Internal Analysis Of A Firm's Strengths And Weaknesses PDF

**INTERNAL ANALYSIS** **A FIRM´S INTERNAL DIAGNOSIS:** The ability to compete in markets may depend more on internal aspects of the firm (efficient-scale plants, better technological processes, localization advantages, owning or controlling brands or patents, extensive distribution networks) than...

**INTERNAL ANALYSIS** **A FIRM´S INTERNAL DIAGNOSIS:** The ability to compete in markets may depend more on internal aspects of the firm (efficient-scale plants, better technological processes, localization advantages, owning or controlling brands or patents, extensive distribution networks) than on external ones. Purpose of internal analysis **identify a firm´s strengths and weaknesses** as it pursues a competitive performance. One of the main point of making a competitive analysis what do I do better than others to stay in the market. 1. Determine a firm´s nature and its fundamental characteristics 2. What are the key variables that I want to analyze in order to understand the firm 3. Metrics (internal analysis of key variables that implicitly are measuring the firm nº clients, revenues) \*[NPs:] metrics for customer´s experience how you are perceived versus your competitors (most of the technological companies have this) **A FIRM´S IDENTITY:** First, it´s important to define what is the [identity] of the firm, with its purpose determine a firm´s nature and its fundamental characteristics. The aim is to improve the understanding of the traits defining it for their use as supplementary information in a more thorough analysis involving other techniques. - **Age:** historical age or moment in which the firm is operating (Start-up -- Adolescent -- Developed or balanced -- Mature or adult -- Anaemic or old) - **Size:** dimension in relation to all the other firms in the sector. It´s an indicator of the amount of resources a firm has at its disposal. (Small -- Medium -- Large). \*Variables used for measuring size turnover, total assets and headcount. - **Scope of the firm:** how you are doing your activity. - Combination of products and markets to which a firm is dedicated - Functions or needs it seeks to meet - Its target customer groups - Technologies used accordingly - **Type of ownership:** who is involved in the management and property. (Public or private). \*If private whether its ownership structure involves a family, a concentration of a few shareholders or a diffuse ownership - **Geographical scope:** the extension of the geographical area catered for (how you are perceived globally and how you interact with the locals and order parts of the firm). (Local -- Regional -- National -- Multinational) - [Single-part firms:] single-site facilities - [Multi-plant firms:] several facilities (whether the facilities are geographically concentrated, close to each other, or dispersed) - **Legal structure:** what kind of enterprise you are and what kind of regulations you have to face. (Public limited companies -- Limited liability companies -- Cooperatives) - [Single-company regime:] a single firm for all the operations - [Multi-company arrangement:] business group **A FIRM´S FUNCTIONAL ANALYSIS AND ITS STRATEGIC PROFILE:** **Functional analysis:** internal analysis of the different specialized activities that every firm pursues (production, marketing, financing, human resources and organization). **Firm´s strategic profile:** internal analytical technique used to identify its weak and strong points through a study and analysis of its functional areas. Its aim is to single out strengths and weaknesses on the basis of a series of internal variables. DRAFTING OF THE PROFILE: - **LIST OF VARIABLES:** they are the core aspects or factors whose functioning determines a firm´s ability to fulfil its objectives. These variables underpin the main weak and strong points, and are used to conduct a more in-depth diagnosis. These variables are grouped into functional areas. The functional areas to be considered, the number of variables to be identified and the content of these variables depend on each firm. They vary according to the type of firm, its operating industry, or the manner in which it competes in the industry. - **EVALUATION OF VARIABLES:** this involves the use of a [Likert scale] scoring from 1 to 5 rating each variable´s performance as very negative (N), negative (VN), neutral or indifferent (I), positive (P) or very positive (VP). The evaluation is undertaken by top managers in response to their perception of the state of each variable. Depending on whether the graphic portrayal moves further to the right (strong points) or to the left (weak points) more favorable or unfavorable profile. It´s a highly intuitive and qualitative instrument simple to use. Its main use is as a [systematic medium] for diagnosing the situation through the identification of the key variables on a firm´s internal performance and how each one of them behaves. Nevertheless, a strategic profile should be handled with care due to certain limitations: - **Relative:** the information it provides