46 - SWOT analysis

Question 1

external audit

Answer 1

an audit of the external environment in which a business finds itself - which it has little to no control over - such as the market which it operates in or government restrictions on its operations

Question 2

internal audit

Answer 2

an analysis of the business itself and how it operates

Question 3

SWOT analysis

Answer 3

an analysis of the internal strengths and weaknesses of the business, and the opportunities and threats presented by its external environment

Question 4

trade association

Answer 4

an organisation whose members are all involved in the same industry or trade

Question 5

areas that internal audit covers

Answer 5

• it attempts to identify the strengths and weaknesses of its operations
  1) products and their costs, quality and development
  2) finance: profit, assets and cash flow
  3) production: capacity, quality, efficiency and stock management
  4) internal organisation: divisional and departmental structures
  5) HR: skills, training and recruitment

Question 6

internal audit for very large businesses

Answer 6

• can be conducted by external management consultants

- this can help produce a more independent-minded analysis of the business’ situations

Question 7

areas that external audit covers

Answer 7

• this audit can address these key areas:
  a) market - competition
  b) political, economic, social, technological, legal and environmental issues
  1) the size and growth potential of the market
  2) the characteristics of the customers in the market
  3) the products on offer
  4) the pricing structure
  5) how products are distributed
  6) how products are promoted
  7) industry practices: trade association or government regulations

Question 8

what external audit analyses

Answer 8

• the market: nature and strength of competitors are an important influence on the development of a strategy
  what it analyses:
  1) the structure of the industry:
• the number and size of competitors, their production capacity and marketing methods
• the likelihood of new entrants to the market or businesses leaving the industry
  2) finance: profits of competitors, their investment programmes, costs, revenues, cash and assets

Question 9

PESTLE analysis

Answer 9

• an analysis of the:
  (P) political (E) economic (S) social
  (T) technological (L) legal and (E) environmental issues relevant to the business

Question 10

SWOT analysis - strengths

Answer 10

• these are the positive aspects of a business that may be identified from the internal audit - they are what make the business a success
  1) a respected, intelligent, inspirational and visionary leader
  2) highly motivated and loyal workforce
  3) a product with a unique USP
  4) a loyal customer base
  5) an innovative marketing department

Question 11

SWOT analysis - weaknesses

Answer 11

• these are the negative aspects of a business that may be identified from the internal audit - they are characteristics that undermine business’ performance
  1) poorly motivated workforce with high staff turnover
  2) an organisational structure that has too many layers of management
  3) poor cash flow and growing debt
  4) outdated tools and machinery
  5) poorly presented and out-of-date website

Question 12

SWOT analysis - opportunities

Answer 12

• the options or openings that the business might be able to exploit, resulting in improvements - and these can be identified by external audit
  1) a new oversea market opening up following a political change
  2) a fall in the cost of essential raw materials, such as oil
  3) low interest rates, exports become cheaper
  4) abolition of some regulations
  5) collapse of a major rival in the market

Question 13

SWOT analysis - threats

Answer 13

• possible hazards or perils that will lead to potential damage in business performances - identified by external audit
  1) new entrant in the market
  2) a rival appointing a new and highly successful CEO
  3) a looming recession
  4) new legislation aimed at improving the rights of employees
  5) pressure from environmentalists
  6) a change in social attitudes towards a business’ key product

Question 14

uses of SWOT analysis

Answer 14

• make a decision about which new product to launch
• help design a new marketing strategy
• help decide whether to outsource certain business tasks or activity such as IT
• prepare for a new business venture
• improve performance of a business
• help develop a better corporate strategy

Question 15

evaluation of SWOT analysis

Answer 15

• although identifying strengths, weaknesses, opportunities and threats can help improve business performance, it will depend on the action taken after carrying out the analysis