Fierce battles have been fought over the right way to discover a business

strategy (Gavetti and Rivkin 2008, 22). To this point, there are a number of
key frameworks and approaches that can be used in this analysis of a
companys strategy (Hill and Westbrook, 2008). One of the earliest and more
influential (Mintzberg et al., 1999, 49) of these approaches has been the
SWOT analysis framework and since its introduction, in the early 1960s, the
analysis tool has been seen as a major advance in strategic thinking
(Panagiotou, 2003).
Thus, in todays ever-changing business environment it is essential that
organisations devise their strategy based on a wide range of analysis,
deliberation and planning (Gavetti and Rivkin 2008, 22). Therefore, the
purpose of the essay is to critically examine and analyse the various
processes that make up the SWOT framework and determine if they help
organisations in the development of their strategy.

SWOT analysis, the basic structure found in appendix 1, is conducted by

exploring the internal and external environments of an organisation and
extracting convenient strategies based on its strengths, weaknesses,
opportunities and threats (Ghazinoory et al, 2011, 25). Determining each
segment of the SWOT analysis allows organisations to clearly identify what
their strengths are whilst putting themselves in a position to eliminate their
weaknesses, exploit their opportunities and counter any threats.

The SWOT framework holds many advantages in helping an organisation to

determine its long-term strategy. Firstly, the analysis tool has been highly
commended for its value in focusing attention on key issues which effect
business development and growth (Pickton and Wright, 1998, 102). Further
to this, SWOT has been key in popularising the idea that good strategy
means ensuring a fit between the external situation a firms faces and its own
internal characteristics (Hill and Westbrook, 1997, 47).

In recent years

SWOT analysis has seen enhancements with academics and practitioners

alike, building directly upon the information in a SWOT analysis to form a
TOWS matrix. The TOWS matrix, found in appendix 2, identifies the various

factors of SWOT and then pairs them together (Dyson, 2004). This creates a
situation that enables firms to stimulate new strategies as it delves into
analysing a variety of scenarios. For example, the matrix prompts a
consideration of options that use the strengths of the organisation to take
opportunities in the business environment.

Interestingly, both the SWOT and TOWS analysis allows firms and managers
to see a clear and holistic picture of their business environment. Seeing this
not only enables a business to react quickly to any changes in the
environment but it also allows them to create plans which ensure they exploit
all of the elements they have identified.

This is perfectly exemplified in the case study of ASDA (Thompson and

Martin, 2005, 195), fully detailed in appendix 3. Although this analysis was
conducted in the early 1990s, it shows that ASDA was able to identify a
number of key elements, including the threat from Aldi entering the UK
market. Over the past 15 years, ASDA has arguably adapted, prepared and
positioned their strategy, thus allowing them to be in a position to compete
with the notoriously cheap European supermarket chains, which have gained
greater significance in the UK over the last five years. This has recently
become of further relevance as ASDA have stated that they are vowing to
invest 50m in price promotions that will make discounters such as Aldi look
expensive. (Brownsell, 2014, 1). This shows that ASDA are using the SWOT
analysis tool effectively to adapt their strategy in an increasingly competitive
environment.

However, the SWOT tool has been extensively criticised as being simple
(Bowman, 1990; Johnson et al, 2012; Houben et al, 1999). Furthermore, it
can be argued that if an organisation chooses solely to place their focus upon
the SWOT framework the result is likely to end in a single level of analysis,
which uses unclear and ambiguous words (Hill and Westbrook, 1997, 51).
These arguments suggest that, if the SWOT analysis is the only form of
strategic scrutiny that a firm follows, they will be left with inadequate analysis
and simply be left with a summary, which has the fear of luring organisations

into reducing SWOT analysis to its most basic and fail to realize its full
potential (Pickton and Wright, 1998, 106). David Hussey further contends this
and boldly states SWOT cant ever become really useful unless it is related to
a more careful analytical underpinning (2002, 43). It is this viewpoint, and the
attempt to improve the corporate strategy process that has forged the way for
further strategic analysis approaches to develop and underpin the overall
SWOT process. It can therefore be stated that the analysis part of SWOT
analysis has to come first in order to gain a deeper understanding to enable
the company to use it in the development of their strategy.

Mintzberg et al, suggested that the era of a more analytical analysis approach
to strategy formulation was pioneered by Michael Porter (1999, 49). Porter
has had prodigious influence on the field of business strategy and
management, with his most significant contributions including the Five Forces
and Diamond models. In order for organisations to develop their strategy it is
essential they look at the external environment as it can create great
opportunities but equally present a number of threats.