shouldn´t be considered in absolute terms. A firm will have strengths or weaknesses as it performs better or worse than its rivals. It´s advisable to have a benchmark profile with which to compare its weak and strong points. This yardstick for the profile may be the industry average, the main competitor, the industry leader or an ideal profile - **Subjective:** it may lead to a problem of self-complacency on the part of the firm´s top managers, as they might consider that self-criticism may be contrary to their own interests. This requires special attention, as any complacent or overly critical approach will stop the firm suitably preparing to address its challenges successfully. - **Static:** it provides a snapshot of the firm at a given moment in time. This could be overcome by defining several profiles for the same firm over different time periods monitoring the evolution of weak and strong points over time. **THE VALUE CHAIN:** The breakdown of the firm into the key operations that need to be undertaken in order to sell a product or service. Each activity contains its share of the value associated with the end product, and accounts for part of the final costs of that product. When the price customers are willing to pay for the product or service exceeds the cost of the various operations a firm generates a margin or profit on its business (value generated by the firm). **Value system:** a firm´s value chain as part of a broader value system that includes the value chains of suppliers and customers. [Purpose of analyzing the value chain] identify the sources of competitive advantage (aspects or parts of the firm that contribute most to the generation of the overall value obtained). \*Understand where do you create the value. **VALUE CHAIN ACTIVITIES:** 1. **PRIMARY ACTIVITIES:** directly part of the core operating process, as well as their transfer to customers and after-sales service. - [Inbound logistics:] reception, stockpiling, control of stock and the internal distribution of raw and ancillary materials through to their inclusion in the production process. - [Operations or production in the true sense of the term:] activities linked to the physical transformation of factors into products or services. - [Outbound logistics:] activities involving the stockpiling and physical delivery to customers of finished products. - [Marketing and sales:] activities designed to drive the sale of products. - [After-sales service:] activities linked to maintaining the conditions of use of the products sold. 2. **SUPPORT ACTIVITIES:** not directly part of the production process, but they provide support for primary activities, guaranteeing the firm´s normal operations. - [Procurement:] activity of purchasing the factors to be used (raw materials, ancillary materials, machinery, buildings and all kinds of services). - [Technology development:] activities for obtaining, improving and managing technologies, regarding products and process, or for "management" - [Human resource management:] activities related to the search, recruitment, training, motivation, assessment or remuneration of all nature of personnel. - [Firm infrastructure:] activities grouped under the definition of [administration] planning, control, organization, information, accounting, finance. \*It provides support for the firm as a whole. \*Competitive advantage may lie in an excellent design or performance of any of these activities. **VALUE CHAIN INTERRELATIONS:** A competitive advantage may stem not only from a specific activity, but also from the interrelations that may emerge between the activities in the firm´s value chain and/or between the firm´s value chain and the value system constituted with customers and suppliers. \*These interrelations are called **links**. The competitive advantage though these links may be achieved by: - **Optimization:** the best performance of an activity may allow reducing costs in the undertaking of other activities. - **Coordination:** the advantage arises through the attainment of a high degree of coordination between activities whereby they are both undertaken more efficiently. TYPES OF INTERRELATIONS: - **HORIZONTAL LINKS:** they arise when 2 or more internal activities interact (relationships between primary activities or between these and support activities). \*Application may be made of the 2 criteria on gaining an advantage. - **VERTICAL LINKS:** the result of the relations between the firm´s value chain and that of its suppliers or customers. The proper management of these interrelations may benefit both the firm and its suppliers/customers the outcome favors both parties involved at the same time. \*[Just-in-time:] perfect coordination between suppliers and the firm´s production systems that permits reducing intermediate inventories and the costs involved. A decisive role is played by the **information system** of the firm itself and of suppliers and/or customers thanks to new information and communications technologies it becomes a key variable for ensuring the optimization and coordination of activities. The activities