CHAPTER 9

OPPORTUNITY RECOGNITION AND

BUSINESS CONCEPT
 SWOT
(Strengths, Weaknesses, Opportunities & Threats)
Analysis
 What is a SWOT Analysis?
• A scan of the internal and external environment
is an important part of the strategic planning
process.
• Environmental factors internal to the firm
usually can be classified as strengths (S) or
weaknesses (W), and those external to the firm
can be classified as opportunities (O) or threats
(T).
• Such an analysis of the strategic environment is
referred to as a SWOT analysis.
 Why should you use it?

• A SWOT analysis guides you to identify the positives

and negatives inside your institution (S-W) and
outside of it, in the external environment (O-T).
• Developing a full awareness of your situation can
help with both strategic planning and decision-
making.
• SWOT is not the only assessment technique you can
use, but is one with a long track record of
effectiveness. The strengths of this method are its
simplicity and application to a variety of levels of
operation.
 When do you use SWOT?
• A SWOT analysis can offer helpful perspectives at any stage of an
effort. You might use it to:
– Explore possibilities for new efforts or solutions to problems.
– Make decisions about the best path for your initiative.
Identifying your opportunities for success in context of threats
to success can clarify directions and choices.
– Determine where change is possible. If you are at a point of
making a decision, an inventory of your strengths and
weaknesses can reveal priorities as well as possibilities.
– Adjust and refine plans mid-course. A new opportunity might
open wider avenues, while a new threat could close a path
that once existed.
– SWOT also offers a simple way of communicating and is an
excellent way to organize information you have gathered from
studies or surveys.
What are the elements of a SWOT analysis?

• A SWOT analysis focuses on the four elements of the

acronym, but the graphic format you use varies
depending on the depth and complexity of your
effort.
• The purpose of performing a SWOT is to reveal
positive forces that work together and potential
problems that need to be addressed or at least
recognized.
 SWOT Analysis
• The SWOT analysis provides information that is helpful
in matching the firm's resources and capabilities to the
competitive environment in which it operates.
• As such, it is instrumental in strategy formulation and
selection.
• The following diagram shows how a SWOT analysis fits
into an environmental scan:
 The SWOT Framework

Environmental Scan    

Internal Analysis External Analysis

Strengths
  Weakness Opportunities Threats

SWOT/TOWS MATRIX
 Strengths
• A firm's strengths are its resources and
capabilities that can be used for developing a
competitive advantage.
• Examples of such strengths include:
– Patents
– Strong brand names
– Good reputation among customers
– Cost advantages from proprietary know-how
– Exclusive access to natural resources
– Good access to distribution networks
 Weaknesses
• The absence of certain strengths are a
weakness.
• For example, the following may be considered
weaknesses:
– Lack of patent protection
– A weak brand name
– Poor reputation among customers
– High cost structure
– Lack of access to best natural resources
– Lack of access to key distribution channels
 Weaknesses - Continued
• In some cases, a weakness may be the flip side
of a strength.
• For example, a firm has a large amount of
manufacturing capacity.
– While this capacity may be considered a strength
that competitors do not share, it also may be a
considered a weakness if the large investment in
manufacturing capacity prevents the firm from
reacting quickly to changes in the strategic
environment.
 Opportunities
• The external environmental analysis may
reveal certain new opportunities for profit and
growth.
• Some examples of such opportunities include:
– An unfulfilled customer need
– Arrival of new technologies
– Loosening of regulations
– Removal of international trade barriers
 Threats
• Changes in the external
environmental also may present
threats to the firm.
• Some examples of such threats
include:
– shifts in consumer tastes away from the
firm's products
– emergence of substitute products
– new regulations
– increased trade barriers
 The SWOT Matrix
• A firm should not necessarily pursue the
more lucrative opportunities.
• Rather, it may have a better chance at
developing a competitive advantage by
identifying a fit between the firm's strengths
and upcoming opportunities.
• In some cases, the firm can overcome a
weakness in order to prepare itself to pursue
a compelling opportunity.
 SWOT / TOWS Matrix
• To develop strategies that take into account
the SWOT profile, a matrix of these factors can
be constructed.

• The SWOT matrix, can be changed into what

is known as the TOWS Matrix that is shown on
the next slide:
 SWOT / TOWS Matrix

TOWS Strengths Weaknesses

Analysis
Opportunities S-O W-O
Strategies Strategies

Threats S-T W-T

Strategies Strategies
 SWOT / TOWS Matrix
• S-O strategies pursue opportunities that fit
well the company's strengths.
• W-O strategies overcome weaknesses to
pursue opportunities.
• S-T strategies identify ways that the firm can
use its strengths to reduce its vulnerability to
external threats.
• W-T strategies make a defensive plan to
prevent the firm's weaknesses from making it
susceptible to external threats.
SWOT Interactions
Business Opportunity
 What is An Opportunity?

