Entity/Environment Relationship Analysis
In this post, we will discuss the following:
- Analysis of an entity and environment relationship
- The purpose and characteristics of a SWOT analysis
- The factors that may represent the strengths and weaknesses of an entity
- Opportunities or threats to an entity
- The broad types of appropriate strategies for an entity’s strengths and weaknesses/opportunities/threats in that environment.
At the most detailed level, an entity must assess its internal characteristics and the relationship between those characteristics and the external environment in which it may or may not operate. The SWOT analysis provides a methodology for conducting this assessment.
NOTE: An entity should be assessing the relationship between its external environment and its own characteristics. This analysis will help the entity so they can understand the possibilities if they exist. It will help them operate in the environment more effectively. A SWOT analysis will be the appropriate framework used by an entity to do an assessment of it’s internal, external environment and relationship between the two.
SWOT Analysis: As we have all learned in our business and marketing courses, a SWOT analysis assesses a companies’ internal strengths and weaknesses, opportunities, and threats faced by an entity in the external environment.
SWOT Analysis facilitates matching an entity’s strengths to the competitive environment where it operates.
1) Strengths are also known as resources and capabilities that work to a company’s advantages in a market. They might include several key factors such as:
- Favorable reputation and loyalty with existing clients while increasing prospective customers
- Patents, copyrights etc.
- Cost advantages provided by proprietary processes (ownership)
- Exclusive access to natural resources (oil, gas, etc.)
- Highly desirable location (Ex. In the downtown area of a major city, financial district etc.)
2) Weaknesses are the shortcomings of an entity that can be disadvantageous for the company among other entities in its current market. Weaknesses can also be viewed as simply not having enough strengths, such as the ones mentioned in the bullets above. There could be other factors that count as weaknesses.
3) Opportunities are the chances that a company can benefit from external new, upcoming or unmet demand within the region. These opportunities can also arise from markets that provide the possibility for profit, growth or other desired outcomes.
- Unmet market needs
- Development or employment of new technologies or processes
- Reduction in regulations or other legal constraints
- Reduction of international quotas, tariffs or other barriers to trade
4) Threats are the chance of negative consequences to a company due to external influences.
- Development of new substitute products or services
- Changes in customer services or tastes/demand
- Increase in regulation, taxes or other legal constraints
- Increases in international quotas, tariffs or other barriers to trade
SWOT Matrix: A matrix can be constructed which identifies strengths, weaknesses, opportunities, and threats. It can be useful in developing an entity’s strategic plans. Such as the SWOT matrix takes the form:
Opportunities S/O Strategies W/O Strategies
Threats S/T Strategies W/T Strategies
- The Strength and Opportunity strategies (S/O) utilize the entity’s strengths to take advantage of opportunities within the business environment.
- The Weakness and Opportunity (W/O) strategies pursue opportunities that can overcome potential weaknesses for an entity.
- The Strengths to Threat (S/T) strategies utilize the entity’s strengths to reduce the entities susceptibility to external threats.
- The Weaknesses to Threat (W/T) strategies pursue different strategies to prevent the companies’ weaknesses from being exposed to external threats.
In conclusion, SWOT provides a framework for identifying an entities’ internal strengths and weaknesses and it’s location-specific external opportunities and threats, and to relate those characteristics in the development of strategies intended to provide the entity with a competitive advantage in its environment.
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