of the firm´s value chain may be overly general for an in-depth analysis, so they can be broken down into more specific activities. The **itemization** depends on the level of detail targeted by the analysis and on the possibility of finding competitive advantages in specific activities or in the interrelationships between them within the same general activity. \*By contrast, some of these activities may also be discarded. **ANALYSIS OF RESOURCES AND CAPABILITIES:** When faced with turbulent environments in which changes are ever more frequent more appropriate to base strategy on internal aspects rather than on external ones. \*The greater the importance of changes in a firm´s environment, the more likely it is that its resources and capabilities will provide the foundations for its long-term strategy. **Resource-Based View:** assesses a firm´s potential for establishing competitive advantages through the identification and strategic evaluation of the resources and capabilities it possesses or to which it may have access. Based on 2 premises: - Firms are different to one another because of the resources and capabilities they have at any given moment, and because of the different characteristics these have ([heterogeneity]). \*The firm is considered as a unique combination of heterogeneous resources and capabilities - These resources and capabilities aren´t available to all firms under the same conditions ([imperfect mobility]) STAGES OF THE ANALYSIS: 1. **Identify and measure** a firm´s own resources and capabilities in order to gain an in-depth understanding of its initial potential for defining its strategy. [Strategic process:] provision of resources and capabilities 2. **Strategically evaluate** its resources and capabilities decide the extent to which they are useful, appropriate and valuable for the achievement of a competitive advantage, sustaining it over time and collecting the returns. [Strategic process:] generating, sustaining and appropriating from a competitive advantage 3. Analyze how corporate management may **obtain** the resources it requires (internally and externally) and how to **exploit** the current provisioning of resources at the level of competitive and corporate strategy. [Strategic process:] strategy formulation and implementation **IDENTIFYING RESOURCES AND CAPABILITIES:** **RESOURCES:** the sum of factors or assets a firm possesses or controls (basic units of analysis) **CAPABILITIES:** firm´s skills at undertaking a specific activity (combination of resources and organizational routines or guidelines) -- organization´s collective competences or skills. A firm´s resources and capabilities may be construed as the sum of elements, factors, assets, skills and attributes a firm possesses or controls. They enable a firm to formulate and implement a competitive strategy and influence certain aspects of its corporate strategy. **IDENTIFYING RESOURCES:** Aim draw up an inventory of the firm´s resources. **TANGIBLE RESOURCES:** those that physically exist and are normally easier to identify and measure through the information provided by financial statements. \*Recorded on a firm´s balance sheet and measured according to accounting standards. \*1-2 years to change the production process \*Opportunities for a more efficient use \*Possibility of a more profitable alternative use - [Physical or material:] property, machinery, furnishing, tools - [Financial:] cash or similar, accounts receivable, stocks, bank deposits - OBJECTIVE: an efficient use of resources - PROBLEM: their valuation in accountancy is not very relevant in strategic terms **INTANGIBLE RESOURCES:** those based on information and knowledge (don´t physically exist). \*The production process takes 15 days (new versions). Each 3-4 months, you will normally have to change policies and conditions. \*They tend to be invisible to accounting data identification and measurement are more complicated (especially when they are based on knowledge of a tacit nature -- human emotions, customer loyalty, organizational culture) \*They´re slow and costly to accumulate \*Their property rights tend to be poorly defined \*They´re difficult to sell on the market and are liable to multiple uses \*Their value normally increases over time Depending on whether or not they are directly linked to the people comprising the firm: - [Human:] \***Human resources:** "human capital" people´s knowledge, training, experience, motivation, adaptability, reasoning and decision-making skills, loyalty, commitment to the firm. - [Non-human:] - TECHNOLOGICAL: technologies and know-how available for manufacturing the firm´s products or providing its services (patents, designs, databases) - ORGANIZATIONAL: brand, logo, prestige, reputation, customer portfolio \*The absence of intangible assets on financial statements explains the difference between a firm´s **book value** (value of material assets) and its **market value** (valuation economic agents make of the firm as a whole). !No valuation of intangible assets in the accounts. **IDENTIFYING CAPABILITIES:** Capabilities allow an