Strategic Management Session 8 Rationale for SWOT Analysis

Strategic Management Session : 8

Rationale for SWOT Analysis • To determine the possible threats and opportunities in the environments • To pin point weaknesses and strengths of the firm in comparison with its competitors • Done at the beginning of Strategy Formulation • It is the culmination of external and internal factor analysis

Threats and Opportunities • • PESTLE Model Environment Analysis Five forces analysis Competitor Analysis

Strength and Weaknesses • Internal Resource Analysis • Value Chain Analysis – Total Value Chain – Product Portfolio analysis – Financial, Cultural & Stakeholder Analysis

What Are the Company’s Strengths, Weaknesses, Opportunities and Threats ? • S W O T represents the first letter in – S trengths S W – W eaknesses – O pportunities – T hreats O T • For a company’s strategy to be well-conceived, it must be – Matched to its resource strengths and weaknesses – Aimed at capturing its best market opportunities and erecting defenses against external threats to its wellbeing

Identifying Resource Strengths and Competitive Capabilities • A strength is something a firm does well or an attribute that enhances its competitiveness – Valuable skills, competencies, or capabilities – Valuable physical assets – Valuable human assets – Valuable organizational assets – Valuable intangible assets – Important competitive capabilities – An attribute placing a company in a position of market advantage – Alliances or cooperative ventures with partners Resource strengths and competitive capabilities are competitive assets!

Identifying Resource Weaknesses and Competitive Deficiencies • A weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage • Resource weaknesses relate to – Inferior or unproven skills, expertise, or intellectual capital – Lack of important physical, organizational, or intangible assets – Missing capabilities in key areas Resource weaknesses and deficiencies are competitive liabilities!

Identifying a Company’s Market Opportunities • Opportunities most relevant to a company are those offering – Good match with its financial and organizational resource capabilities – Best prospects for profitable long-term growth – Potential for competitive advantage

Identifying External Threats • Emergence of cheaper/better technologies • Introduction of better products by rivals • Entry of lower-cost foreign competitors • Onerous regulations • Rise in interest rates • Potential of a hostile takeover • Unfavorable demographic shifts • Adverse shifts in foreign exchange rates • Political upheaval in a country

Role of SWOT Analysis in Crafting a Better Strategy • S W O T analysis involves more than just developing the 4 lists of strengths, weaknesses, opportunities, and threats • The most important part of S W O T analysis is – Using the 4 lists to draw conclusions about a company’s overall situation – Acting on the conclusions to • Better match a company’s strategy to its resource strengths and market opportunities • Correct the important weaknesses • Defend against external threats

The Three Steps of SWOT Analysis

For Discussion: Your Opinion In doing SWOT analysis, why is it not sufficient just to compile 4 lists (one each for resource strengths, resource weaknesses, market opportunities, and external threats) and then move on?

Role and Importance of SWOT • Strategy formulation must take into account – Happenings around the firm – Firm’s own capabilities – Missions and Objectives of the organisation

Role and Importance of SWOT • Intimate relationship with strategy • Perceptions of Managers – Conflicting perceptions of swot • • Process of creativity Curbing internal politics of the firm Threat to Status quo To overcome the static issue should be repeated every six months

SWOT Evaluation • How to identify and classify the strengths and weaknesses • How to evaluate threats and opportunities • BMW-German Home Base • Global warming – Automobile Industry