Introduction to SWOT Analysis

RAJESH VERMA

What is SWOT?

An analysis tool important for understanding an organizations Strengths, Weaknesses, Opportunities and Threats Can be done at the level of the entire organization, business unit, product line, or specific product Helps the firm identify strategy-related factors

Important to focus on the most critical factors

SWOT - Definitions

A Strength is a resource or capacity the organization can use to effectively achieve its objectives

A Weakness is a limitation, fault, or defect in the organization that will keep it from achieving its objectives
An Opportunity is any favourable situation in the organization's environment usually a trend or an overlooked need that increases demand for a product or service and permits the firm to enhance its position by supplying it A Threat is any unfavourable situation in the organization's environment that is potentially damaging to its strategy may be a barrier, a constraint, or anything external that might cause problems, damage or injury

SWOT Matrix
Helpful Internal External Strengths Opportunities Harmful Weaknesses Threats

Why is SWOT Important?

For decision making Developing strategies for the future - improve companys overall performance

Can help uncover opportunities that a company is well positioned to exploit By understanding the weaknesses of a business, it can manage and eliminate threats

What do we use SWOT for?

Identification of SWOTs is essential because subsequent steps in the planning process may be derived from the SWOTs

How can we use and capitalize on each strength? How can we improve each weakness?

Strengths

Determine a company's strong points Consider these from an internal perspective, and externally from the point of view of its customers and people in the market These are a companys resources and capabilities that can be used as a basis for developing a competitive advantage
What What What What advantages does this company have? does this company do better than anyone else? unique or lowest-cost resources does it have access to? do people in this market see as its strengths?

Strength VS Opportunity

Strength - within the companys means to control High profit margins Industry leader in innovation Opportunity external to the company, affects the industry as a whole Changes in government policies/regulations Rise in consumer spending

Strengths - Examples

A new, innovative product or service Location of a business Quality processes and procedures Skills and expertise that a business has that its competitors do not possess Valuable physical assets or resources Strong relationships with suppliers or partners Any other aspect of a business that adds value to its products or services

Strengths Examples Continued

Marketing - company reputation, relationship with customers, service quality, sales effectiveness, distribution effectiveness Finance - ability to access capital, healthy cash flow, financial stability Manufacturing - facilities, economies of scale, capacity, ability to produce on time, flexibility, technical skill Human Resources - strong leadership, dedicated employees, entrepreneurial orientation, responsive to changes in business conditions, training and development

Weaknesses

In many cases a weakness may be the opposite of a strength, or a weakness may be viewed as a lack of certain strengths These must consider the company perspective, as well as a competitor perspective What could the company improve? What should the company avoid? What are people in the market likely to see as weaknesses?

Weakness VS Threat

Weakness - within the companys means to control Slow inventory turnover Low brand recognition Threat external to the company, affects the industry as a whole Rising labour/production costs Decline in GDP

Weaknesses - Examples

Lack of marketing expertise Undifferentiated products or services Location of the business Poor quality goods or services Damaged reputation Lack of patent protection Weak brand name Lack of access to key distribution channels

SO WHAT DOES THIS MEAN TO THE COMPANY?

So What?

Likely outcomes to the company if the trend continues

In terms of profitability, morale, perception, reputation, shareholder value, etc.

Must link point back to company

Examples:

Will lead to higher profits for the company Will lead to higher profits for the company, helping it to achieve its goal of acquiring competitor XYZ for Rs.100 Crs.

So What? - Example
Point: Astral Media is an industry leader in delivering innovative technology to its customers. Proof: Astral will be the first Canadian broadcaster to introduce VOD, a new pay TV product customers can receive by subscribing to existing Astral channels. Aggressively pursuing the discovery of new technologies allows Astral to maintain a competitive advantage over other firms in the industry. Explanation: The company is able to add value to existing products, making Astral an attractive choice for consumers seeking unique, high quality products. Through innovation, Astral Media is able to differentiate itself from competitors, encouraging customers to associate the Astral Media brand of products with superior quality, increasing brand loyalty.

So What? - Example
Point: Astral Medias television broadcasting stations are not capturing the full potential of advertising revenues. Proof: Astrals exposure to the advertising market is approximately 30%, which is below industry standards. Over the past year, the advertising market has experienced a slow-down, which has created an increasingly competitive advertising environment for broadcasters. Explanation: Astral has not responded to this downturn in advertising spending; the company needs to actively market its available advertising space in order to maximize revenues. Without the potential revenue from advertising during some of Canadas most highly-rated shows, Astral can not re-invest these profits into other aspects of the company. Astral is limiting its growth potential due to a decreasing profit margin.

Strength

A distinctive competence? Adequate financial resources? Good contacts/relations Good competitive skills? Special expertise? An acknowledge company

Strength

Well-conceived functional area strategies? Innovative programs/services? Good overall reputation? Insulated (at least somewhat) from strong competitive pressures? Competitive advantages? Proven management?

Weakness

No clear strategic direction A deteriorating competitive position? Lack of managerial depth and talent? Missing any key skills or competencies? Poor track record in implementing strategy? Plagued with internal operating problems? Vulnerable to competitive pressures? Competitive disadvantages? Unable to finance needed changes in strategy? Other?

Opportunities

Enter new markets or segments? Expand services to meet broader range of student needs? Diversity into related services? Complacency Fast market growth? Weak competitors? Others?

Threats

Slow market growth? Adverse government policies? Growing competitive pressures? Vulnerability to recession and business cycle? Adverse demographic changes? Other?