Term Paper

 


Rationale

SWOT Analysis is an important tool for mangers to get an overview of their internal and external environment. By listing the strengths-weakness-opportunities-threats of the firm, the manager can match strengths with opportunities, work on the weaknesses, and take actions for the threats. SWOT analysis highlights the central role that the identification of internal strengths and weaknesses plays in a managerís search for effective strategies[1]. A manager can use this tool for formulating successful strategies.

 

Objective

This paper will give an overview of SWOT analysis. Each element of SWOT will be discussed, with practical ways. This paper will also aimed to be a practical guide to formulate SWOT and analyze its results for young manager candidates.

 

Executive Summary

SWOT is an important tool for managers. It is helpful for a quick overview of the companyís current strategic situation. It also offers, new strategic actions for improvement. SWOT name comes from the first letters of Strength-Weakness-Opportunity-Threat. Each of this four elements are crucial tools for understanding companyís condition compared with its environment. Basically, strength and weakness are internal, opportunity and threats are external factors. To implement SWOT analysis, the manager must match these areas in order to formulate a successful plan.

 After listing SWOT, manager should use the some tools for evaluating the results. For example, if there are numerous opportunities and the strength of the firm is high, the manager can use an aggressive strategy for capturing the market.

SWOT analysis should periodically be revised. Although the internal factors do not change too much, the external environment, which affects opportunities and strengths, changes rapidly in our century. The rapid innovations, increasing computer technologies, and change in the customer tastes make the environment in a continuous changing form.

 

SWOT Analysis

Organizations have certain characteristics-strengths-which make them uniquely adapted to carry out their tasks. Conversely they have other features-weakness-which inhibit their ability to fulfill their purposes.[2]

Howard H. Stevenson

SWOT is an acronym for the internal Strengths and Weaknesses of a firm and the environmental Opportunities and Threats facing that firm. SWOT analysis is an easy technique through which managers create a quick overview of a companyís strategic situation. SWOT analysis is grounded on the principal that strategy must produce a strong fit between a companyís internal capability (its strengths and weaknesses) and its external situation (which are its opportunities and threats)[3]. Each elements of SWOT will be discussed in the following paragraphs.

 

Strengths:

Strength is a resource, skill, or other advantage relative to competitors and the needs of the markets a firm serves or expects to serve. Strength of a firm is its distinctive competence, which gives a comparative advantage in the industry. As an example we can give many types of distinctive competence as manufacturing excellence, good quality control, superior design capability, customer loyalty, location, and a strong distribution network. It will be easier to develop competitive advantage in a market when a firm has a distinctive competence in one of the key requirements for market success, when rival companies have no offsetting competences, and rivals canít match the competence without spending much time and money. From a strategy making perspective, a companyís strengths are significant because they can be the cornerstones of a strategy and the basis on which to build competitive advantage[4]. This part of the SWOT is very important because, strategy should be grounded on a companyís best skills and market strengths. A firm should ask the below questions to find out some of its strengths:

                     What distinct advantages does your company offer?

                     Why do customers say they enjoy doing business with you?

                     Is there anything you currently offer that cannot be copied by a competitor, now or in the future?[5]

The answers of these questions can be helpful for a quick overview of the distinctive competence of the company. In the following figure, some of the potential internal strengths can be found.

Potential Internal Strengths

        A distinctive competence

        Adequate financial resources

        Good competitive skill

        Well thought of by buyers

        An acknowledged market leader

        Well-conceived functional area strategies

        Access to economies of scale

        Insulted (at least somewhat) from strong competitive pressures

        Proprietary technology

        Cost advantages

        Better advertising campaigns

        Product innovation skills

        Proven management

        Ahead on experience curve

        Better manufacturing capability

        Superior technological skills

Source: Table4-1 from Thompson, Arthur

 

Weaknesses:

Weakness is a limitation or deficiency in resource, skills, or capabilities that seriously impedes a firmís effective performance. A weakness can be strategically important or not, depending on how much it matters in the competitive battle the company is in. A good strategy necessarily needs to aim at correcting weaknesses that make the company vulnerable or that disqualify it from pursuing an attractive opportunity.[6] Finding out the weaknesses of the firms is not so easy. For more accurate analysis, weaknesses should be searched from the management point of view and also from the firmís competitors. The answers to the questions below can also give a brief view of the firmís weaknesses:

                     What does your company do that can be improved?

                     What does your company do poorly?

                     What should be avoided?

                     What do your competitors do better than you?

