An integral part of conducting a SWOT analysis is identifying market opportunities and threats, as well as identifying the strengths and weaknesses of the company, for which various elements of the organization’s internal environment are analyzed.
What is the internal environment of the organization?
When it comes to the internal environment of an organization, usually this refers to a set of elements that can be influenced in one way or another, in comparison with environmental factors that cannot be changed. So, the internal environment of the organization includes:
- People.
- Goals.
- Tasks.
- Technology.
- Structure.
The combination of all these elements is the essence of the organization: people, united in a certain structure, perform a number of tasks using certain technologies to achieve their ultimate goals.
Thus, the combination of elements of the internal environment of the organization may be effective or not. The task of the analysis is to identify those processes that are perfectly tuned, as well as those that reduce the overall profitability of the company.
How are elements of the internal environment classified?
The main elements of the internal environment of an organization are usually classified into groups, or so-called slices:
- organizational section;
- marketing slice;
- personnel cut;
- production slice;
- financial slice.
For the convenience of analysis, elements of each group are separately considered. In the organizational section study the characteristics of the enterprise in terms of the organizational structure of the company. Attention is paid to both hierarchical relationships within the company and the system of interaction between the individual structures of the enterprise. Marketing slice gives an idea of the assortment of goods, their features and advantages, pricing factors, as well as methods of marketing and advertising.
When considering the financial slice, attention is paid to the financial statements, the dynamics of the main indicators of expenses and profitability. The effectiveness of cash flows is determined. In the personnel section, the relationship between the managerial and executive staff is considered, an analysis of the results of labor activity is carried out. This also includes the corporate or organizational culture of the organization, methods of stimulating and motivating staff.
The fifth section - production - includes a list of technologies, norms, rules and standards for the production of goods and their quality control. A variety of innovative developments and scientific research aimed at expanding the range or improving the beneficial properties of the goods also apply to the production cut.
Personnel as an element of the internal environment
The task of the situational approach in the analysis and management decision-making is to consider the behavior of individual employees, their groups, as well as the nature of the influence of management personnel. According to economic theory, personnel is one of the main factors of production, however, in modern realities, the team of employees is becoming a strategically important element.
The managerial task is to maximize the organization of staff work, while it is worth considering several components of this process:
- recruitment and hiring principles;
- adaptation of new employees ;
- personnel monitoring, its methods;
- staff motivation and stimulation;
- training, staff development;
- creating and maintaining a corporate culture.
So, the system of organizational culture of the organization, incorrectly adjusted at the enterprise, can become its weakness and, as a result, make it difficult to achieve both short-term and long-term goals and intermediate tasks. Team management remains one of the strategic directions of the leaders.
Company goals as an element of the internal environment
When analyzing the state of the company and planning a further strategy, one or more goals are set. The task of the company's management is to select only achievable goals that correspond to the state of the market and the company itself.
The presence of sufficient financial resources, staff and effective planning in the aggregate leads to the correct goal-setting. In this case, the list of common goals should be divided into sub-goals or tasks, the responsibility for the implementation of which is distributed between employees or units of the organization.
For example, company X, entering the market with mass-produced products, sets a goal: to take a leader in a particular market in the short term. Company X at the same time worked in a different segment, and when analyzing the financial statements it was found that there is an outstanding loan from the bank for a large amount. In addition, an analysis of personnel policy showed that the sales department performs its functions inefficiently and planned targets are not achieved. Obviously, the goal set by the leadership is not only difficult to achieve, but also almost impossible.
Examples of correctly formulated goals:
- achieve brand recognition up to 60%;
- increase market share up to 16%;
- enter the top three leading companies in the market;
- increase the average bill to 1,500 rubles;
- increase site traffic to 2000 people per day.
Thus, for effective goal setting, company management should be based on in-depth market research and the company's current position in it.