The aforementioned models, along with the PESTEL tool address the external
situation of the general and task environment. Firstly, Porters Five Forces
Model, detailed in appendix 4, helps identify the attractiveness of an industry
in terms of five competitive forces: the threat of entry, the threat of substitutes,
the power of buyers, the power of suppliers and the extent of rivalry between
competitors (Johnson et al, 2012, 25). The organisations strategic goal of the
Five Forces model is to discover their position in the industry in which they
operate so the company can best guard itself against the various forces or
influence them to work in their favour. In the model the direction and size
(thickness) of the arrows play a key part in determining influence.

Simply, if all the arrows were pointing outwards, the industry would have
complete control over the competitive forces, with fewer players and higher
profits. This is seen in the UK Supermarket industry and known as a five star
industry. However, if the arrows were pointing inward, seen in the steel
industry (Johnson et al, 2012, 27) this would indicate a high degree of

competiveness and lower profits. It is only once a complete analysis of the

five forces has been completed that Porter states, then the strategist can
devise a plan of action that may includethe best strategies exploit more
than one of these possibilities (Porter, 2008). This allows organisations to
develop a strategy that is based on clear and in-depth industry knowledge,
with a high chance of success, thus playing a significant role in the process of
SWOT. Focusing upon the first possible route, positioning the company so
that its capabilities provide the best defence against competitive forces
(Porter, 2008) is shown in the case Study of AirAsia.

AirAsia took the combination of realistic knowledge about their strengths and
complete industry analysis enabling them to produce a strategy that was far
superior to their competitors. Consequently, AirAsia were able to compete in
an industry that was previously dominated by two big players, who ran their
business model on charging consumers high prices. AirAsia were then able to
position the company so that its capabilities provided the best defence against
the competitive force. Where some other airlines were trying to compete for a
piece of the action, AirAsia chose a strategy of we just went out there and felt
the market and said if you halve the fare, theres a huge enormous untapped
market (BBC, 2010). The company positioned itself so as to be least
vulnerable to its competitive forces while exploiting the untapped market of
short-haul low cost carrier flights (BBC, 2010).
Porter (2008) argues that the five forces model reveals the most significant
aspects of the competitive environment. Revealing these aspects and
understanding the industry structure allows organisations to make insightful
strategic decisions. Further to this the five forces model plays a key part in
forming the SWOT process as it provides a baseline for sizing up a
companys strengths and weaknesses: allowing the firm to see where the
company stand verses buyers, supplier, rivals and substitutes? (Porter,
2008).

An additional analytical model that fortifies the process of developing a SWOT

analysis is the PESTEL framework. Conducting a PESTEL analysis provides

a wide overview of the broader macro-economic environment and does not

just place focus on the industry in which a firm operates. The PESTEL model
simply categorises influencers into six main types: political, economic, social,
technological, environment and legal (Johnson et al, 2012, 21). In todays
turbulent and fast paced business environment, it is essential for firms to
analyse the dynamics and implications that arise from their environment,
which are evolving and changing so quickly. This is especially important
because certain environmental influences will constitute powerful forces
which affect decision-making significantly (Thompson and Martin, 2005, 171).

Johnson et al, (2012) suggest that many of the PESTEL factors are linked
together and because of this they hold knock on effects for firms. Recently,
this was seen in the case of Wonga, the payday loan lender. When Wonga
were caught by the Financial Conduct Authority (FCA) of serious misconduct
in the summer, the company was ordered to compensate 45,000 customers,
costing 2.6m (BBC, 2014).

Consequently, Wonga have since endured

additional legal sanctions as they wrote a further 220m of debt for 330,000
customers after putting in place new affordability checks (BBC, 2014).
Subsequently, political implications have arisen and the government are
bringing in a cap to the interest rates charged next year (BBC, 2014), bringing
in the prospect of economical implications too. The 220m that Wonga have
currently paid could just be the beginning.

This shows that PESTEL analysis underpins the overall process of SWOT, as
the results can be easily integrated into the opportunity and threats sections.
Further to this PESTEL looks at a wider range of themes and more
information is gathered, which would potentially not be covered in SWOT.

