SWOT Analysis

MPA Assignment (Unit 2)

Submitted by: Drishti Gupta (266)
Submitted to: Professor Anjali Bennet

One very common tool firms use to analyze their strategic and competitive
situations is: SWOT, which is an acronym for strengths, weaknesses, opportunities,
and threats. Firms use SWOT analysis to get a general understanding of what they
are good or bad at and what factors outside their doors might present chances for
success or difficulty. Let’s take a look at SWOT analysis piece by piece

While measuring the effectiveness of the organisational strategy, it’s extremely

important to conduct a SWOT analysis to figure out the strengths, weaknesses,
opportunities and threats (both internal and external) of the entity in question.

Strengths
A firm’s strengths are, to put it simply, what it is good at. Nike is good at marketing
sports products, McDonald’s is good at making food quickly and inexpensively, and
Ferrari is good at making beautiful fast cars. When a firm analyzes its strengths, it
compiles a list of its capabilities and assets. Does the firm have a lot of cash
available? That is a strength. Does the firm have highly skilled employees? Another
strength. Knowing exactly what it is good at allows a firm to make plans that exploit
those strengths. Nike can plan to expand its business by making products for a sport
it doesn’t currently serve. Its sports marketing expertise will help it successfully
launch that new product line.

Weaknesses
A firm’s weaknesses are what it is not good at—things that it does not have the
capabilities to perform well. Weaknesses are not necessarily faults—remember that
not all firms can be great at all things. When a firm understands its weaknesses, it
will avoid trying to do things it does not have the skills or assets to succeed in, or it
will find ways to improve its weaknesses before undertaking something new. A
firm’s weaknesses are simply gaps in capabilities, and those gaps do not always
have to be filled within the firm. SWOT analysis alerts firms to the gaps in their
capabilities so they can work around them, find help in those areas, or develop
capabilities to fill the gaps. For example, Paychex is a firm that handles payroll for
over 600,000 firms. 5 Paychex processes hours, pay rates, tax and benefits
deductions, and direct deposit for firms that would rather not have to perform those
tasks themselves. A large firm would need to have a team of employees dedicated to
fulfilling that task and equip that team with software systems to do the job
efficiently and accurately. For Paychex, these capabilities are a company strength—
that’s what it does. Other companies that do not have the resources to develop this
capability or may not be interested in doing so can hire Paychex to do the job for
them.

Opportunities
While strengths and weaknesses are internal to an organization, but opportunities
and threats are always external. An opportunity is a potential situation that a firm is
equipped to take advantage of. Think of opportunities in terms of things that
happen in the market. Opportunities offer positive potential, however sometimes a
firm is not equipped to take advantage of an opportunity which is why considering
the entire SWOT is important before deciding what to do. For example, as cities are
becoming more populated, parking is becoming scarcer. Younger consumers who
live in cities are starting to question whether it makes sense to own a car at all, when
public transportation is available and parking is not. Sometimes, however, a person
might need a car to travel outside the city or transport a special purchase. Daimler,
the manufacturer of Mercedes-Benz and Smart cars, started a car-sharing service in
Europe, North America, and China called Car2Go to offer cars to this new market of
part-time drivers. By establishing Car2Go, Daimler has found a way to sell the use
of its products to people who would not buy them outright.

Threats
When a manager assesses the external competitive environment, she labels anything
that would make it harder for her firm to be successful as a threat. A wide variety of
situations and scenarios can threaten a firm’s chances of success, from a downturn
in the economy to a competitor launching a better version of a product the firm also
offers. A good threat assessment looks thoroughly at the external environment and
identifies threats to the firm’s business so it can be prepared to meet them.
Opportunities and threats can also be a matter of perspective or interpretation: the
Car2Go service that Daimler developed to serve young urban customers who don’t
own cars could also be cast as a defensive response to the trend away from car
ownership in this customer group. Daimler could have identified decreasing sales
among young urban professionals as a threat and developed Car2Go as an
alternative way to gain revenue from these otherwise lost customers.

The Limitations of SWOT Analysis

Although a SWOT analysis can identify important factors and situations that affect a
firm, it only works as well as the person doing the analysis. SWOT can generate a
good evaluation of the firm’s internal and external environments, but it is more
likely to overlook key issues because it is difficult to identify or imagine everything
that could, for example, be a threat to the firm. That’s why the remainder of this
chapter will present tools for developing a strategic analysis that is more thorough
and systematic in examining both the internal and
external environments that firms operate in.

In corporate strategy, Johnson and Scholes present a model in which strategic

options are evaluated against three key success criteria:
1. Suitability (would it work?)
2. Feasibility (can it be made to work?)
3. Acceptability (will they work it?)

1. Suitability: Suitability deals with the overall rationale of the strategy. The key
point to consider is whether the strategy would address the key strategic issues
underlined by the organisation’s strategic position.
(a) Does it make economic sense?
(b) Would the organisation obtain economies of scale, economies of scope or
experience economy?
(c) Would it be suitable in terms of environment and capabilities?

Tools that can be used to evaluate suitability include:

(a) Ranking strategic options
(b) Decision trees
(c) What-if analysis

2. Feasibility: Feasibility is concerned with the resources required to implement

the strategy are available, can be developed or obtained. Resources include funding,
people, time and information.
Tools that can be used to evaluate feasibility include:
(a) Cash flow analysis and forecasting
(b) Break-even analysis
(c) Resource deployment analysis

3. Acceptability: Acceptability is concerned with the expectations of the

identified stakeholders (mainly shareholders, employees and customers) with the
expected performance outcomes, which can be return, risk and stakeholder
reactions.