Tasks of the company as an element of the internal environment
After compiling a list of company goals, it is necessary to divide them into tasks, that is, into components. Rarely does one organization set only one goal. So, the strategic goals of the company are converted into operational goals for the year, half year or quarter. Next, the goal is divided into a list of specific tasks that must be completed in order to achieve the desired result.
Each of the established tasks should have a documented final result, as well as departments and specific employees responsible for its implementation. Here is an example of converting one of the goals into a task list. So, to achieve the goal of increasing sales by 25%, a company can distribute tasks in this way:
- Increase the schedule of appointments for each sales manager by 5%. Responsibility and control lies with the head of the department, Ivanov I.I.
- Preliminary analysis of the market situation from the marketing department, development of an advertising company with monthly monitoring of the implementation of recommendations. Responsible - the head of the department A.P. Petrov.
- Expansion of sales to 20 people by the end of the year. Responsible - HR-manager A. I. Sidorov.
- Opening of 5 new branches in the regions in 6 months. Responsible - Deputy Development Director G. I. Laptev, HR Manager A. I. Sidorov.
Thus, the head of the organization can control the process of achieving the goal of the enterprise in stages, and the correct work of HR managers will allow each employee to bear personal responsibility for achieving a common result.
Technologies and their place in the internal environment
The process of converting raw materials into finished products requires certain technologies. If it is a canning factory, then special lines, trained personnel, approved standards and registered patents are needed. All of the above applies to enterprise technology.
It would not be surprising, but technologies, as an element of the internal environment, are present even in small PIs or in freelancers. For example, a photographer or designer uses special software, equipment and technology in their work, without which it is simply impossible to remain competitive in the market.
The structure of the enterprise as an element of its internal environment
One of the first stages of the analysis of the internal environment of the enterprise is a detailed review of the organizational structure. In this case, marketers and managers establish not only a list of internal departments, but also the relationship between them, hierarchical subordination and dependence.
The hierarchy in the organization of labor of personnel helps to effectively distribute labor. Employees are delimited and separated into separate groups and departments, assigned to various departments. The hierarchy in the enterprise can be horizontal and vertical, and the efficiency and quality of the distribution of labor is revealed in the analysis.
One of the important components of such an analysis can be the determination of the effectiveness of information and other flows between organizational units. For example, at enterprise B, which manufactures parts for automobiles, delays in the implementation of the plan are constantly recorded. Employees were asked to fill out work time cards, penalties were introduced, but such preliminary measures to manage the team were not effective.
When analyzing the relationship between the departments of company B, it turned out that the fault lies not with the employees who manufacture the parts, but with the department that is responsible for the repair of the equipment. So, many machines were idle for more than the scheduled time due to prolonged repairs.
How to determine the strengths and weaknesses of the enterprise?
A managerial decision is preceded by a thorough analysis of all elements of the internal environment, the external environment, followed by a conclusion about the place of the enterprise on the market and its capabilities.
The data obtained during the analysis must be presented in the form of a list. For example, these could be such items:
- Unskilled staff in the sales department.
- Lack of own accumulated funds.
- Innovative product development.
- The presence of a loan in the bank.
- A wide range of products.
- Outdated equipment in production.
After preparing such a list, it is necessary to separate the data on the qualitative impact, that is, to determine whether this or that factor has a positive effect on the company’s activities or negative.
So, in the end, the initial list should be divided into two parts, and the next step should be to assess the possible impact of these factors of the internal environment of the organization. We recommend using a scale from 1 to 5, or from 1 to 10. Each item in the list must be evaluated in points, depending on how strongly this factor affects the company's activities.
The next stage is an assessment of the possible harm that each of the items on the list can cause. As a result, the resulting list needs to be ranked according to two indicators - opportunities and probabilities. This method will help to cut off irrelevant data and create a list of the main problems that were discovered during the analysis of factors of the organization’s internal environment. An example of a qualitative analysis of the organization’s environment should end with a specific list of no more than 10 points for each category — the company's weaknesses and strengths.
