SWOT Analysis

Strengths, Weaknesses, Opportunities, and Threats

SWOT Planning and Organizing Tool
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organizational strategic planning public policy development personal career planning

Helps focus on key issues In IVR course:
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helps focus the commercialization research feeds into commercialization strategy

Strengths and weaknesses are generally internal factors. Opportunities and Threats are generally external issues.

Strengths Consider from both the view of the firm (product) as well as from customers and competitors Realistic and not modest One’s strength is another’s weakness Questions:
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What are the firm’s advantages over others? What does the firm do well? What makes you stand out from your competitors?

Weaknesses Consider from internal and external viewpoint Be truthful so that weaknesses may be overcome as quickly as possible One’s strength is another’s weakness Questions.
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What is done poorly? What can be improved? What should be avoided?

Opportunities and Threats Primarily external in nature Represent characteristics of:
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the research environment growth in potential markets changes in the competitive, economic, political/legal, technological, or socio-cultural environments

A threat to some is an opportunity to another.

Questions on opportunities:

Is there a product/service area that others have not yet covered? Are there emerging trends that fit with your company's strengths? Are your competitors becoming stronger? Are there emerging trends that amplify one of your weaknesses?

Questions on threats:
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For a company a strength could be: marketing expertise location of your business innovative product company image any other aspect that adds value to your product or service

In the case of Interactive Voice Response (IVR) a strength could be: technological capability: speed, efficiency, precision, power, etc. stage of development relative to competitors: RIO, patent, prototype. characteristics of the lead researcher: commercialization focus, reputation, other complimentary work. cost

For a company a weakness could be: lack of marketing expertise undifferentiated products and service (i.e. in relation to your competitors) location of your business damaged reputation

In the case of IVR a weakness could be: technological weakness: lack of speed, efficiency, precision or power lead researcher uninterested in commercialization stage of development or uncertainty with regard to technological capabilities cost

For a company an opportunity could be: a developing market such as the Internet. mergers, joint ventures or strategic alliances a new international market a market vacated by an ineffective competitor any external factor that may create demand or the possibility for increased profitability

In case of IVR an opportunity could be: a new or untapped market an old market needing technological advances a recent technological development that can be used as a catalyst for others (possibly through licensing) change in regulatory environment that creates demand for new technology

For a company a threat could be: a new competitor in your market price wars with competitors a competitor has a new, innovative product or service competitors have superior access to channels of distribution

In the case of IVR a threat could be: other ongoing research or commercialization efforts a large existing competitor market volatility (because we are new market entrants) market access (for supplies or customers)

Word of Caution:
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SWOT analysis can be very subjective. Do not rely on it too much. Two people rarely come-up with the same final version of SWOT.

Suggestions for conducting SWOT Analysis: Be realistic; no need to inflate strengths or be in denial about shortcomings. Distinguish between where your technology is today, and where it could be in the future. Be specific. Avoid grey areas. Always analyze in the context of your competitive environment. Keep your SWOT short and simple.

Using the SWOT Analysis Weaknesses should be looked at in order to convert them into strengths. Try to match your strengths with external opportunities. Threats should be converted into opportunities. Strengths and opportunities should be matched.

Expanding Your SWOT Analysis Delve deeper into the details of the technology. Include more detailed competitor information in the analysis. Take a closer look at the business environment. Expand the reach of a SWOT analysis through surveys.

Introduction to Corporation Simulation

The Simulation Scenario
Your teams acts as top managers of a troubled firm in the dynamic information systems industry

Company XYZ (Your Team)
Y S H B o u r T e a m

U # S1 B U # S2 B U a r d w S a o r ef t w aT r u e r n

# k

Sales History (p.2)

Period SBU1

-7 900

-6

105

Overall Objective
You are trying to maximize stock price THROUGHOUT the simulation. Your grade is based on your average stock price THROUGHOUT THE ENTIRE SIMULATION -- NOT JUST YOUR PRICE AT THE END!!!!!!!

Decisions
You will turn in 10 decisions (plus a practice decision you’ll do in class). Each decision represents 6 months of actions for your corporation -- it is important for you to think of these actions as more than simply short-term. You will make corporate and business level decisions.

Incidents
We will do several in-class incidents in the simulation. Incidents are mini-cases that simulate other types of decisions top managers of an international multi-divisional firm might make.

