SWOT Analysis
Discuss about the Business Contextual Factors.
Every business organizations operate in a business environment or context. The environment can either be internal or external. The internal context of a given business organization covers aspects within the organization that affects business operation which could be its stakeholders, the organization’s governance, how an organization relates to its customers, its ability and the existing culture of the organization (Pojasek, 2013). The external contextual factors of an organization cover forces that lie outside its local operating environment and outside the stakeholders. They are factors that lie outside the business and can influence the objectives of the organization.
PESTLE Analysis, SWOT Analysis and Porter’s Five Forces and TOWS Strategic Alternatives Matrix are some of the techniques used to analyze a business. They help the management to be able to examine the environment where the company is operating and therefore know the direction to take environment (Rajender and Kumar, 2012). Therefore, it is necessary for the management of every organization to use this technique for a deeper understanding of the context before making any decision.
SWOT is an acronym word for Strength, Weaknesses, Opportunities and Threats. SWOT analysis is a very powerful technique used in evaluating the business situation. Analysis of the internal environment involves examination of organization’s strengths and weakness (Seiler and Beall, 2010). The breakdown looks at the organization’s operation environment and comes up with the positive factors it has, giving it strengths and then the challenges that the business faces internally thus the weaknesses. Opportunities and threats are factors that come out of the organization and therefore external factors (Agarwal, 2012). These are the possible positive factors from outside the organization that favors the business operation, thus opportunities and on the other side the negative factors from the outside that does not support the business process thus the threats. SWOT analysis is sometimes called the internal-external analysis (Milovanovi?, 2011).
First, analysis of an organization’s strength looks into factors that favor it over other competitors (NIST, 2013). Regarding this aspect, organizations should seek to find out what advantages they have over other players in the market. It should also identify what it can do best than anyone else in the market thus giving the business enterprise. The organization should apply unique input resources that it has that others do not have. It is, therefore, important for any organization to analyze the strengths they have in the banking and finance industry that has to make it realize the current success (Pojasek, 2013).
PESTLE Analysis
On the other side, weaknesses are the other factors of consideration in SWOT Analysis. It is important for any organization to identify its weaknesses as a player in the market. It is much better to face the bitter truth and see how to address them than keep them and eventually kill the business enterprise (Singh, 2010). Further, opportunities should be assessed. These are much related to external factors that favor the performance of the business enterprise. It involves knowing the lucrative opportunities that can be sported. The interesting trends that are identified could also give the strengths for a business operation. It is also good to be keen to determine the opportunities that may happen to the organization due to change in technology. Change in the government policy and regulation that relates to the field could also present some opportunities to the entity (Pojasek, 2013). A keen eye should also be put on social and lifestyle changes because this also can offer opportunities to the business enterprise.
And finally, a keen eye should be put on threats. It is important to identify what could be the dangers to the business operation. It involves a good look at the external hindrances faced in operation thus preventing the growth of the organization enterprise (McGee and Wilson, 2010). It is essential to know what the competitors are doing in the market. In addition to this, it is important to know whether the organization has cash flow problems and then consider them as threats. Changing technology could also be a source of threat to the business enterprise. Lastly, it is important to know whether the organization’s weaknesses could be a source of threat to itself (Helms and Nixon, 2010).
This technique analyzes political factors, economic factors, social factors, technological factors, legal factors and environment factors. PESTLE analysis technique is used to analyze the impact of environment factors on the operations of the company (Slamanig, 2013). PESTLE is an acronym for political, economic, social, technological, legal, and environment.
Political factors
The political state of a country determines the survival of a given business organization. These include political stability, rules, and regulations. A fall in political stability will lead to lower profits and can reduce business continuity (Roseland, 2012).
These factors include a rate of inflation, monetary exchange rates, interests’ rates and economic growth. It is important for every organization to understand the economic factors in its environment (Whalley, 2010).
Porter’s (1998) Five Forces Model
Social factors
These include factors such as age, gender, occupation, racial compositions and cultural trends. Cultural trends are able to influence demand of goods and services. Social factors have an impact on the business structure and the strategy of a given organization.