What is the relationship between the internal environment and SWOT analysis?
The SWOT tool involves analyzing the company's environment, both internal and external. Elements of the internal environment of the organization and their characteristics show which strengths can be used to achieve competitive advantages. The list of weaknesses obtained during the analysis will help to adjust the company's activities in order to minimize their harm or to make modernization and improvement.
The result of the SWOT analysis helps to compare threats and opportunities of the external environment, that is, the market in which the company works or intends to work with the factors of the internal environment. The task of the marketer, manager or supervisor is to draw up a marketing plan in such a way that, using the company's strengths, it would be possible to avoid harm from market threats. The same can be said about the combination of market opportunities and company strengths - the manager must decide how to use them together more efficiently.
How to conduct a SWOT analysis?
In order to understand how to conduct a SWOT analysis correctly, we will consider the most common mistakes of managers during its conduct.
Unreasonable inclusion of elements of the internal environment in the category of strengths or weaknesses of the company leads to errors in planning. Each fact should be supported by specific figures and report data. It can be argued that the company is a market leader, but in fact this is confirmed only by the words of the head, and not by marketing research.
At the same time, in addition to reliability, each of the alleged strengths must be compared with known data on competitors. This will reveal the truly strengths of the enterprise, which will help in achieving its goals.
For example, the strength of the company was indicated by the proximity of the resource base of resources. Obviously, this gives many advantages to the company, helping to save both financial costs and time. Nevertheless, when analyzing this information from the point of view of differences from competitors, it may turn out that all major players are located close to sources of raw materials. It turns out that every company in the market has such a strong point, and therefore it will not be possible to get a profit in comparison with competitors.
For convenience and error prevention, an analysis of competitors from available open sources should be carried out and their strengths and weaknesses determined. Next, it is worth compiling a checklist that compares each element of the internal environment with competitors. In the end, it turns out that the company can boast not so many benefits.
All recommendations for determining the strengths and weaknesses of the company can also be attributed to the process of analyzing opportunities and threats in the market. All information must be reliable and accurate.
A common mistake is to indicate general information that indirectly affects the company. Or their influence is too insignificant, therefore it is impossible to prove. For example, inexperienced managers indicate such environmental factors:
- crisis in the country;
- difficult situation in the economy;
- unstable exchange rate.
If we talk about crises in the economy, then it is impossible to measure and plan their significance for the activities of a particular company. The “crisis” factor is rather vague, therefore it should be decomposed into specific components that really affect the position of the enterprise. It is possible that compulsory licensing has been introduced at the state level or quotas for certain types of activities have been established.
As for the unstable exchange rate, often companies that do not have currency dependencies mention this in their SWOT analyzes. If the company does not import or export, does not purchase raw materials abroad, does not sell finished products in other countries, then the influence of fluctuations in exchange rates has a negligible effect on the activities of the enterprise.
Finally
The internal environment of the company is an important strategic resource that can help or, conversely, harm the company's activities. The organization’s internal environment includes several basic elements: people, technology, structure, tasks and goals. Such a set of elements is not accidental, since in any organization with a certain structure people work who, using technology, achieve their goals and the general goals of the enterprise.
The head of the organization in making management decisions should be based on an analysis of the internal and external environment of the enterprise. If there is an obvious threat in the market, then internal resources will help overcome it. The same applies to market opportunities, the maximum effect of which is possible only if you use the internal resources of the enterprise.
The resources of the internal environment in the analysis are evaluated in terms of their influence and are divided into the strengths and weaknesses of the company. The organizational structure of the organization may be the weakness of the organization, and at the same time, a professional and effective marketing department can be attributed to the strength of the enterprise.
When drawing up a marketing plan, several common goals are distributed in the form of tasks between departments, divisions, groups and specific employees. A well-established system of staff motivation and stimulation, team management will help give each task a personal responsibility of the employee. At the same time, each employee in the team will understand that he works to achieve one common goal.