Corporate Decisions
Corporate decisions effect every aspect of the firm. Examples include amount of financial leverage and dividends you will give back to shareholders. You may buy or sell an SBU from another team or invest in a new venture.

Business (SBU) Decisions
SBU decisions directly effect the individual business units within your corporation. They include specific product pricing decisions such as marketing, R&D, and number of employees. A corporation can be made up of a single SBU (ex. Wrigley gum) or many (ex. GE).

Starting Position
Every company starts out with the exact sales history (p. 2) and starting positions (p. 36-37). Your stock price will depend not only on your decisions, but also on the decisions of the other groups.

OPERATIONS MANAGEMENT DATA (p.36)
SBU#1 SBU#2 SBU#3 SBU#4 Beginning Capacity Plus Expansion & Purchases Capacity This Period Less Depreciation (5%) Ending Capacity 3,600 200 3,800 190 3,610 4,700 300 5,000 250 4,750 5,400 300 5,700 285 5,415 0 0 0 0 0

OPERATIONS MANAGEMENT DATA (p.36)
SBU#1 SBU#2 SBU#3 SBU#4 Est. of Lost Sales % Defective Goods First Export Area % of Sales First Export Area % Marketing 2nd Export Area % of Sales 2nd Export Area % Marketing 0 3% 0% 0% 0% 0% 0 3% 0% 0% 0% 0% 0 3% 0% 0% 0% 0% 0 0 0 0 0 0

OPERATIONS MANAGEMENT DATA (p.36)
SBU#1 SBU#2 SBU#3 SBU#4 Product Innovation Index Number of Sales/ Service Reps Employee Turnover Book Value This SBU ($000) Location of SBU#1 Plant 100 1/1 10% 3,500 Area 6 100 1/1 10% 4,300 100 1/1 10% 5,225 0 0 0 0 0

CONSOLIDATED INCOME & EXPENSE STATEMENT
SBU#1 Sales in Units Price Sales ($000) Cost of Sales
(50% of 1,700)

SBU#2 4,270 500 2,135 1,067 1,068

SBU#3 4,970 500 2,485 1,242 1,243

3,400
3,800 capacity

500 1,700
3,400 X 500

850 850

Gross Margin

CONSOLIDATED INCOME & EXPENSE STATEMENT
Gross Margin (SBU#1) Marketing Expense Operations Technology New Product Research Quality Programs Salesperson/ Service Reps 30 for sales/ 30 for service Human Resource Dev Currency Exchange Cost Depreciation Overhead SBU Profits 850 125 65 65 0 60 0 0 190 200 145

CONSOLIDATED INCOME & EXPENSE STATEMENT
SBU Profits Loan Interest Expense Bond Interest Expense Interest Income Mkt Res & Other Exp Profit on Operations SBU Sale Profit/ Loss Profit Before Taxes Less Taxes (40%) Net Profit After Tax Less Dividends Paid Profits Retained 661 350 0 0 31 280 0 280 84 196 0 196

Corporate Decisions
Bank Loan ($000’s) make sure you enter amounts in proper units Stock Sold/ Repurch. ($000’s) (at least $1,000,000) Bonds Issued ($000’s) (at least $2,000,000) Dividends Declared ($000’s) (must show a profit) Invest. Type (1=CD; 2 = Corp Note) (if you have excess cash) Investment Amount ($000’s) Advertise for sale, our SBU# ____ Advertise that We want to Buy a SBU# _____ Sell and SBU to >>>>>>> Co.# ______ We are selling this company our SBU#___ The agreed on Selling Price ($000’s) Buy Venture # (5-12) (SBU #4 if you purchase a venture) Market Research ($000’s) (31 is the most you can enter) Incident Response ____ (enter 0 when there is no incident)

Decisions For SBU# X
Price/ Unit ($470 to $800) (do not raise or lower drastically each period) Marketing ($000) (Marketing helps generate sales) Operations Technology ($000’s) (Reduces production costs--COS) New Product Research ($000’s) (Ability to provide new features) Quality Programs ($000’s) (Higher quality product has less defective goods) Expansion (units) (Ability to meet demand) Adjust Sales Force (+ or -) Adjust Service Team (+ or -) Human Resources Dev. (0-5%) % Marketing Budget for Export Area 1 First Export Area (1-5) % Marketing Budget for Export Area 2 Second Exchange Area (1-5) Forward Exchange Contract (Yes = 1 No = 0) Location of this Plant (0-6) (SBU#1 only)

