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Companies need to be aware of external opportunities and threats facing them

I started this blog to help manufacturers keep an eye on the external factors affecting their business.

SWOT analysis

Every business needs to conduct an ongoing “SWOT” analysis – a review of its Strengths, Weaknesses, Opportunities and Threats.

Strengths and Weaknesses – Internal factors

The first two – Strengths and Weaknesses – are internal factors that can be determined by an internal analysis. These are factors that a company has considerable control over to change, once they are identified. They are core capabilities that put a company at either a distinct advantage or a disadvantage in comparison to its competitors, as viewed by customers.

A company’s strengths are typically divided into two main areas – tangible resources such as their products, equipment and financial position, and intangible resources, such as production costs, goodwill (both customer and staff), reputation, technical skills and abilities.

A company’s weaknesses, meanwhile, are also typically seen in the same two areas – tangible weaknesses such as outdated or poor plant and equipment, high operating costs and insufficient capital resources to move forward, and intangible weaknesses such as poor relationships with customers, suppliers and staff, poor market recognition, inexperienced management, inadequate knowledge of the industry, insufficient marketing effort and abilities, lack of commitment to R&D and innovation.

These are all “internal” factors, in that company management can determine them by conducting an internal audit of operations and correct them be developing a strategic action plan.

Opportunities and Threats – External factors

The second half of a “SWOT” analysis – the Opportunities and Threats – are external, however, and can’t usually be changed.  They are, however, vitally important and provide insight as to what actions a company needs to take to make use of the advantage that opportunities present while defending itself against threats that are on the horizon.

In a sense, the internal factors need to be addressed before the company will be ready to meet the external factors.  A company with cash flow problems will be unable to take advantage of opportunities that arise and will likewise be unable to protect itself against threats that come its way.

A typical example is an economic downturn. Recessions and the business cycle are as sure as the seasons – they will happen.  Companies that take care to get their internal house in order during good times will see a recession coming, build up their cash position, and when the recession hits use the opportunity to improve their operation – maybe by buying modern equipment at cut rate prices from other companies that have gone bankrupt.

One company that was a machinery dealer before the recession turned around very successfully to buying machinery for very little at bankruptcy auctions and selling it for scrap metal – an activity that was only possible because they had their financial affairs in order before the recession.

Vision and Foresight Needed

This site focuses on the external factors – the outside opportunities and threats faced by manufacturers as they go about their business. There are a host of consultants and advisers that can help companies with their internal problems, their finances, human resources, technical challenges, marketing, etc.  But taking external factors into account requires vision and foresight – and accurate knowledge of what is going on in the outside world that may affect the company.

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