                     Do competitors have a particular market or segment locked up? [7]

 In the following table there are some possible issues for looking the companyís weaknesses:

 

Potential Internal Weaknesses

        No clear strategic direction

        Obsolete facilities

        Subpar profitability becauseÖ

        Lack of managerial depth and talent

        Missing some key skills or competence

        Poor track record in implementing strategy

        Plagued with internal operating problems

        Falling behind in R&D

        Too narrow a product line

        Weak market image

        Weaker distribution network

        Higher overall unit costs relative to key competitors

Source: Table4-1 from Thompson, Arthur


Opportunities:

Opportunity is a major favorable situation in a firmís environment. Market opportunity is a big factor in shaping a companyís strategy. However, there is an important distinction between industry opportunities and company opportunities. Not every company in an industry is well positioned to pursue each opportunity that exists in the industry- some are always better situated than others and some companies may be hopelessly out of contention[8]. Opportunities seem more linked to the external environment than strengths and weaknesses, but this is not always the case. Opportunities for improvement and new ventures exist within the organization[9]. What are opportunities depend on the resources available an uncommitted. The following list gives some suggestions to help identify the main opportunities facing a particular firm[10]:

1.      Market share

2.      Experience

3.      Financial strength

4.      Technological leadership

5.      Good products (especially trade names)

6.      Low cost

7.      Economies of scale

8.      Distribution system

9.      Skilled personnel

10.  Favorable public image.

And also a manager should answer the following questions to identify the companyís opportunities in its environment:

                     What and where are the interesting opportunities in your market?

                     What are the interesting trends occurring in your local area as well as across the nation?

                     What do you anticipate happening in the future that may represent an opportunity?[11]


 The following table also addresses some of the potential external opportunities:

 

Potential External Opportunities

        Serve additional customer groups

        Enter new market or segments

        Expand product line to meet broader range of customer needs

        Diversify into related products

        Vertical integration

        Falling trade barriers in attractive foreign markets

        Complacency among rival firms

        Faster market growth

Source: Table4-1 from Thompson, Arthur

 

Threats:

Threat is a major unfavorable situation in a firmís environment. Threats are key impediments to the firmís current or desired position. Historically, threats have been defined in terms of the firmís competitors, but more recently the focus has expanded to include government, unions, society, and other stakeholders[12]. Many times the threats are out of managementís control. Because of this it is very important to cope with threats. Threats are not also come from external environment. There can be cases, that the internal environment of the firm is the sources of threat. Threats can be identified by the responds to the following questions[13]:

                     What are the obstacles that your company faces?

                     What is your competition doing that could take business away from you or stunt your company's growth?

                     Are the required specifications for your products or services changing?

                     Is the changing technology threatening your position in the market?

                     Do you have cash-flow problems that could keep your company from acquiring new technology, staff or equipment?


Moreover, the following table can be helpful managers to see the potential threats to their organizations:

Potential External Threats

        Entry of lower-cost competitors

        Rising sales of substitute products

        Slower market growth

        Adverse shifts in foreign exchange rates and trade policies of foreign governments

        Costly regulatory requirements

        Vulnerability to recession and business cycle

        Growing bargaining power of customers or suppliers

        Changing buyer needs and tastes

        Adverse demographic changes

Source: Table4-1 from Thompson, Arthur

 

The Practice of SWOT Analysis

SWOT analysis can be used in many ways to aid strategy analysis. The most common way is to use it as a logical framework guiding systematic discussion of a firmís situation and the basic alternatives that the firm might consider. What one manager sees an opportunity, another may see as a potential threat. And also, strength to one manger may be a weakness to another.

 

SWOT for Defining Strategic Analysis1:

Key external opportunities and threats are systematically compared with internal strengths and weaknesses in a structured approach. The objective is identification of one of four distinct patterns in the match between a firms internal and external situation. The four cells in the figure on the next page represent these patterns. Cell 1 is the most favorable situation; the firm faces several environmental opportunities and has numerous strengths that encourage pursuit of those opportunities. This situation suggests growth-oriented strategies to exploit the favorable match. Cell 4 is the least favorable situation, with the firm facing major environmental threats from a position of relative weakness. This situation clearly calls for strategies that reduce or redirect involvement in the products or markets examined by means of SWOT analysis.

