MS-11 Question 2

What is the purpose of SWOT analysis? Why is it necessary to do a SWOT analysis before selecting a particular strategy for a business organization?

Definition of SWOT
SWOT analysis is a general technique which can be applied across diverse functions and activities, but it is particularly appropriate to the early stages of planning for CORPORATE STRATEGY . Performing SWOT analysis involves generating and recording the strengths, weaknesses, opportunities, and threats relating to a given task. It is customary for the analysis to take account of internal resources and capabilities (strengths and weaknesses) and factors external to the organisation (opportunities and threats).THE NECESSITY FOR SWOTStrengthsStrengths usually describe things that the company excels at doing. All strengths listed should support a competitive advantage that the corporation has over its rivals. These can be tangible (fast delivery of products to customers) or intangible (excellent customer service promotes very high customer satisfaction). As these are internal attributes they should all be within the company’s control.
Ask questions such as:
• What does the company do well?
• What resources (physical and personnel) does the company possess?
• What advantages does the company have over its rivals?
Do not forget to include key strengths that the people in the organization possess which includes things such as their experience, knowledge, educational background, business connections, and job skills. Tangible assets such as plant capacity, state of the art equipment and facilities, strong supply chains, available capital (or access to credit), loyal customers, patents, copyrights and superior information systems.
Strengths
The Strengths can be considered as anything that is favourable towards the business for example:Currently in a good financial position (few debts, etc) Skilled workforce (little training required) Company name recognized on a National/Regional/Local level Latest machinery installed Own premises (no additional costs for renting) Excellent transport links (ease of access to/from the Company) Little/non-threatening competition
THE SWOT ANALYSIS --STRENGTHS -helps to identify the core compentences -helps how to maximize the strengths to gainthe maximum results --sales/profit/market share/competitive position.
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WeaknessesWeaknesses are factors that the company controls that impair its ability to compete with other firms. Weaknesses are any areas in which you need to improve to maintain a competitive edge in your market. Ask questions such as:
• Which departments need to be improved?
• What resources does the company lack?
• What skill sets do the employees lack that competing firm’s workforces have?
• What services does the company fail to offer?
WeaknessesRecognizing the Weaknesses will require you being honest and realistic. Don’t leave anything out as this is an important part as to realize what needs to be done to minimize this list in the future. Here are a few examples:Currently in a poor financial position (large debts, etc) Un-Skilled workforce (training required) Company name not recognized on a National/Regional/Local level Machinery not up to date (Inefficient) Rented premises (Adding to costs) Poor location for business needs (Lack of transport links etc) Stock problems (currently holding too much/too little) Too much waste THE SWOT ANALYSIS --WEAKNESS-helps to identify the weak points in terms of skills/manpower/resources etc-how to improve / overcome these weak factors.
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Opportunities
Opportunities are the external factors that will allow your business to succeed against its rivals. Since these are external factors, they may not be under control of the company. Ask questions such as:
• What opportunities for new products or services exist in your market?
• Are new markets available that could provide opportunities for growth?
• Have new technologies been developed that will allow us to compete more effectively?
• Have consumer lifestyles, wants and desires shifted?
• Are the target customers economically healthy?
• Do previously resolved internal problems give the company a competitive edge?
Usually, opportunities reflect the areas where you can excel by changing the company’s marketing strategy.
Should new products be launched?
Should existing products be promoted to new customer groups?
If possible, identify the time frame for each opportunity. Is it something the company must capitalize on by a certain date or will the opportunity last indefinitely?
Opportunities Keeping in mind what you have listed as your Company Strengths, SWOT Analysis can now influence the Opportunities for the business. These can be seen as targets to achieve and exploit in the future for example: Good financial position creating a good reputation for future bank loans and borrowings Skilled workforce means that they can be moved and trained into other areas of the business Competitor going bankrupt (Takeover opportunity?) Broadband technology has been installed in the area (useful for Internet users) Increased spending power in the Local/National economy Moving a product into a new market sector
THE SWOT ANALYSIS -- OPPORTUNITIES-helps to identify gaps in the market which can be converted intoopportunities.-helps to identify the gaps in performance , which can be exploited.
