What do you do well? What relevant resources do you have?

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SWOT Analysis

- Understanding Strengths, Weaknesses, Opportunities and Threats

by James Manktelow MBA, an experienced business strategist specializing in helping start-ups and small and medium-sized companies thrive in their individual markets.

Why use the tool?

SWOT Analysis is a very effective way of identifying your Strengths and Weaknesses, and of examining the Opportunities and Threats you face. Carrying out an analysis using the SWOT framework helps you to focus your activities into areas where you are strong and where the greatest opportunities lie.

How to use tool:

To carry out a SWOT Analysis write down answers to the following questions. Where appropriate, use similar questions:

Strengths:

• What are your advantages? • What do you do well?

• What relevant resources do you have?

• What do other people see as your strengths?

Consider this from your own point of view and from the point of view of the people you deal with. Don't be modest - be realistic. If you are having any difficulty with this, try writing down a list of your characteristics. Some of these will hopefully be strengths!

In looking at your strengths, think about them in relation to your competitors - for example, if all your competitors provide high quality products, then a high quality production process is not a strength in the market, it is a necessity.

Weaknesses:

• What could you improve? • What do you do badly? • What should you avoid?

Again, consider this from an internal and external basis - do other people seem to perceive weaknesses that you do not see? Are your competitors doing any better than you? It is best to be realistic now, and face any unpleasant truths as soon as possible.

Opportunities:

• Where are the good opportunities facing you? • What are the interesting trends you are aware of? Useful opportunities can come from such things as:

• Changes in technology and markets on both a broad and narrow scale • Changes in government policy related to your field

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• Local Events

A useful approach to looking at opportunities is to look at your strengths and ask yourself whether these open up any opportunities. Alternatively, look at your weaknesses and ask yourself whether you could open up opportunities by eliminating them.

Threats:

• What obstacles do you face? • What is your competition doing?

• Are the required specifications for your job, products or services changing? • Is changing technology threatening your position?

• Do you have bad debt or cash-flow problems?

• Could any of your weaknesses seriously threaten your business?

Carrying out this analysis will often be illuminating - both in terms of pointing out what needs to be done, and in putting problems into perspective.

You can also apply SWOT analysis to your competitors - this may produce some interesting insights!

Example:

A start-up small consultancy business might carry out the following SWOT analysis: Strengths:

• We are able to respond very quickly as we have no red tape, no need for higher management approval, etc.

• We are able to give really good customer care, as the current small amount of work means we have plenty of time to devote to customers

• Our lead consultant has strong reputation within the market

• We can change direction quickly if we find that our marketing is not working • We have small overheads, so can offer good value to customers

Weaknesses:

• Our company has no market presence or reputation

• We have a small staff with a shallow skills base in many areas • We are vulnerable to vital staff being sick, leaving, etc.

• Our cash flow will be unreliable in the early stages Opportunities:

• Our business sector is expanding, with many future opportunities for success • Our local council wants to encourage local businesses with work where possible • Our competitors may be slow to adopt new technologies

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Threats:

• Will developments in technology change this market beyond our ability to adapt?

• A small change in focus of a large competitor might wipe out any market position we achieve The consultancy might therefore decide to specialise in rapid response, good value services to local businesses. Marketing would be in selected local publications, to get the greatest possible market presence for a set advertising budget. The consultancy should keep up-to-date with changes in technology where possible.

Key points:

SWOT analysis is a framework for analysing your strengths and weaknesses, and the opportunities and threats you face.

This will help you to focus on your strengths, minimise weaknesses, and take the greatest possible advantage of opportunities available.

SWOT Analysis is just one of many good techniques that can help you craft a unique and successful competitive position for your business. Mind Tools Strategy Services specialises in using these tools with clients to help their businesses thrive. Please click here to contact us to find out how we can help your business.

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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.

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:

SWOT Analysis Framework

Environmental Scan

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Internal Analysis

External Analysis

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Strengths Weaknesses Opportunities Threats

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SWOT Matrix

Strengths

A firm's strengths are its resources and capabilities that can be used as a basis 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 high grade natural resources

favorable access to distribution networks

Weaknesses

The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses:

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a weak brand name

poor reputation among customers

high cost structure

lack of access to the best natural resources

lack of access to key distribution channels

In some cases, a weakness may be the flip side of a strength. Take the case in which 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.

