What Is Porter & Swot Analysis

SWOT Analysis I: Looking Outside for Threats and Opportunities

To determine goals, we need to look inside and outside the Company, SWOT analysis helps us with this.

• Strengths: (INTERNAL) capabilities that enable your Company to perform well
• Weaknesses: (INTERNAL) characteristics that prohibit your Company from performing well
• Opportunities: (EXTERNAL) trends, forces, events and ideas that your Company can capitalize on.
• Threats: (EXTERNAL) possible events or forces outside of your control that your company needs to plan for or decide how to mitigate.

This article only focuses on the analysis of external factors.

According to Porter “The essence of formulating strategy is relating a Company to its environment”. Analysis of external factors helps strategist uncover and understand threats and opportunities, which helps to reveal a company’s strategic options.

Some of the most important EXTERNAL factors to be considered are the following:

1. Workstyle and life trends: Un ejemplo de esto es la travel industry. Porque la gente tiene cada vez más negocios con gente de otros países, entonces puede representar una oportunidad para las aerolíneas que tienen más pasajeros, pero también para Skype (que puede reemplazar ciertos viajes al hacer videoconferencias.

Most Important factors to be taken into account:

• More use of home office
• The importance of the internet
• Policies and decrees from government
• The changes in the industry where you compete
• Your target population changing demographics

It’s important to use investigative organizations or use your own research to stay ahead of this changes in life and workstyle.

1. Customers: Analysis of external factors begins with study of customers. Therefore, it is useful to segment customers into groups to study them properly. A basic concept here is market segmentation (by age, gender, geographic location. Type of user, behaviour, etc.). This helps you understand how profitable your target is and what their needs are.

1. Price sensitivity and elasticity of demand: It’s important to be aware if the relationship between price and customer demand.

• High sensitivity:  One small change in price causes bigger changes in demand (elastic demand). Many times, this change occurs due to the presence of substitutes or the fact that the product is not really needed.
• Low sensitivity: A change price doesn’t affect your quantity demanded in great proportion (inelastic demand)

% change in Q / % change in P= Price elasticity of demand

The bigger the price elasticity of demand is, the more elastic it is, and therefore customers are more sensitive to changes in prices.

You find out this elasticity by doing focus groups, questionnaires and direct experiments in local markets.

1. The competitive arena: One major issue when defining competitive strategy is establishing where to compete. A thoughtful analysis s of competitors and competitive arena is basic. You need to find out not only who the competition is, but also what their weaknesses and strengths are and even look at what potential competitors might appear.

When evaluating the competitive arena, you can see 2 types of industries: Static (industries where no change really appears: steel in 1970’s) and dynamic (entertainment industry is a good example of a dynamic industry).