Further to PESTEL, and the Five Forces model, a relatively new and
differentiated view of a process that can underpin the external elements of the
SWOT framework and help a company in their strategy formulation is that of
the Blue Ocean Thinking, published in 2005 by Kim and Mauborgne. Blue
Ocean thinking encourages entrepreneurs and managers to be different by
finding or creating market spaces that are not currently being served

(Johnson et al, 2012, 40). This directly links with SWOT as it seeks out the
opportunities in the environment that are not fully being exploited by
competitors. Demonstrated by Ford Motor Company who made the
competition irrelevant (Kim and Mauborgne, 107, 2005) through mass
producing cars that changed the industry as we know it. Although Burke et al,
(2010) determined that competition eventually erodes the profits from
innovation they go one to discuss that businesses shouldnt be afraid of
entering an entirely new market. Burke et al (2010) also discuss that risk
could be spread through slowing down profit erosion with an effective
competitive strategy for an existing market. This would allow the firm to
increase the funds available for blue ocean investments and thus their
chances of finding an untapped market with plenty of consumers. As
aforementioned taking the blue thinking approach could significantly
contribute to a firms strategy as it encourages much deeper thinking and
analysis about their potential opportunities and future successes.

Whilst the Blue Ocean Thinking, Five Forces and PESTEL analysis help to
identify threats and opportunities in the external operating environment, the
analysis of further models, such as the Value Chain model brings its attention
to the internal operating environment, focusing on the weaknesses and
strengths.

The Value Chain, as both a concept and tool has been used for the last 30
years to understand and analyse industries. Porter states the Value Chain
disaggregates a firm into its strategically relevant activities in order to
understand the behaviour of costs and the existing and potential sources of
differentiation. A firm gains competitive advantage by performing these
strategically important activities more cheaply or better that its competitors
(Porter, 1985, 80). As can be seen in appendix 5, the value chain model
shows in which ways an organisation undertakes activities at each stage in
the development, production and delivery of products and services. Building
upon this, the value chain model is split into clearly defined areas that include
primary activities and support activities. The role of the value chain is to
analyse each primary and support activity to seek cost or differentiation

advantage. It also helps to pinpoint specific capabilities and competitive

strengths and weaknesses of an organisation.
Normann and Ramirez state that it is the continuous design and redesign of
complex business systems (1993,66), such as the value chain, that secures
a firms success in an industry. This has been demonstrated with Swedish
furniture giant, IKEA. Using the Value Chain successfully has allowed IKEA
to reinvent the furniture market, through being able to keep costs and prices
down over a prolonged period of time through systematically redefining the
roles, relationships, and organisational practices of the furniture business.
(Normann and Ramirez, 1993,66). This has allowed IKEA to create an
integrated business system that invents value by matching the various
capabilities of participants more efficiently and effectively than what has been
done in the past, perfectly exemplified through customers taking on tasks that
would have been done traditionally by manufactures, such as building the
furniture.

The value chain model fills in some of the gaps that SWOT leaves by
analysing the internal operations in detail. The Value Chain is an integral part
of forming the SWOT process as it allows the firm to focus upon ensuring their
strategy and internal operations are in a place that will ensure their survival.

In conclusion, the SWOT process is made up of more than what first meets
the eye. SWOT remains a key analysis tool, which is widely used by
organisations and is heavily supported by influential academics, such as
Henry Mintzberg, who sees the SWOT process as underlying all attempts to
formulise the strategy making process- the rise and fall of strategic
management (1999, 49). However, it is important to note that in order to be
entirely useful, the framework needs to operate on continuous basis, as it is
only a snapshot in time. In my judgement, I believe that having a SWOT
analysis is a must for businesses as it provides a logical approach in reaching
a strategy. Furthermore, all the information featured in SWOT has a deeper
reasoning, thus it can be argued that SWOT is simply a summary of the
analysis and on its own not helpful in the development of an organisations

strategy. A strategy can only be formed once an organisation know what they
are good and bad at, thus completing a SWOT analysis with a deep
understanding of all environments will ultimately help form a better strategy.

In addition, it is extremely important to look beyond the frameworks discussed

in this essay. It is clear to see that each tool plays a significant and individual
part in formulating a deeper analysis that goes far beyond what the SWOT
achieves by itself. However, it is important to make clear that although the
external and internal analysis tools play a vast part in forming the process of
SWOT and helping an organisation develop its strategy, there are a number
of other elements that are prevalent in academic literature, which need to be
taken it to account. These additional views include a human element in
determining a strategy through trying things out, learning from experience,
adjust, and gradually crafting a strategy (Gavetti and Rivkin 2008, 22).
Further to this gathering knowledge and experience from an array of
stakeholders throughout the entire process will add to the crafting of the
strategy, ultimately ending in stronger analysis and a democratic formulation
of the strategy. Lastly, it is important to look at the tools that could be easily
overlooked when taking a deeper analysis approach in contributing to the
process of SWOT. These tools include, but are not limited to, an organisations
core competencies and the marketing mix.