The POAM matrix can be defined by its acronym as the profile of opportunities and threats of a company.
It is important to note that the external environment is the medium in which the threats and opportunities of a company can be found. These threats and opportunities can affect the organization positively or negatively and the impact can be high, medium and low.
For this reason, the POAM matrix is used to identify and assess the potential threats and opportunities that a company may face. Since, understanding and analyzing the environment in which the company operates is important for successful strategic planning. Since the environment is constantly changing and it is difficult to control.
Above all, geographic, economic, technological, political, social and competitive factors are external factors over which the company has no control. For this reason, you must first identify which factors to evaluate and then determine whether these factors represent an opportunity or a threat to the company.
External factors and the POAM matrix
The main external factors to be analyzed are the following:
To begin with, the location of the company in a certain locality, zone, municipality or region is a very important strategic decision. Because this will allow you to have access to natural resources, a favorable climate, certain topographic conditions and proximity to markets.
Therefore, if geographic factors are properly exploited, they could become an important opportunity.
On the other hand, the economic factors that a company must consider are all general macroeconomic indicators such as gross domestic product (GDP), inflation rate, unemployment rate, interest rate, exchange rate, among others.
These factors can positively affect the performance of the company, or behave adversely. Making the objectives of the company are achieved or not.
At the same time, changes in technological aspects can affect a company. Since advances in technology cause changes in the production, marketing, transportation and communication processes of companies.
Therefore, if the company is not able to respond to these great advances, this can become a great threat to its performance.
In the same way, the political aspects are related to all the laws and regulations of the Government. This may include tax policies, labor regulations, incentives system, international treaties, among other matters.
All of these laws and regulations can also help or hinder the achievement of business objectives.
While, social factors are related to the quality of health, educational level, type of work, beliefs and culture that prevail in different population groups. Making them behave in a way that is favorable to the success of the company or as a possible threat.
Finally, competitive factors are directly related to the market, they could be elements such as competition that determine the quality and price of products, as well as the provision of services. By giving the company the opportunity to achieve a certain level of differentiation or quite the opposite, the competition becomes a great threat.
Steps for analysis
To carry out the analysis of external factors, the following must be done:
First, a diagnosis must be made of all the resources and capacities that the company has in its external environment.
2. Information gathering
Then the information is collected. The information can be obtained from secondary and primary sources.
If the size of the company is not very large, it will suffice to apply instruments such as interviews and questionnaires to all the people in the area to be investigated. Whereas if the company is large, the sampling method must be applied, since the market to be investigated is larger.
3. Identify threats and opportunities
Subsequently, it must be determined which of the external factors are opportunities that the company can take advantage of and which are considered as threats that must be faced.
4. Select, qualify and prioritize the factors
Of course, from the factors analyzed, which ones are most important are selected and they are scored. If the rating is high, it means that the identified threat or opportunity is significant. Whereas if the rating is low, the opportunity or threat is not important.
5. Degree of impact
Finally, it is identified how each opportunity or threat will impact the company and in the same way it is qualified if it is high, medium or low.
6. Prepare the POAM matrix
When you have all the information, you can build the POAM matrix.
Construction of the POAM matrix
To build the POAM matrix, follow these steps:
- A table with four columns is made. The first to place each factor, the second for opportunities, the third for threats and the fourth for impact.
- Both column two, three and four must be subdivided into three new columns. Each column will serve to qualify for high, medium and low.
- With the factors analyzed, they are first classified as threat or opportunity. Each threat or opportunity is then scored. Assessing the impact they have on the company.
- Finally, the results are interpreted and analyzed.
To conclude, we can affirm that the POAM matrix allows a company to identify external factors that are beyond its control and that may turn into opportunities or threats. That way you can develop strategies that can strengthen the opportunities that are important to the company. In the opposite case, if external factors become threats, to be able to face them in a more adequate way to minimize their impact.