• An opportunity is a favorable set of

circumstances that creates the need for a new
product, service, or business idea.
An opportunity has four essential qualities
 Opportunities are situational
• Opportunities take form in real world conditions
– Changing conditions – Leads and lags

• Technological change – Knowledge gaps

• Public policy shifts – Chaos and/or confusion
• Changes in public opinion
• Changes in taste
• Social and demographic change
 OPPORTUNITY IDENTIFICATION
• Opportunity identification is a process that
involved the search for and discovery of
business opportunities.
 APPROACH TO OPPORTUNITY
IDENTIFICATION
1. Observe changes in the environment
2. Recognize a need that customers have that is
not being satisfied
3. Recognize problems and find ways to solve it
 First Approach: Observing Trends
• Observing Trends
– The first approach to identifying opportunities is to
observe trends and study how they create
opportunities for entrepreneurs to pursue.
– There are two ways that entrepreneurs can get a
handle on changing environmental trends:
• They can carefully study and observe them.
• They can purchase customized forecasts and
market analyses from independent research
firms.
 Second Approach: Solving a Problem

Sometimes identifying These problems can be

opportunities simply pinpointed through observing
involves noticing a problem trends and through more simple
and finding a way to means, such as intuition,
solve it. serendipity, or chance.

Some business ideas are

Clearly initiated to
solve a problem.
 Third Approach: Finding Gaps in the
Marketplace
• A third approach to identifying opportunities is to
find a gap in the marketplace.
• A gap in the marketplace is often created when a
product or service is needed by a specific group of
people but doesn’t represent a large enough market
to be of interest to mainstream retailers or
manufacturers.
– This is the reason that small clothing boutiques
and specialty shops exist.
 Window of Opportunity
• The term “window of opportunity” is a metaphor
describing the time period in which a firm can
realistically enter a new market.
– Once the market for a new product is
established, its window of opportunity opens,
and new entrants flow in.
– At some point, the market matures, and the
window of opportunity (for new entrants) closes.
 MECHANISM/SOURCES TO IDENTIFY
OPPORTUNITIES
• Customers
• Retailers and distributors
• Business associates
• Bankers
• Consultants
• Employees
• Others
 CRITERIA FOR GOOD OPPORTUNITY

1. Can make money and has potential for growth

2. Less competition
3. Good fit between entrepreneur and opportunity
4. Has competitive advantage
5. Workable and efficient
6. Not against the norms and values of the community
7. Conform with laws and regulations
 How to Select the Right Opportunity
• Step1:Identify Your Business and Personal Goals
• Step 2:Research Your Favourite Industries
• Step 3:Identify Promising Industry Segments
• Step 4:Identify Problem Areas and Brainstorm
Solutions
• Step 5:Compare Possible Solutions with Your
Objectives and Opportunities in the Marketplace
• Step 6:Focus on the Most Promising Opportunities
 Ideas vs. Opportunities
• There is a difference between ideas and
opportunities.

Idea – a thought or concept for a product or

service.
Opportunity – a need, want, problem or challenge
that might be satisfied by a business.
• Ideas Become Opportunities Only If They Have a
Chance to Succeed
New Business Ideas
 Exploring New Business Ideas and
Opportunities
Search for a product or service idea

From your From From a

previous From casual deliberate
employment hobbies observation search

Product
Magazines Trade shows licensing Government Use
and other and information agencies and creative
publications conventions services departments thinking

Evaluate the possible alternatives

Determine your preferences

 Generating Business Ideas
Potential sources of business ideas may include:
–  Brainstorming – Individually or in groups/teams
– Own personal experiences – What jobs have been
done in the past? Have you started businesses
before? What was learnt from success and
failures?
– Innovation and invention – A flash of individual
inspiration
– Spotting flaws and errors in existing products – Can
something being done already be done better?
 Generating Business Ideas
Potential sources of business ideas may include:
–  Copying ideas from other countries - e.g. Howard
Schulz Starbucks founder, copied the idea of a
coffee bar from Italy
– Spotting trends and anticipating their impacts on
people’s lives e.g. Healthier lifestyles
– Taking a scientific approach, working in a
laboratory (e.g. James Dyson)
– Noticing a gap in the market for something that is
not currently being produced
– Purchasing a franchise