Technological factors
Innovations enable companies to be able to establish the competitive advantage over rivals (NIST, 2013). Technological advancement has a significant impact on business because new technologies can lower operational costs and increase efficiency, and on the other side, they can be a pause a challenging situation in decision making due to obsolete.
Legal factors
These are legislative policies put in place to govern business operations. They include health and safety laws, consumer protections laws, anti-trust laws and employment laws.
Environment factors
These include weather and climate changes together with various environmental laws. Most of the environmental factors are the ‘acts of God’ and therefore the organizations have little influence over these factors (Whalley, 2010).
Porter’s (1998) Five Forces Model considers five aspects in the market. These aspects are supplier power, buyer power, the threat of new entrants and threat of substitutes. All this is done with a central consideration aspect of competitor rivalry (NIST, 2013).
First, supplier power, the organization will look into supplier concentration, the importance of volume, impacts of inputs on the cost differentiation, differentiation of inputs, switching costs of firms, input substitute availability, and the threat of forward integration. On the other hand, the buyer power is looked into bargaining leverage, buyer volume, the threat of backward integration, brand identity, price sensitivity, buyer incentives and the availability of substitutes (Milovanovi?, 2011).
New entrant threats will consider the absolute cost advantages, proprietary learning curve, switching costs, proprietary products, expected retaliation, brand equity, government policy capital requirements and switching costs (Singh, 2010). On the other side, the threat of substitutes will consider switching costs, buyer inclination to substitute, availability of alternatives and the price performance trade-off. Finally, the last force is degree of competitor rivalry. Here the organization analyzes the industry concentration, fixed costs, product differences, exit barriers, switching costs, diversity of rivals and brand value. Understanding the competitors is an important aspect in understanding the competitive advantage of the organization (NIST, 2013).
The TOWS Strategic Alternatives Matrix is a technique used to integrate the external and internal business contextual factors. TOWS is an acronym for Threats, Opportunities, Weaknesses and Strengths. It analyzes the SWOT Analysis in a different way. It starts with looking at the opportunities and threats of the environment (Kotler and Amstrong, 2014). Finally, it looks into external characteristics of the organization; these are strengths and weaknesses. Therefore, this matrix tries to couple the internal and external environment of the organization. This is important because it provides a combined overview of both environments (Singh, 2010).
Conclusion
In conclusion, it is important for every organization to analyze its business contextual factors because it helps the company to realize some of its unexploited strength and opportunities, and other factors in the market environment that are favorable to the organization thus key for the growth of any business enterprise. In addition to this, one can identify the weakness and threats to the organization’s operation. It presents a clear opportunity to do what is necessary to the business in handling operational challenges to improve the service. It is, therefore, important for every organization to analyze the business environment to realize an efficient way for succeeding overseas.
References
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Helms, M.M., and Nixon, J. (2010). Exploring SWOT analysis -where are we now?: A review of academic research from the last decade. Journal of Strategy and Management
Kotler.P, Amstrong G.(2014). Principles of Marketing Pearson Education Limited 2014
McGee, J., & Wilson, D. (2010). Strategy: Analysis and Practice. McGraw-Hill
Milovanovi?, S. (2011) ‘Aims and Critical Success Factors of Knowledge Management System Projects’, Economics and Organization
NIST (2013). Criteria for Performance Excellence 2013-2014. Gaithersburg, MD: US
Department of Commerce and Government Printing Office
Pojasek, Robert (2013). Organizations and their Contexts: Where Risk Management
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Rajender, K. and Kumar, K.P. (2012) ‘Knowledge Management Practices in SME Sector An Empirical Study’, International Journal of Business and Management Tomorrow
Roseland, Mark (2012). Toward Sustainable Communities. 4th Edition. Gabriola Island, British
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Seiler, W.J. & Beall, M.L. (2010). Communication: Making Connections. “Connecting in the
Organizational Context” – Chapter 18Old Tappan, New Jersey: Pearson Longman Publishers
Singh N (2010). SWOT Analysis – A Useful Tool For Community Vision A concept paper of central Himalayan village
Slamanig, M. (2013). PEST Analysis (1st ed.). Hungary, HI: Grin Verlag.
Whalley A (2010). Strategic Marketing. Andrew Whally and Ventus Publishing APS
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