To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:

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Strengths

Weaknesses

Opportunities S-O strategies W-O strategies

Threats

S-T strategies W-T strategies

S-O strategies pursue opportunities that are a good fit to the companies 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 establish a defensive plan to prevent the firm's weaknesses from making it

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Strengths

For SWOT analysis

This page gives you a checklist of points you can use to analyze the strengths of a company. It is a handy tool for SWOT (Strengths Weaknesses Opportunities Threats) analysis. Make sure that you read the fundamental principles of SWOT in the

introductory article.

To analyze the strengths of a company, ask the following 15 questions. The answers will indicate the sources of strength.

• What are the major sources of a company's revenue and profit?

• What is the market share of the company in its various product lines? • Does the company have strong brands?

• Is the marketing/advertising effective?

• What is the major focus are of the company?

• Does the company have a pool of skilled employees? • Is the morale of the employees high?

• Are there rewards in place to create an atmosphere conducive to excellence? • What is the cost of capital?

• What is the stock price track record?

• Does the company harness information technology effectively? • Does the company manage its inventories efficiently?

• Has the company demonstrated the ability to adapt and change? • Is the company able to innovate?

• How has the company withstood international competition?

Weaknesses

For SWOT analysis

This page gives you a checklist of points you can use to analyze the weaknesses of a company. It is a handy tool for SWOT (Strengths Weaknesses Opportunities Threats) analysis. Make sure that you read the fundamental principles of SWOT in the introductory article.

To analyze the weaknesses of a company, ask the following 15 questions. The answers will indicate the sources of weakness.

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• What are the least profitable product lines for the company? • In what areas is the company not able to recover costs? • Which are the weak brands?

• Is the marketing/advertising effective? • Is the company not focused?

• Is the company able to attract talent?

• What are the biggest expenditures of the company? • Is the company able to raise money when it needs to? • Does the stock price history inspire confidence?

• Will the company be able to stand price pressure from competitors?

• Has the company been able to bring new ideas and products to the market place? • Do employees feel facilitated to perform their best?

• Do employees have faith in management?

• Are the corporate governance standards high enough?

• Is the company losing out to competitors on the technology front?

Opportunities For SWOT analysis

This page gives you a checklist of points you can use to analyze the opportunities for a company. It is a handy tool for SWOT (Strengths

Weaknesses Opportunities Threats) analysis. Make sure that you read the fundamental principles of SWOT in the introductory article.

To analyze the opportunities for a company, ask the following 15 questions. The answers will indicate the opportunities.

• What is the competitive position of the company?

• Are there new technologies that the company can use to innovate or lower costs?

• Are there opportunities to extend brands into related areas? • Are there inexpensive acquisition opportunities?

• Can the company use the internet as a channel of marketing?

• Is there room for implementation of incentive plans to boost employee performance?

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• Can quality of operations, products and inventory management be improved without incurring serious cost?

• Can the company move up the value chain?

• Is there an opportunity to demand better prices from suppliers?

• Can the employees be multi-skilled to reduce the level of redundancy? • Is the time right for upstream or downstream diversification?

• Are there opportunities to cooperate with non-competitive businesses for mutual benefit?

• Can dead-wood work-force or product lines be reduced to boost profitability?

• Can the company get more predictable cash flows by establishing better relations with customers?

Threats

For SWOT analysis

For SWOT analysis

This page gives you a checklist of points you can use to analyze the threats that a company faces. It is a handy tool for SWOT (Strengths Weaknesses Opportunities Threats) analysis. Make sure that you read the fundamental principles of SWOT in the introductory article.

To analyze the threats facing a company, ask the following 15 questions. The answers will indicate the threats.

• Does the company have adequate reserves to withstand sudden changes in the environment?

• What is the level of regulation in the industry?

• Is there trade union activity that could have an adverse effect? • Do the products of the company have enough brand equity to withstand price competition?

• Are international competitors eating away market share? • Are employees adequately trained and motivated?

• Is the company considered a good employer? • Is the company spread too thin?

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• Are the financials on the verge of illiquidity?

• If the investment environment becomes non-conducive, can the company work with internal accruals?

• Is the company keeping up with technological changes? • Have margins been under pressure?

• Is the size of transactions decreasing?

• Has the company been able to keep up with competitors in cyberspace?

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References