activity to be suitably developed according to the combination and coordination of the individual resources available. \***Core or distinctive competences** refer to the same concept possibility of performing an activity better than one´s competitors. Capabilities are linked to human capital and are based on intangible assets. Capabilities are intangible not easy to distinguish between intangible resources and capabilities per se. Criteria for distinguishing between resources and capabilities: - [The stock nature of resources as opposed to the flow nature of capabilities:] resources are things or elements that are possessed or controlled, being independent of the specific use they are given in a firm. In turn, capabilities represent ways of performing activities (of using resources) - [The collective nature of capabilities and the individual nature of resources:] as opposed to each person´s individual skills, capabilities exist insofar as the people collaborate with one another, teaming up to use other factors or assets to resolve a problem or undertake an activity. \*Without this collective character, there are no organizational capabilities - **Functional capabilities:** those designed to resolve specific technical or management issues (manufacture a product, arrange a loan, quality control) - **Cultural capabilities:** more associated with people´s attitudes and values (ability to manage organizational changes, innovate, work in a team) The challenge for management is not just identifying a firm´s resources and capabilities, but it also involves discovering how to pass from individual skills and resources to collective capabilities, which is determined by **organizational routines.** Capabilities are organized into [hierarchical structures]. Individual resources are used as the basis for creating specific capabilities for very concrete tasks or simple capabilities. These capabilities are then integrated within more complex capabilities at a higher level, and so on. In order to integrate resources, skills and knowledge, the firm´s management: - [Formal coordination mechanisms:] normalization of tasks, organizational handbooks, integrating managers - [Organizational routines:] regular and predictable models or patterns of activities made up of a sequence of actions coordinated by individuals. They´re the equivalent of people´s individual skills and the platform for the generation of valuable capabilities or distinctive competences in the firm constituting the main way of storing information and knowledge within the organization. They improve through experience and practice, becoming atrophied when not used. \***Managerial skill** is important creating new organizational routines and improving existing ones turning them into valuable competences for achieving significant competitive advantages. [Knowledge-Based View] **intellectual capital** to identify and measure all knowledge-based resources (intangible resources and capabilities that are intangible). It develops a series of variables and indicators for an approximate measurement of a firm´s array of intangibles. **DYNAMIC CAPABILITIES:** a firm´s ability to integrate, build and adjust internal and external competences to deal with rapidly changing environments. They´re related to the firm´s behavior designed to integrate, reconfigure, renew and re-create its resources and capabilities, and update and rebuild its core capabilities in response to a changing environment in order to achieve and maintain its competitive advantage. They refer to those high-level capabilities that guide the change in capabilities of a lower order (not activities that resolve specific problems -- functional capabilities). \*Some cultural capabilities are related to this ability to innovate, learn, assimilate external knowledge or tackle strategic and organizational changes. **STRATEGICALLY EVALUATING RESOURCES AND CAPABILITIES:** Resources and capabilities need to be valuable in the sense of being different and better than those of other rival firms (heterogeneity of resources) and relatively immobile or unassailable to ensure a competitive advantage can be sustained over time. It´s important to assess the potential (potential to generate, to sustain over time and to appropriate rents) each one of them has for generating and sustaining a competitive advantage that creates value for a firm. ASSESSMENT CRITERIA (conditions the potential for generating income): \***Strategic or distinctive resources and capabilities:** permit the firm to obtain, sustain and enjoy the benefits derived from a competitive advantage (those that satisfactorily comply with most of the assessment criteria) **A)CRITERIA FOR OBTAINING A COMPETITIVE ADVANTAGE:** If a resource or capability is to generate a competitive advantage, it needs to fulfil: [SCARCITY:] a resource is scarce when it´s not available to all competitors. When a resource/capability is important or essential for pursuing a business activity but is accessible to all the firms in an industry, it becomes a necessary condition for competing but not a