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SWOT is an acronym for strengths, weaknesses, opportunities and threats. It is the culmination of much internal analysis and external research. Thinking about the outcome, one can define SWOT analysis as the extent to which a firm’s current strategy, strengths and weaknesses are relevant to the business environment that the company is operating in. SWOT analysis is often presented in a matrix form:
Strengths and weaknesses are internal aspects and Kotler (1988) suggests that these should cover the four areas of marketing, financial, manufacturing and organisational. Opportunities and threats look at the main environmental issues such as the economic situation, social changes such as the population getting older and technological developments including the internet.
A SWOT analysis example for a cosmetics manufacturer might include:
• Strong, experienced marketing team
High brand recognition Well established consumer testing panel
• Prices perceived to be too high Costs spiralling out of control due to increases from raw material suppliers Inconsistent brand identity
• • Growth of the internet leading to an increase in the number of consumers willing to buy online New emerging teen market
• • • New ‘affordable luxury’ entrants to the market threatening to take share from premium brands Major competitor planning to integrate vertically and sell direct to the consumer Rise in popularity of nail spas leading to decline in demand for nail products
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Click here to place an order… A SWOT can be performed for companies, departments and divisions as well as individual people. Whatever the focus is the results will be very individual, even to companies competing in the same sector. One company may see new technology increasing the number of consumers who wish to buy online as an opportunity for ecommerce yet another player in the market, without any in-house internet expertise, may see this as a threat. The importance of SWOT analysis lies in its ability to help clarify and summarise the key issues and opportunities facing a business. Value lies in considering the implications of the things identified and it can therefore play a key role in helping a business to set objectives and develop new strategies. The ideal outcome would be to maximise strengths and minimise weaknesses in order to take advantage of external opportunities and overcome the threats. For example, the environment may present an opportunity for a new product but if the company does not have the capacity to produce that product it may either decide to invest in new plant and machinery or to just steer clear. The biggest advantages of SWOT analysis are that it is simple and only costs time to do. It can help generate new ideas as to how a company can use a particular strength to defend against threats in the market. If a company is aware of the potential threats then it can have responses and plans ready to counteract them when they happen. There are also disadvantages of SWOT analysis. A typical SWOT analysis is a usually a simple list and not critically presented. If a company is thinking about compiling lists it may not be focused sufficiently on how to achieve its objectives. Taking a list approach can also result in items not being prioritised. For example, a long list of weaknesses may appear to be ‘cancelled out’ by a longer list of strengths, regardless of how significant those weaknesses are. A SWOT analysis is a strategic tool but it is generally not used in a formal way. However there are now several pieces of SWOT analysis software available to help formalise the process and give the analysis structure. This software can help companies brainstorm and create a SWOT analysis and then present it as a report or presentation.
The best SWOT analysis will be more than a simple checklist. It will consider the degree of strength and weakness versus its competitors to determine how good that strength really is. A company may have a strong research and development team but a competitor’s could be even stronger. A good SWOT should also look the size of an opportunity or threat and show how these inter-relate with its strengths and weaknesses.
BUSINESS PLANS‘Businesses don’t plan to fail, they fail to plan’ is an often cited quotation by Harvey MacKay. Businesses that fail to plan are likely to be reactive, vulnerable to threats, closed to opportunities and work ‘blind’ with a short-term focus. Indeed creating a business plan is crucial to the success of an organisation. A business plan is a report of the things that a company plans to do over a particular period of time. It is often used to help secure investment and gain approval from internal and external stakeholders as it will cover the opportunities that the business intends to exploit and outline the resources it needs to do that. It will also contain background information and analysis as to why the company decided on those objectives and strategies.
The key questions that a business plan will answer are:
• • • • Where are we now? Where do we want to be? How do we get there? Are we on course to get there?
To answer these questions a business plan covers the following stages:
1. A situational analysis of the internal and external environment. This often includes the use of tools
such as PESTLE, SWOT, BCG and Porter’s Five Forces
2. The setting of clearly defined, measurable and time specific objectives. This will usually include a
mission statement as well as measurable goals such as ‘to increase brand awareness to 75% by the end of 2008′.
3. An outline of the strategies that will be used to achieve those objectives. Using the above example
to increase brand awareness one strategy could be ‘advertising that keeps the brand top of mind’
4. Tactical plans will outline how the strategies will be delivered. Here we might consider a particular
combination of TV and radio advertising at peak viewing and listening times
5. An implementation plan, with budgets and responsibilities, which will become a working document
for day-to-day activities
6. Procedures will also be decided upon and put into place for monitoring performance against the
objectives. This could involve external customer research to test awareness levels at various points in time throughout the year. The most effective plans will be regularly updated and refined based on close monitoring of actual results versus the objectives set. A business plan should be carefully evaluated before any time or money is spent on implementing it. The potential in the plan must be assessed and feedback sought before it is signed off and approved.
The following questions should be answered:
• • • • • Are the objectives realistic and achievable? Am I convinced that it’s worth investing in this company? Are the forecasts believable? Will the resources outlined help achieve the goals? Is there any evidence that the customer will accept the plan?
Business Strategy and Business Strategy Tools
Johnson and Scholes (1993) define strategy as the ‘direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations’. More simply this means articulating ‘where are we going and how are we going to achieve those objectives?’ This is about deciding on the long-term direction of a company, such as which markets it should operate in, how it can perform better in these markets and what external environmental factors might affect its ability to complete. There are a number of business strategy tools to help in the process of analysis and strategic choice.
Business strategy tools:
This is an acronym for political, economic, social, technological, legal and environmental. It is a useful checklist to help analyse and summarise the external business environment that a company is operating in. This analysis will help a firm determine the implications of the elements identified and decide on the best course of action to respond and manage those things. A PESTLE analysis for a supermarket chain might include:
• • • • • •
Political: corporate taxation due to be reviewed in the next budget Economic: inflation reflected in the cost of goods sold Social: the population is generally getting older with pensioners wanting help with their shopping Technological: the rise and popularity of e-tailing Legal: the legal age to purchase alcohol is planned to be lowered to 16 Environment: ‘green’ issues around the issue of ‘one use only’ free carrier bags
Porter’s Five Forces:
Michael Porter’s model focuses on five areas which can help a company to understand its competitive position. These areas are: 1. 2. 3. 4. 5. the threat of new entrants the threat of substitutes the bargaining power of suppliers the bargaining power of customers the degree of rivalry between existing competitors
This is another acronym. It stands for strengths, weaknesses, opportunities and threats. It is based on the understanding that companies should be looking to build on their strengths and improve their weaknesses to
take advantage of the opportunities and overcome the threats in their external environment. Read More On SWOT. Read Our SWOT Analysis Samples.
Decision making tools:
Ansoff’s matrix states that there are four possible strategies a business can follow: market penetration (offering existing products to existing markets), market development (taking existing products to new markets), product development (offering new products to existing markets) and diversification (launching new products into new markets).
Boston Consulting Group (BCG) Matrix:
The BCG identifies the performance of all the products in a firm’s portfolio. It is a useful tool to analyse the portfolio and decide which products should perhaps be invested in or discontinued. It can also help develop strategies for new products Thorough understanding of the external environment and internal resources and strategic capabilities, will ultimately lead to the right strategic choices being made. Read More On Boston Matrix.