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Threats
Threats are factors beyond the control of the company that reduces its competitiveness in the marketplace, adversely affect marketing strategy, or in a worst case scenario, potentially lead to the total demise of the business (think buggy whip manufacturers when automobiles became popular). Although the company has no control over external factors, the key is to identify the threats and draw up contingency plans to negate the threat or soften the impact should an event arise. Ask questions such as:
• Are consumer preferences shifting away from company business lines?
• Is price competition from competitors affecting company profit margins?
• Are new technologies making the company’s products or processes obsolete or unaffordable?
• Are new competitors entering the market space?• Are suppliers increasing prices?
• Are raw material costs going up due to scarcity or catastrophic events?
• Is the general economy on the downswing?
Classifying threats by the degree of impact and the likelihood of their occurrence is often useful to help identify which threats need to be planned for immediately.
ThreatsThe final part of the analysis will also be seen as the most feared- the Threats. It has to be done and therefore taking into account what you have listed as your weaknesses, the threats will now all seem too clear. Examples Large and increasing competition Rising cost of Wages (Basic wage, etc) Possible relocation costs due to poor location currently held Local authority refusing plans for future building expansion Increasing interest rates (increases borrowing repayments, etc) End of season approaching (if you depend on hot weather, etc) Existing product becoming unfashionable or unpopular THE SWOT ANALYSIS --THREAT-helps to identify the various threats likecompetition/social /political/economic/technological etcand to take preventive action.
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THE SWOT ANALYSIS --STRENGTHS
-helps to identify the core compentences
-helps how to maximize the strengths to gainthe maximum results
--sales/profit/market share/competitive position.
THE SWOT ANALYSIS --WEAKNESS
-helps to identify the weak points in terms of skills/manpower/resources etc
-how to improve / overcome these weak factors.
THE SWOT ANALYSIS -- OPPORTUNITIES
-helps to identify gaps in the market which can be converted intoopportunities.
-helps to identify the gaps in performance , which can be exploited
THE SWOT ANALYSIS --THREAT
-helps to identify the various threats likecompetition/social /political/economic/technological etcand to take preventive action.
The Benefits of these FOUR SWOT Analyses
The main thrust of the exercise is to determine how the company’s strengths can be used to take advantage of opportunities and minimize critical threats. Eliminating weaknesses can also provide resources to capitalize on opportunities or ward off threats. Identifying the most critical issues provides a game plan for the business to follow based on an honest assessment of the firm’s potential.
THIS HELPS TO DEVISE THE MOST EFFECTIVE CORPORATE STRATEGY.WHICH IN TURN HELPS TO DEVELOP THE MOST EFFECTIVE STRATEGIC PLANNING.
SWOT analysis can provide:A framework for identifying and analysing strengths, weaknesses, opportunities and threats. The impetus to analyse a situation and develop suitable strategies and tactics. A basis for assessing core capabilities and competences. The evidence for, and cultural key to, change.
Benefits of Strategy / its associated plan.Strategic planning serves a variety of purposes in organization, including to:
1. Clearly define the purpose of the organization and to establish realistic goals and objectives consistent with that mission in a defined time frame within the organization’s capacity for implementation.
2. Communicate those goals and objectives to the organization’s constituents.
3. Develop a sense of ownership of the plan.
4. Ensure the most effective use is made of the organization’s resources by focusing the resources on the key priorities.
5. Provide a base from which progress can be measured and establish a mechanism for informed change when needed.
6. Bring together of everyone’s best and most reasoned efforts have important value in building a consensus about where an organization is going.
7. Provides clearer focus of organization, producing more efficiency and effectiveness
8. Bridges staff and board of directors (in the case of corporations)
9. Builds strong teams in the board and the staff (in the case of corporations)10. Provides the glue that keeps the board together (in the case of corporations)
11.Produces great satisfaction among planners around a common vision
12. Increases productivity from increased efficiency and effectiveness
13. Solves major problems