differential aspect that entails a competitive advantage. [ ] [RELEVANCE:] its expediency for competing in a specific industry it´s related to one of the key factors of success. **B)CRITERIA FOR SUSTAINING A COMPETITIVE ADVANTAGE:** The strategic value of a resource/capability doesn´t depend only on its aptitudes for achieving competitive advantages, but it also depends on the time during which those advantages may be sustained. [DURABILITY:] a resource/capability is lasting when it doesn´t lose its potential for generating a competitive advantage over the passage of time it sustains or increases its usefulness. \*Decisive impact on intangibles (tangible resources tend to depreciate as they´re used) intangibles tend to increase their value with use. Intangibles have 2 characteristics that extend their durability: - Susceptible to **simultaneous use** for different functions, without forgoing their usefulness in any one of them. (brand used for different products) - They´re of **unlimited application** in their use they may be used indefinitely as often as required in different processes or products. \*Tangible resources are easier to be transferred between firms (though some others -- large plants and machinery -- pose the problem of geographical immobility) \*Most intangible resources pose serious problems of transferability: - **Their specifically intangible nature:** many intangibles are based on tacit, non-codifiable knowledge whose control rights are difficult to specify inconveniences for their evaluation and sale, derived from the information asymmetries between buyer and seller. - **They are specific assets:** some resources (technological know-how and brands) are a firm´s specific assets in the sense their value may diminish when they are transferred to another firm. \*[Transaction costs] incurred by the transfer of resources and capabilities are high, especially when talking about complex capabilities, as their acquisition requires transferring the whole set of resources making them up. Firms whose competitive advantage depends on complex capabilities smaller risk of those capabilities being bought by their competitors than others whose advantage depends on individual resources (more readily transferrable) \*Problem of transferability impacts especially on [human resources] they can move between firms. People tend to work in teams they may often lose significance when their move doesn´t involve their former team (it clearly tends to be the case) [IMITABILITY:] capability of competitors to replicate the resources and capabilities the benchmark firms possesses, internally developing similar ones that have the same effects. If a firm has inimitable resources sustains its competitive advantage over time. **Causal ambiguity:** lack of knowledge among rival firms of the foundations upon which this advantage is built (protection against possible imitation). Yet, if there´s no casual ambiguity and resources and capabilities can be imitated, time plays in favor of the firm that already possesses them. \*Many complex capabilities are slow and costly to accumulate and arise out of experience itself through a unique one-off process. \*As variables have emerged from its historical trajectory (image, reputation), they are path-dependent almost impossible to reproduce them. When an imitating firm seeks to reproduce a valuable resource/capability, the firm imitated has time to reinforce it. \*If the imitating firm tries to reduce the time for developing that key resource/capability by investing heavily, the associated costs favor the firm imitated (it has already incurred them in a fractionated manner over time, and they discourage a potential imitator). The more complex a capability, the more difficult it is to imitate (due to causal ambiguity and the need to imitate a series of resources and the manner in which they interrelate). The chances of resources and capabilities being imitated or replaced by competitors will depend on their potential for replicating them or finding alternatives. [SUBSTITUTABILITY:] when rival firms can´t turn to the market for the valuable resources and capabilities possessed by another firm, and they´re unable to imitate them seek alternative resources and capabilities that provide the same effects or outcomes under similar conditions (alternative ways of addressing and solving that selfsame problem). If resources and capabilities don´t have alternatives for their substitution greater value for the firms possessing them (competitors will find it more difficult to achieve the resources and capabilities they need to undermine the competitive advantage) [COMPLEMENTARITY:] resources and capabilities can be combined with each other for the better development of certain business activities. They are compatible when their joint value exceeds the sum of their individual parts. This implies that a firm´s resources and capabilities are more difficult to transfer, imitate and substitute (competitors are required to avail themselves of them in a simultaneous and suitably combined manner in order to achieve the same