SWOT Analysis

tool for understanding and decisionmaking for all sorts of situations in business and organizations

SWOT Analysis
Is a method for assessing a business, its resources and its environment It is often completed as part of business and marketing plans to understand its business and its markets Its involves an analysis of

Internal strengths Internal weaknesses Opportunities in the external environment Threats in the external environment

The SWOT matrix

Positive Factors Internal Factors External Factors Strength Negative Factors Weakness

Opportunities

Threats

SWOT

Strengths and Weakness

Are internal to the firm
Relate to the present situation

Opportunities and Threats

Are external to the firm Relate to the changes in the environment

which will impact upon the firm

What do we mean by strengths?

Strengths are
Things the firms is good at Specific points where the company has clear

advantages over its rivals Distinctive competencies and resources that will help the organization achieve its objectives Competitive assets or sources of competitive advantage

Strength help to build up competitive advantage and serve as cornerstone of strategy Strength should be protected and build upon

Checklist of possible strength

Market dominance Economies of scale Low cost production Leadership and management skill Financial resources Research and development capabilities Core competencies

Technological leadership Brand reputation Patents and copyright Distribution network Employee skills High productivity Plant and equipment Access to high grade resource

What do we mean by weaknesses

Weaknesses are: A source of competitive disadvantage Thinks the firms lack or does poorly Any aspect which may hinder or constrain the organisation in achieving its objective Particular problems areas where the company could be vulnerable to competitive attack: eg deficiency in knowhow, lack of key assets, missing capabilities in keys areas Management should seek ways to reduce or eliminates weakness before they are exploit further by the competitors Weakness should be seen as areas for improvement

Checklist of possible weaknesses

Low market share Old plant Outdated technology Problems over quality Few core competencies Weak brand name A high cost structure

Cash flow problems Undifferentiated product Inadequate distribution network Quality problems Low employee morale Low productivity Skills gap Poor reputation

What do we mean by opportunities

An opportunity is any feature of the external environment which creates positive potential for the organization to achieve its objectives Opportunities are identified by PEST analysis The best market opportunities are those offering the best prospects for growth, competitive advantage and at the same time are a good match with the firms capabilities

Checklist of possible opportunities

Technological innovation New demand Market growth Demographic change Social or lifestyle change

Economic upswing Trade liberalization Diversification opportunities Deregulation of the market

Examples of opportunities

Liberalization of postal market opportunities for private sector firms Concern about health food- opportunities for organic food producers 2012 London Olympic Games- opportunities for a wide variety of firms providing the infrastructure of the game Flat screen and HDTV- the former has proved great opportunity for manufacturers and the latter is likely to be the next great opportunity

Threats
A threat is any external development that may hinder the organisation in achieving its objectives Threats are identifies by PEST analysis They are defined by external factors presenting a danger to the firm Firms should device strategies to minimize threats

Checklist of possible threats

New market entrants Changes in customer tastes or needs Demographic change New regulations Change in laws

Economic downturn Rise of low cost production abroad Higher input prices Threat from rivals Threat from substitute products Competitive price pressure

Examples of threats
Prohibition of smoking in enclosed public places-a threat to some pub Avian flu or H1N1- threat to poultry producers Rise of China and India threat of low cost competition Continuing rise of hypermarket a threat to convenience store

More than a list

We often regard SWOT as merely an opportunity to produce a list But SWOT analysis should be more than a list It is a technique of analysis for the formulation of strategy Strategy should be devised around strength and opportunities

Convert weaknesses into strength

Technological weakness invest in latest technology to leapfrog ahead of rivals Skills gap invest in training Overdependence in single product- diversify the product portfolio Weakness of the brand- re-launch the product involving repositioning and possible renaming High unit cost outsourcing non core activities

Convert threat into opportunities

Supermarket move into convenience store- move into niche organic food market Rising labour cost- outsourcing non core activities Concern about healthy option- develop low fat crisps

Actions from a SWOT analysis

Internal Strengths External Opportunities External Threats Capitalise on this areas of the business Monitor these areas of the business Internal Weaknesses Improve these areas of the business Eliminates these activities

SWOT matrix
Strengths Weaknesses

Opportunities

S-O strategies

W-O strategies

Threats

S-T strategies

W-T strategies

SWOT strategies

S-O strategies pursue opportunities that are a good fit to the companys strength W-O strategies overcome weakness to pursue opportunities S-T strategies identify ways that a firm can use its strengths to reduce its vulnerability to external threats W-T strategies establish a defensive plan to prevent it becoming highly susceptible to external threat