Universiteit Utrecht

SWOT Analysis in
the software
industry
Method Engineering

Georgios Kormaris – 3331571
20/2/2009

..................... SWOT Analysis: method description..... 4 List of Tables Table 1: The steps that have to be followed in order to carry out a successful SWOT Analysis........... SWOT Analysis: example.........................3 II.................................4 IV.....4 Georgios Kormaris 2 .SWOT Analysis in the software industry Table of contents I................................ Introduction...........4 V... Appendix.........4 Figure 2: SWOT Analysis for Microsoft (see Appendix for larger version).........................................4 VI................................................................................... References..4 List of figures Figure 1: A basic SWOT Analysis matrix............................4 III............................ Background and related literature..............................................................................................

2003). which was developed from Albert Humphrey during the 1960s. 1995). we will try to present certain guidelines. 1999). This is the method of SWOT Analysis. in order to carry out a successful SWOT Analysis for any software development company. Kemerer. & Vanhoof. show an example for a software development company in Section III and finally present the background of the method and related literature in Section IV. Lenie. Most of these projects are usually concerned with the way that software is developed and not the way that the strategy of the company as a whole is planned (Cusumano. & Crandall. Introduction In the past twenty to thirty years many changes and developments have taken place in the software industry which started off during the 60s mainly in the United States of America and experienced a revolutionary boom since the 1980s (Steinmueller. as part of a research project for Stanford University. We will focus our interest in the software industry and base our research on the case study of the Austrian software industry as it is presented in (Bernroider. In the following sections we will try to elaborate on SWOT analysis in Section II. There are many different ways and methods of developing software and planning the strategy of a software development company and as it is shown in many recent research projects. In this paper we will try to analyze in detail a very popular method for strategic planning which has been mostly used for product portfolio planning and/or strategic planning on an abstract level (Houben. Another important factor is which techniques and methods are used to analyze company’s environment and how the strategy is formulated and implemented. 2002). MacCormack. Additionally.SWOT Analysis in the software industry I. Georgios Kormaris 3 .

SWOT Analysis: method description The initials SWOT stand for Strengths. named External (Opportunities and Threats).SWOT Analysis in the software industry II. elements which are Helpful for the organization (Strengths and Opportunities) and elements which are Harmful for the organization (Weaknesses and Threats). These are the basic elements SWOT analysis which is usually presented as a matrix with four main blocks.     elements concerning the organization itself which are called Internal (Strengths and Weaknesses ). elements which are about the company and its relationship with its environment. one for each element of the SWOT analysis. Weaknesses. Opportunities and Threats. Figure 1: A basic SWOT Analysis matrix As it is quite visible in Figure 1 we also have some other categorizations within matrix of SWOT Analysis. Georgios Kormaris 4 .

    Strengths: The strengths of an organization are the core competencies of the company. such as a new entrant in the main market of operation. Customer responsiveness. Threats: As threats we name the potential reasons which might harm a company. meaning how efficient the company is having a solid structure where all different departments. Having defined the main blocks of the SWOT analysis matrix. The two main aspects of this effort were already mentioned above and two most important ones are the Internal and the External aspect of an organization. 2002) these are the following. something which means that these weaknesses might lead to serious problems in the company’s strategic planning and might even lead to worse situations. or in creating a new business unit and etc. Efficiency. units and processes are properly organized and communicate well. that is how many customers does a company have. Capabilities. referring to the quality of the products / services provided by the company and to the quality of the internal organization of the company. such as the quality of the business processes. but also to how extensive is the diversification of a company’s products. an important step in formulating a business strategy is the so called ‘Situation Analysis’. which is not only referring to the obvious. Opportunities: These are certain steps which will help a company to perform better. we can continue and try to dig deeper into these elements and try to link them with certain aspects of an organization.SWOT Analysis in the software industry First of all we have to define the four main building blocks of our diagram. that is the critical success factors which the company possesses and that give it a competitive advantage. Weaknesses: As weaknesses we define the flaws that an organization has. Quality.      Resources. whether that is purely economical. This is where the Internal and External analysis of an organization really come into play and help managers realize the different dimensions of their business Internal analysis: The internal part of an organization can vary. depending on the size. generate more profits etc. As it is mentioned in Chapter 2 of (Ward & Peppard. such as entering a new market. a big economical recession and other reasons which might threaten the current position of an organization. but the main principles on which we focus our interest remain the same and according to (Bernroider. Georgios Kormaris 5 . organizational or other. in order to have a smooth operation of the company. such as becoming a serious threat for the organization’s existence. meaning the available resources which are enabling the company to develop and deliver the software which it sets out to provide to its customers. which if put into words answers to the question “Where are we now ?”. which is quite clear as a term. the key factors which enable it to excel in certain aspects and gain all kinds of profit. 2008). The opportunities can be of many different perspectives. what different price levels exist and how satisfied are those customers.