advantages). **C)CRITERIA FOR APPROPRIATING THE RENTS FROM A COMPETITIVE ADVANTAGE:** The extent of the definition of the control rights over the resources and capabilities that are a source of competitive advantage. To the extent those rights are well established, the firms owning the resources appropriate the resulting rents. \*Control rights over tangible resources (financial and material assets) are readily identifiable. \*They may also establish control rights over certain intangible assets (patents, brands, logos). For many others (workforce, reputation, culture, customer loyalty, trust of allies), these rights can´t be defined because their nature impedes it. !!A firm´s reputation and culture (highly complex formation within it and are wholly specific to it susceptible to appropriation) [HUMAN RESOURCES:] firms can´t establish control rights over them (each person is the owner of their own skills and attitudes). A firm can ensure individuals place their skills at the service of the organization is through the arrangement of contracts of employment. Also, a strategic leadership approach and a business project that are motivational may lead to a higher level of commitment and engagement among employees. \*The greater people´s negotiating power, the lower the appropriation of rents by the firm). \*The more obvious an individual´s contribution to the firm´s success or the more specific their duties are, the greater their negotiating power for appropriating the rents forthcoming. \*If an individual´s skills are integrated within collective capabilities in which it´s very difficult to single out their personal contribution negotiating power reduces \*\*Alternative a firm has to increase its rents stems from the arrangement of contracts of employment in which employee remuneration depends on each one´s contribution to the overall business performance (individual´s interests are aligned with the firm´s objectives). **MANAGING RESOURCES AND CAPABILITIES:** The identification and evaluation of the firm´s resources and capabilities allow diagnosing the strong points upon which to build or formulate a strategy (more valuable R&C) and the weak points (not valuable R&C or that don´t exist in the required amounts and/or quality). To the extent that a firm´s resources and capabilities provide the foundations for defining its strategy (at competitive and corporate level), they need to be suitably managed implies 2 types of activities: - **Improving the provision of resources and capabilities:** developing new internal resources, improving existing ones, capturing new ones from outside and adapting them to the firm. - **Strategically exploiting the resourcing and capabilities it has** through their more efficient application to the strategy rolled out by the firm and the search for alternative and inventive uses of those available to it. These activities are crucial to a strategy´s success and may be considered a valuable dynamic capability designed to improve, refresh or extend the allocation of resources and capabilities and profitably exploit existing ones. The responsibility for their management lies with [top managers] (their analysis is directly linked to [managerial capabilities]) ability to "orchestrate resources". [IMPROVING THE PROVISION:] Sustaining and improving the current provision and extending the resource base that can be used in the future. One R&C available to the firm are identified and evaluated, the following may be deduced: - The nature of the resources and capabilities that entail the greatest potential for generating, sustaining and appropriating competitive advantage - The firm´s relative positioning regarding its rivals in terms of its current provision of R&C - The firm´s deficit or shortfalls regarding its current provision - The firm´s future requirements in terms of new resources and capabilities Based on this analysis, a firm should improve its current provision, increasing the value of the ones it has from a strategic perspective or obtaining new resources it still doesn´t have. 2 major options: - **External acquisition:** looking outside for the necessary resources - Through direct purchase (if there´s a market) involving traditional purchase-sale arrangements - By taking over already existing companies or business units - Forging alliances to share resources with a partner - Through benchmarking seeking to imitate or improve the internal performance of activities by comparing them to those firms that undertake them in the best way possible - Shortening the time needed to obtain the resources and capabilities compared to their internal generation - Reducing risks and costs - It doesn´t provide access to the most valuable resources (they are at the disposal of other firms), either because they have generated them themselves or because they have acquired them on the market - Problems of integration - **Internal development:** acquiring R&C through internal operations investing in R&C to generate new technological know-how, advertising campaigns to increase brand recognition, continuous improvement