Competitor Information
P. 38 “Economic Indexes this Period” – these provide general information about the strength of US and foreign economies P. 38 “Market Research Studies” provide competitors sales, profit, spending patterns, and prices I will give you all companies stock prices and market share starting with period 1

Where Do I Start?
Page 36 describes your starting position. Consider the information on page 36 as a basis for the first decisions you make. You probably don’t want to change things too drastically early on -- ESPECIALLY PRICE!!! (remember: increasing price from 500 to 600 represents a 20% increase in price – increasing from 500 to 700 would be a 40% increase in price)

Where Do I Start?
Try to determine why your company might be troubled and what shortterm and long-term steps can be taken to improve performance (stock price)

The Decision Form
The decision form is unforgiving! Make sure you ALWAYS carefully check over your decisions. Turn in all decisions on disks Paying careful attention to use the correct units. ALL GROUPS MUST TURN IN THEIR DECISIONS ON TIME!!!

Keys to Success
Develop a strategy and act accordingly. A premium quality producer can charge more for a product, but will have greater expenses on quality, technology, etc. A low cost producer should have lower overhead, but must still put out a product with good value. The best companies will develop strategies for each of their SBUs and consistently implement their strategy.

Keys to Success
First mover advantage Know your competition. The price you can charge is directly related to the value/price relationships of the other firms in the industry. Generally speaking, it is better to be well positioned in your market. For example, be THE highest priced/ differentiated competitor or THE low cost/ volume producer. Spend some on all major expense areas (major areas are marketing, operations technology and new product research).

Keys to Success
Do not give up if you don’t first succeed. Many companies that start off in the hole can rebound by the end of the semester. Make sure you control your debt. Know your strategy in relation to other companies. Pricing and capacity are the two most important decisions to manage. Managing cash and debt are the next most important.

A Rose By Any Other Name?
The first decision you will make is naming your company You want your name to have some sort of meaning and stand out in stakeholders mind’s. Organizational image and reputation can be sources of competitive advantage.

SWOT Analysis

Sun Tzu’s Art of War
If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle

Chess Strategies for Business
Bruce Pandolfini, one of the worlds great chess players and instructors does not teach his students to become great chess players. “My goal,” he says, “is to help them develop what I consider to be two of the most important forms of intelligence: the ability to read other people, and the ability to understand oneself.”

Numerous Environmental Opportunities

Critical Internal Weaknesses

Substantial Internal Strengths

Major Environmental Threats

Numerous Environmental Opportunities Overcome Weaknesses Critical Internal Weaknesses Restructure Major Environmental Threats Grow Substantial Internal Strengths Diversify

SWOT Analysis in the Simulation

Analyzing Internal Strengths
High innovation index suggests a strength in developing new technologies/ products Low cost of sales indicates strength in operations management/ developing scale economies Understanding current ratio and debt-to-equity will help you estimate financial strength ROA helps indicate strength in managing resources (assets) Utilizing market research will help you understand your strengths versus competitors

Analyzing Internal Weaknesses
High lost sales indicate weakness at managing price and capacity High overhead may be due to capacity mismanagement High loan/bond interest expense indicates financial weakness

Analyzing Environmental Opportunities/ Threats
Economic forecasts allow you to see possible opportunities in both the US and abroad. Sales/capacity data allow you to see if industry is growing or maturing

Numerous Environmental Opportunities Overcome Weaknesses Critical Internal Weaknesses Restructure
↓ Costs Sell/ Close SBU

Grow
↑ Capacity Buy SBU Buy Venture

↑ Innovation Index ↑ Marketing, etc.

Substantial Internal Strengths Diversify
Sell SBU Export

Major Environmental Threats

Limitations of SWOT Analysis
Assessment of opportunities and threats will be biased by managers’ perceptions of their firm’s strengths and weaknesses Evaluation of a firm’s position is subjective It rarely results in clear recommendations Managers encounter widespread disagreement about whether environmental events should be interpreted as an opportunity or threat