Selection of strategies 5. which refers to certain restrictions or difficulties in communication that might arise due to different languages and other cultural aspects. SWOT Analysis Analysis of the organization’s internal operating environment (Define ‘Strengths and ‘Weaknesses) 4. In order to give an example of external analysis factors we will mention some external barriers and drivers as they are mentioned in (Bernroider. follow technological breakthroughs. Define current situation. 2002):       Marketing / distribution in foreign countries Culture. Step Deliverable 1. 2. which is about the level of a company’s desire to invest in new technologies. which include SWOT Analysis (Bernroider. External analysis: The external analysis of an enterprise is a task which is a bit more complicated (see Background and related literature). one should go through the following steps. Implementation of strategies Pro SWOT Pro SWOT Georgios Kormaris 6 . create a mission statement and abstract business goals. Trade / commerce law issues. Analysis of the organization’s external competitive environment Pre SWOT SWOT Analysis (Define ‘Opportunities’ and ‘Threats’) 3. but it mainly is an analysis of the current competition and of the market in which the company operates. which are sometimes different from country to country and might cause problems when trying to enter new markets. EU regulations that might be rather complicated and restrictive in the standards of quality that must be followed in order to market a software product in the EU Market size Currency conversion (to €) Steps and Deliverables If we were to describe how a generalized process of carrying out a successful strategy planning procedure for a software development company.SWOT Analysis in the software industry  Innovation. keep up with the emerging business trends and in which extend is part of the profits re-invest in research & development. 2002).

com/about/default. and Step 3.SWOT Analysis in the software industry Table 1: The steps that have to be followed in order to carry out a successful SWOT Analysis. Step 1. III.microsoft. Figure 2: SWOT Analysis for Microsoft (see Appendix for larger version) Georgios Kormaris 7 . our mission and values are to help people and businesses through the world realize their full potential” Source: http://www. SWOT Analysis: example Since we have explained the SWOT analysis principles. how it should be carried out and how it is linked to the environment of a company. First of all we need to define the mission of Microsoft: As it is mentioned in Microsoft’s website the company’s mission is defined as follows “At Microsoft.mspx#values Step 2. For our example we will try to carry out a SWOT Analysis of Microsoft. a famous and international company which creates software (such as the Microsoft Windows Vista operating system and others) and other kinds of technology equipment and gadgets. it is time to actually describe an example for this method.