that reinforce organizational routines, social responsibility actions that enhance the firm´s image. \*Most important actions involve [investing in human capital] (it´s the ultimate repository of knowledge in the firm). \*The accumulation of intangible usually requires a long timeframe and high amounts of investment problems of appropriation; and tend to be assets with a high degree of specificity (useful within the firm generating them, but less so in other external applications). For success in the generation of valuable internal resources [flexible organizational structure] facilitating the flow of knowledge and organizational learning. Also important to implement a [human resources policy] that fosters long-term assessment of targets, promotion based on seniority or experience, commitment to the firm, collaboration, continuous improvement, training. \*Organizational culture should reinforce prior policies through the promotion of values and beliefs that favor the accumulation of specialist knowledge and a desire for continuous improvement and life-long learning. [EXPLOITING THE PROVISION: ] Important to know how to exploit resources and capabilities properly or identify the ones that will be more important for achieving success. The strategy needs to take into consideration how to effectively exploit the strengths derived from resources and reduce the vulnerability represented by weaknesses. - **Competitive strategy:** use of resources and capabilities in a firm´s current operations. If resources are strategically valuable, they are the basic foundations upon which a firm´s competitive strategy is built in order to generate a competitive advantage - **Corporate strategy:** a firm may have surplus resources and capabilities that may be used more effectively in alternative activities. \*Intangible resources and capabilities don't have a specific limit on their use This alternative use of surplus resources may help to guide corporate strategy (the scope of its activities) in 2 directions: - [Through diversification processes:] extending the scope of the firm with new products or markets. The possibility of generating synergies in a related diversification strategy resides in the resources and capabilities that are shared or transferred between businesses - [Through internationalization processes:] the scope of the firm extends from a geographical perspective, based on valuable or surplus resources and capabilities that can be used in other countries - **Marketing** of resources and capabilities that are not specific to the firm and may be useful for other firms. If a firm is to turn to the outside for the resources it needs, there has to be another firm that sells or leases them to it. Firms with a greater and better provision of resources may find an additional source of revenue through the external exploitation of their portfolio of resources and capabilities. \*Resources and capabilities that can be marketed are those that aren´t the cornerstone of a firm´s competitive advantage (avoiding the possibility of imitation or appropriation by rival firms) **SWOT ANALYSIS:** Strengths, Weaknesses, Opportunities and Threats An overview of the entire strategy (internally and externally) through the joint presentation of the main conclusions reached in the process. It involves using each one of the 4 areas in a SWOT matrix to present an organization´s strong and weak points, as well as the opportunities and threats a firm may encounter in its environment. A SWOT analysis may be conducted at the beginning of the strategic analysis process (brain-storming to bring its main aspects). Though it can be conducted at the end of the process as a synthesis or summary of the main conclusions obtained with other tools (strategic profile, five-forces model, value chain). This matrix is used to summarise the internal and external analysis overall view of the state a firm is in with a view to designing its strategy. \*It raises management´s awareness of the key issues to be addressed when choosing a strategy. It prompts the main actions of a generic nature that need to be undertaken when choosing a good strategy: \- Exploiting opportunities in the environment \- Avoiding its threats \- Maintaining and reinforcing strengths \- Correcting the firm´s weaknesses ADVANTAGES: - Overall view of the firm and its environment - Popular and standard tool - Simple conceptual nature of its application LIMITATIONS: - Static tool that provides a snapshot of the situation at a given moment in time but doesn´t shed any light on the environment or the firm´s performance in the past or its possible evolution in the future - It lacks integration between an internal and external analysis by not establishing relationships between the key variables that make up both systems. - It doesn´t lead to the identification of the best strategy for the firm, nor does it indicate the right steps to be taken for making a necessary strategic change. \*The actions suggested are very general and can apply to any situation, without specifying how to do so in each specific case.