of what we know today as
analysis is a tool for helping
assess the current situation for the firm.
To generate alternative strategies.
The TOWS matrix is a tool designed to
match external opportunities and threats
with our internal strengths and
Strengths and Weaknesses
objective assessment of your
strengths and weaknesses
important to customers
Note: This is difficult to do well.
SWOT analysis is an extremely useful
tool for understanding and decision-making
for all sorts of situations in business and
SWOT is an acronym for Strengths,
Weaknesses, Opportunities, Threats.
The SWOT analysis template is normally
presented as a grid, comprising four sections,
one for each of the SWOT headings:
Strengths, Weaknesses, Opportunities, and
a company (its position in the market, commercial
a method of sales distribution
a product or brand
a business idea
a strategic option, such as entering a new market or
launching a new product
a opportunity to make an acquisition
a potential partnership
changing a supplier
outsourcing a service, activity or resource
an investment opportunity
Industry or lifestyle trends?
Technology development and
New markets, vertical, horizontal?
Niche target markets?
Geographical, export, import?
Business and product development?
Information and research?
Partnerships, agencies, distribution?
Seasonal, weather, fashion influences
Competitor intentions - various?
New technologies, services,
Vital contracts and partners?
Sustaining internal capabilities?
Loss of key staff?
Sustainable financial backing?
Economy - home, abroad?
Seasonality, weather effects?
From External Analysis (EFAS)
Use strengths to
Take advantage of
Use Opportunities to
Technique used in strategy formulation
PEST analysis is a useful tool for understanding
market growth or decline, and as such the position,
potential and direction for a business.
A PEST analysis is also used as business
measurement tool to assess the market for a
business or organizational unit.
The PEST analysis headings are a framework for
reviewing a situation, and can also, like SWOT
analysis, and Porter's Five Forces model, be used to
review a strategy or position, direction of a company.
PEST analysis also works well in brainstorming
PEST analysis helps for business and strategic
planning, marketing planning, business and product
development and research reports.
PEST analysis exercises for team building games.
It's simple, quick, and uses four key perspectives. As
PEST factors are essentially external, completing a
PEST analysis is helpful prior to completing a SWOT
analysis (a SWOT analysis - Strengths, Weaknesses,
Opportunities, Threats - is based broadly on half
internal and half external factors). PEST analysis
most commonly measures a market; a SWOT
analysis measures a business unit, a proposition
Regulatory bodies and processes
Government term and change
Funding, grants and initiatives
International pressure groups
Wars and conflicts
Home economy trends
Overseas economies and trends
General taxation issues
Taxation specific to product/services
Market and trade cycles
Specific industry factors
Market routes and distribution trends
Interest and exchange rates
International trade/monetary issues
is useful before SWOT - not
i.e. PEST helps to identify SWOT
PEST assesses a market, including
competitors, from the standpoint of a
particular proposition or a business.
SWOT is an assessment of a business
or a proposition, whether your own or a
becomes more useful and relevant the
larger and more complex the business or
proposition, but even for a very small local
businesses a PEST analysis can still throw up
one or two very significant issues that might
otherwise be missed.
The four quadrants in PEST vary in
significance depending on the type of
business, eg., social factors are more
obviously relevant to consumer businesses or
a B2B business close to the consumer-end of
the supply chain, whereas political factors are
more obviously relevant to a global munitions
supplier or aerosol propellant manufacturer.
IS ADDED DURING
MAY BE MULTIPLE FIRMS IN A VALUE
WHO SHOULD BE IN VALUE CHAIN?
The Value Chain
framework for identifying core
In the supply chain
be used to
strengths and weaknesses
Identify sources of competitive advantage
Identify market opportunities
The Value Chain
Outbound Marketing Service
Logistics & Sales
Human Resource Management
Relationship with Suppliers
Elapsed Time - Value added time cost
Relationship with Buyers
Primary Activities in the Value
Materials handling, warehousing, inventory control used to receive,
store and disseminate inputs to a product
Fertilizer and chemical storage, delivery of inputs, application of
Take inputs from inbound logistics and convert to final products
Plowing, planting, spraying, harvesting, feeding, medicating,
Collecting, Storing, and physical distribution of the final product.
Crop storage, finished hog handling, Processing and determining
delivery dates, delivery to the packer or elevator etc.
Primary Activities in the Value
means through which customers can purchase
products and to induce them to do so
Advertising, communicating with buyers, developing
customer relationships, pricing products (futures,
hedging, forward contracting, etc.), delivery scheduling
designed to enhance or maintain a product’s
Timely delivery, identity preservation, ISO9000,
certifying as organic, etc.
Supporting Activities in the
Activities to purchase the inputs needed to produce products
Negotiating with suppliers, standard timing of replenishing parts and
tools, setting up buying groups, etc.
Activities that improve the firm’s products and/or processes
Volunteering for test plots, being a part of feeding trials, attending
technology seminars/field days, designing equipment to make specifi
production tasks more efficient, etc.
Recruiting, hiring, training, developing, and compensating all
Supporting Activities in the
Human Resource management
General Management, planning, finance, accounting, legal
support, governmental relations, etc.
Establishment of accounting practices, management information
systems, compliance with environmental regulations, tracking
and reporting for government programs, etc.
Where strategy development takes place identifying
opportunities and threats, resources and capabilities, and
support of core competencies
The Result of the Value
the value from performing value-creating
activities as cheaply as possible
The basic idea is that the consumer is willing to pay
a certain amount for the value you create. This is
depicted as the size of the overall pentagon.
The size of the individual activity boxes represents
the cost of performing those particular activities.
Thus, the smaller the size of the individual activity
boxes relative to the value the consumer is willing to
pay, the greater the MARGIN will be for the firm.
The Value Chain – Grains Farm
Outbound Marketing Service
Logistics & Sales
Human Resource Management
Relationship with Suppliers
Elapsed Time - Value added time cost
Relationship with Buyers
Primary Activities for a Grain Farm
chemical storage, Spraying
Fwd. contracts IP
Relationship with Suppliers Relationship with Buyers
Supporting Activities for a Grain Farm
Infrastructure: management, planning, finance,
accounting, government compliance, quality control
Human Resource: motivation tools, compensation,
training, and directing farm employees, including
family, management, and laborers
Technological Development: research and adoption practices
for things like GPS, VRT, GMO’s, No-Till,
the Internet, IP storage facilities
Procurement: Purchasing inputs: seed, fertilizer, chemicals,
fuel, land, Machinery, storage equipment, office supplies, parts,
tools, insurance etc. with focus on negotiating capabilities