Assessment of the strengths and weaknesses of the company and its external capabilities and threats is usually called SWOT analysis (Strengths, Weaknesses, Opportunities, Threats – respectively, strengths, weaknesses, opportunities, threats). This analysis allows you to quickly assess the strategic position of the company. The general principle states: when developing a strategy, it is necessary to ensure that the internal capabilities of the company (i.e. the balance of its weaknesses and strengths) correspond to the external situation (i.e. industry and competition conditions, the company’s market opportunities, specific external threats to profitability and market share of the company). The strategy should be aimed at the most effective use of the resources available to the company, the use of market opportunities and the avoidance of threats.
By the strengths of the company, we understand the types of activities in which the company is superior to competitors, or features that provide it with additional competitive opportunities (form the basis of the strategy). The company’s strengths include: skills or experience; valuable tangible assets; qualified personnel; valuable organizational resources; valuable intangible assets; competitive opportunities, etc.
The company’s experience and knowledge, intellectual capital, competitive capabilities, unique skills, strategically valuable assets, market achievements together make up its resource potential necessary for successful competition. Success in this struggle is also determined by the amount of these resources and the company’s ability to mobilize them at the right time.
When talking about weaknesses, one should bear in mind the absence or inadequacy of resources essential for competition, as well as activities in which the company is inferior to competitors, or conditions that put it in a disadvantageous position. The weaknesses of the company may be due to a lack of skills, experience or intellectual capital, significant for the competition of material, intangible or organizational resources, competitive opportunities in key areas. Weaknesses do not necessarily make a company competitively vulnerable: it depends on their competitive relevance and the company’s ability to compensate for them with other resources.
Once the company’s internal strengths and weaknesses have been identified, they should be compared by the impact they may have on the strategy. Different strengths play different roles in achieving success in the competition, ensuring the necessary level of profitability and developing a strategy. Similarly, some weaknesses can prove fatal for the company, while others are easily eliminated or compensated for by strengths. After identifying weaknesses, it is necessary to once again analyze the resource potential of the company in order to decide which resources need to be filled or compensated for in the first place and how to increase the resource potential of the company in the future.
The competence of the company does not appear by itself, but is achieved by conscious effort, as a result of long-term and effective work, the indispensable condition of which is the selection of personnel with the necessary knowledge and skills and the organization of collective work to achieve high productivity. Examples of the company’s competence can serve as experience in organizing trade and promotion, the art of successfully choosing the locations of retail outlets, the skills of supply management according to the “just in time” system. Given the complex nature of such activities, it is correct to say that competence is not just the accumulated knowledge and experience, but a set of skills, knowledge, know-how, resources and technologies of individual divisions and functional areas of the company.
The competence of the company turns into a competitive opportunity when it is noticed by consumers, i.e. it becomes a differentiating feature of the company and a means of strengthening its competitive position. Not all competitive opportunities are equivalent: some ensure only the survival of the company, since they are approximately equally characteristic of all major competitors, while others form the basis of the company’s competition policy due to their uniqueness, specificity and great value in the eyes of consumers. The company can be represented as a set of competitive opportunities, part mediocre, part clearly expressed and creating a competitive advantage.
Almost every company has at least one competitive activity in which it has succeeded enough to consider it its core competence. Therefore, a core competency provides a competitive advantage only if it is also unique. It is possible to determine whether the basic competence of the company is unique by comparing it with the similar competence of competitors. Unique is the competence in which the company clearly surpasses its competitors.
There are no two companies with the same set of resources, therefore, each company has its own unique set of strengths and weaknesses. Differences in the composition of the resource base determine differences in the profitability and efficiency of companies. The chances of success increase if the company has adequate and sufficient competitive resources, especially those that provide a competitive advantage. A resource creates a sustainable competitive advantage if it meets four criteria: difficulty reproducing, duration of use, resource superiority, resistance to neutralization.
Market opportunities largely determine the company’s strategy. A development strategy that corresponds to the position of the company is created as a result of an assessment of all the capabilities of the company and the growth and profitability potential that each of them provides. Opportunities depend on industry conditions; the most attractive ones need to be used, the rest periodically reviewed.
When assessing the capabilities and attractiveness of the industry, it must be remembered that the opportunities of the industry and the capabilities of the company do not always coincide. Not every company is in a position to take advantage of all the opportunities in the industry. The most profitable for the company are those opportunities of the industry that provide maximum profit growth or maximum competitive advantages, as well as those that optimally correspond to the financial position and organizational capabilities of the company.
Some environmental factors negatively affect the well-being of the company, for example, the emergence of cheaper or more efficient technologies; the introduction of a new or improved product by a competitor; entry into the market of foreign competitors with low costs; the emergence of regulations that negatively affect the company’s activities; takeover by a larger competitor; demographic changes; unfavorable changes in foreign exchange rates; political changes in the country where the company has branches, etc. Some external risk factors equally threaten all companies operating in the market, others only some. In this case, it is necessary to identify threats to the well-being of the company in the future and develop measures that can neutralize or reduce their impact.
Opportunities and threats not only affect the position of the company, but also indicate the need for strategic changes. The development of a strategy in accordance with the actual position of the company provides, firstly, the implementation of opportunities corresponding to the company’s resources, and, secondly, ensuring protection against external threats.