(a) Return deals with the benefits expected by the stakeholders (financial and non-
financial). For example, shareholders would expect the increase of their wealth,
employees would expect improvement in their careers and customers would expect
better value for money.
(b) Risk deals with the probability and consequences of failure of a strategy
(financial and non-financial).
(c) Stakeholder reactions deal with anticipating the likely reaction of stakeholders.
Shareholders could oppose the issuing of new shares, employees and unions could
oppose outsourcing for fear of losing their jobs, customers could have concerns over
a merger with regards to quality and support.
Tools that can be used to evaluate acceptability include:
(a) what-if analysis
(b) stakeholder mapping

General Approaches
In general terms, there are two main approaches, which are opposite but
complement each other in some ways, to strategic management through SWOT
Analysis:
1. Sociological Approach: The Sociological Approach deals primarily with human
interactions.
Assumptions:
(a) Bounded rationality,
(b) Satisfying behaviour,
(c) Profit sub-optimality.
Example: Google Inc. is the company that operates this way.

2. Industrial Organisational Approach: The Industrial Organisational Approach is

based on the economic theory. It deals with issues like competitive rivalry, resource
allocation, economies of scale, etc.
Assumptions:
(a) Rationality,
(b) Self-discipline behaviour,
(c) Profit maximization
 SWOT Analysis – McDonald’s
Introduction

McDonald's SWOT Analysis examines the company's strengths, weaknesses,

opportunities, and threats. McDonald's is a major participant in the fast-food
industry. McDonald's is an American corporation founded by Maurice and Richard
McDonald in 1940.

In Bernardino, California, McDonald's was founded. Within eight years, the store
had been converted into a fast-food franchise. Ray Kroc bought McDonald's and
created the first franchise in Des Plaines, Illinois, in 1955, converting McDonald's
into a corporation. With 37855 locations worldwide, McDonald's is one of the top
ten international fast-food chains.

McDonald's Strengths
Global Franchise: McDonald's is a global corporation with a worldwide franchise.
In 118 countries around the world, it is known for its fast food. As a result, it has a
significant global footprint. This makes it more identifiable to the general public and
aids in public awareness. As a result, it can put its global ideas into action on a local
level. This implies it can pursue its universal aims while also winning the hearts of
its customers.

McDonald's financial position: McDonald's has a solid financial foundation. It has

a total of fast food outlets. It has been slowly but steadily increasing its market share
over the past 80 years. As a star firm, it has won the public's trust. Its financial
situation has put it in a position of sheer advantage, causing its market value and
brand name to skyrocket. It had a revenue of 21.98 billion dollars in 2019. As a
result, the organization benefits from this financially solid position.

Market Share: McDonald's has a high market share and is the leading company in
terms of size and worldwide reach. In 2006, as Wendy's and Burger King lost market
share, McDonald's continued to gain market share. McDonald's recently had a
market share of roughly 19 percent.

McDonald's Weaknesses
Business model of a franchise: McDonald's established the multi-level marketing
standard. This complicated network of franchisees and company-run businesses
comes with significant hazards. The firm is experiencing financial difficulties, as
well as inadequate management, dissatisfied consumers, and a lack of income-
generating. Franchisees, who operate autonomously and so have minimal influence
on their daily performance but have a direct impact on the brand, create the majority
of the corporation's income.

Customers suffer as a result of the fierce competition: Wendy's, Burger King, and

Yum! Brands are among the many prominent fast-food brands that McDonald's is
up against. As a result of the fierce rivalry, McDonald's loses a substantial number of
consumers to other companies.

>Meals that are out of proportion: Despite McDonald's efforts to adapt its menu to
meet nutritional guidelines, the company's meals are still imbalanced. A variety of
dishes call for grilled or fried chicken, pork, meat, ribs, or eggs.

McDonald's Opportunities
Expansion Around the World: McDonald's may be the monarch in the United
States, but it has a hard time competing in other countries. However, if the firm
concentrates on developing into foreign markets rather than domestic ones, it is
more likely to continue expanding globally.

Emphasis on Asian markets: It has a lot of potential for the company. Many folks
would rather have a fast bite. Because Asian nations have prospered in recent years,
boosting the spending power of middle-class customers, McDonald's should devise
a variety of ways to expand its presence in Asian markets, therefore growing the
brand's client base and revenue.

McDonald's Threats
High-risk technological investments: McDonald's new efforts have a bright future,
but investing in technology is hazardous. Fast adoption of new technologies may
lower the return on investment, while the advantages of bettering the customer
experience may be less than anticipated.

Competitors with a high level of intensity: As the fast-food industry has grown, a
slew of new fast-food companies have joined the market. McDonald's does not
suffer from a lack of robust competitors. Even though they have a lesser market
share, some brands aggressively seek out McDonald's customers. Even though they
have a lesser market share, some brands aggressively seek out McDonald's
customers. Furthermore, more informal restaurants are increasing their burger
menus and cutting their pricing. We may choose this restaurant over quick food if
we are not in a hurry. They are also competitors of McDonald's.
The economy is in a downturn: Depending on how long this "crisis" lasts, the
trickledown effect will have a detrimental influence on the company's income
streams, despite its various revenue streams. During economic downturns, private
consumption and visitor engagement may drop as household finances tighten,
reducing shop sales.

CONCLUSION:

SWOT analysis is a strategic planning framework that corporate managers may use
to conduct successful scenario analysis. McDonald's may use a SWOT analysis
framework to identify internal strategic aspects like strengths and weaknesses, as
well as external strategic variables like opportunities and threats. McDonald's keeps
its threatening presence in the business world by continually examining and
enhancing its SWOT analysis. As a result, a McDonald's SWOT analysis will be quite
beneficial to this organization.