Dr Otis Benepe. 2002). this is where we come to a paradox. Another interesting quote from this article would be the following. (Grundy.com about SWOT Analysis and its origin. As it is mentioned in an article of www. The research was funded by the fortune 500 companies to find out what could be done about this failure. The background to SWOT stemmed from the need to find out why corporate planning failed. since it seems that is the main competitor. The Research Team were Marion Dosher. Thus it helps them to begin their research in the certain problem and provides the basic concepts in order to decide what the next move will be. Being more specific. since it was created during a research project funded by a large number of companies making it rather confidential. Background and related literature In order to gain some more insight in the creation of the SWOT Analysis method. IV. “SWOT analysis came from the research conducted at Stanford Research Institute from 1960-1970. it would be useful to know some more details about its origin. a proposition or idea. For example it is also used for Marketing management. in order to define whether it is profitable to enter new markets of create new products etc. 1998) . As mentioned in (Bernroider. a company etc.SWOT Analysis in the software industry In the next two steps (4&5) certain decisions have to be taken and implemented. a PEST analysis measures a market.” This brings us back to the external aspect of the SWOT Analysis method is the way that the External environment is perceived by a company and how it is analyzed. since it is a method which gives managers the opportunity to analyze a certain problem and put to paper the pros and cons of a situation. Birger Lie. software companies have to pay really close attention to their external environment.” As it is quite easy to understand. 2006). since competition and market status play a huge role in the success of a software company. Robert Stewart. SWOT Analysis can be used in many different areas of management. about the strategy of Microsoft. complementary. many companies tend to use another. since very little is actually known on how the method was developed.businessball. Albert Humphrey. The two most commonly used method are PEST and the 5 Forces model by Porter (Porter. “A SWOT analysis measures a business unit. There actually are no papers that first present the method. (Wilson & Gilligan. method in order to analyze their external environment and in continuum to define certain ‘Opportunities’ and ‘Threats’. Georgios Kormaris 8 . 2005). for example whether more money will be invested in the ‘Online office’ emerging market or will Microsoft just try to fight Google.

Software Industry: An Analysis and Interpretive History. & Crandall. Ward. (2003). (1995). (1998). Strategic Change . Small-toMedium. & Peppard. Volume 26. In D. & Gilligan. European Management Journal . The U. K. (2006). MacCormack. J. In M. Mowery. John Wiley & Sons.. which consists of the five main elements of a company’s environment. The 5 forces model by Porter is a rather known model. Houben.. References 1. C. 21-38). 5. Georgios Kormaris 9 . C. Economical. M. On Competition (pp. C. J. V. (2002).SWOT Analysis in the software industry PEST stands for Political. (Threat of possible) Substitutes and (Threat of possible) New Entrants. so as to succeed and make the most rewarding and efficient choices.: Harvard Business School Press. E. & Vanhoof. (1999.. Steinmueller. August). Porter. Strategic Planning for Information Systems. since the final result of SWOT Analysis is to formulate a general plan for a new strategy and ways to implement it. 2.. (Existing) Competitors. R. To sum up. A knowledge-based SWOT-analysis system as an instrument for strategic planning in small and medium sized enterprises. 7. third edition. 6. Software Development Worldwide: The State of the Practice. Bernroider. It should be combined with other analyzing techniques. K. Lenie. (Bargaining power of) Buyers. (2005). No 5. E. pp 213-229. A. B. Decision Support Systems . T. The International Computer Software Industry. Kemerer. Boston. 8. 4. whether that is a company’s current situation. Strategic Marketing Management. Social and Technological and it revolves around these dimensions of the external environment of an organization. 5. implementation and control. 3. Volume 20. G.S. Cusumano. Third Edition: planning. No. IEEE Software .. a certain problem within a company’s process etc. Grundy. F. Pages 125-135. Wilson.. Porter.. and Large Software Enterprises: An Austrian Study. SWOT Analysis is a very useful tool for decision making and for organizing ones thinking about a certain situation or idea. MA. M. (2008). 562-573. Volume 15. pp. How competitive forces shape strategy. Butterworth-Heinemann. in order to define potential threats and/or opportunities. LTD. Factors in SWOT Analysis Applied to Micro. (Bargaining power of) Suppliers. 1995: Oxford University Press. Rethinking and reinventing Michael Porter's five forces model. M. in order to achieve a high level of analysis of a company.

SWOT Analysis in the software industry VI. Appendix Georgios Kormaris 10 .