Numerous Environmental

Opportunities

Cell 4 Cell 1

Supports a turnaround-oriented strategy

 

Supports an aggressive strategy

 

Substantial

Internal

Strenghts

 

Critical

Internal

Weaknesses

 

 

 

 

 


Supports a defensive strategy

 

Supports a defensive strategy

 
Cell 2Cell 3

 

 

 

 

Major Environmental

Threats

In cell 2, a firm with key strengths faces an unfavorable environment. In this situation, strategies would use current strengths to build long-term opportunities in more opportunistic product markets. Finally, in cell 3 a firm faces impressive market opportunity but is constrained by internal weaknesses. The focus strategy for such a firm is eliminating the internal weaknesses so as to more effectively pursue the market opportunity. Thus, after listing the SWOT elements, the manger can choose the best action plans in the light of this 4-cell analysis.

 

Johnson and Scholes Analysis for Interpreting SWOT[14]:

It is a simple procedure for matching up the identified opportunities and threats against the strengths and weaknesses of the organization. The following five-step model procedure is adapted from Johnson and Scholes (1988):

1.      Identify the current or prevailing strategy or strategies in the organization

2.      Identify the key changes in the firmís environment.

3.      Identify the key capabilities (strengths) and key limitations (weaknesses) of the organization. (i.e. consider its resources)

4.      List the key environmental issues against the relevance of the current strategy and the strengths and weaknesses of the organization.

5.      Then examine the statements against each other, and score either a + (or a weighted ++) or a Ė (or a --) or 0, as follows:

a.       Mark + if there would be a benefit to the organization, i.e., a strength that would enable the firm either to take advantage of, or counteract, a problem from an environmental change, or offset a weakness caused by the change.

b.      Mark Ė if there would be an adverse effect on the firm, i.e. either strength would be reduced by the change or a weakness would prevent the firm from overcoming the problems associated with an environmental change.

c.       Score 0 if there is no (only a minimal) effect.

Another Way for Evaluating SWOT[15]

The primary strength of SWOT analysis arises from matching specific internal and external factors and evaluating the multiple interrelationships involved. The matching process can be greatly facilitated by the construction of a SWOT matrix, which is constructed by creating a table showing the strengths, weaknesses, opportunities and threats that the manager has identified.

SWOT Matrix

Opportunities

Threats

 

1.

1.

2.

2.

3.

3.

Strengths

O/S Matches

T/S Matches

1.

O1 and S2

T2 and S2

2.

O3 and S3

T2 and S1

3.

 

 

Weaknesses

O/W Matches

T/W Matches

1.

O1 and W1

None

2.

 

 

3.

 

 

Next, the matrix can be used to methodically compare each relevant pair of lists to generate logical matches. Analyzing each of the four SWOT cells of the matrix should yield a variety of matches that will help generate strategic alternatives to facing your competition.

                There are four basic categories of matches for which strategy alternatives can be considered:

         S/O matches show the company's strengths and opportunities. Essentially, the company should attempt to use its strengths to exploit opportunities.

         S/T matches show the company's strengths in light of major threats from competitors. The company attempts to use its strengths to avoid or defuse threats.

         W/O matches illustrate the company's weaknesses coupled with major opportunities. The company attempts to overcome its weaknesses by taking advantage of opportunities.

         W/T matches show the company's weaknesses against existing market threats. Essentially, the company must attempt to minimize its weaknesses and avoid threats. These strategy alternatives are generally defensive.


SWOT Analysis Example:

In this section I want to give an example related with how SWOT analysis is applied.

This example was taken from http://www.indiadairy.com/ind_swot.html.

After listing each of the SWOT elements I suggested a strategy for Indian Dairy Industry. As can be seen from the SWOT Analysis they have more opportunities than threats. And also their strength is a little more than their weaknesses. Thus, at the end of this list you can find a suggestion that offers the company to apply an aggressive strategy to penetrate the market. But also, they should be cautious when applying Aggressive Strategy due to their number of internal weaknesses.

 

 

 

 

 

SWOT ANALYSIS OF INDIAN DAIRY INDUSTRY

Strengths:

Demand profile: Absolutely optimistic.

 

Margins: Quite reasonable, even on packed liquid milk.

 

Flexibility of product mix: Tremendous. With balancing equipment, you can keep on adding to your product line.

 

Availability of raw material: Abundant. Presently, more than 80 per cent of milk produced is flowing into the unorganized sector, which requires proper channelization.

 

Technical manpower: Professionally-trained, technical human resource pool, built over last 30 years.

 

 

 

 

 

Weaknesses:

Perishability: Pasteurization has overcome this weakness partially. UHT gives milk long life. Surely, many new processes will follow to improve milk quality and extend its shelf life.

 

Lack of control over yield: Theoretically, there is little control over milk yield. However, increased awareness of developments like embryo transplant, artificial insemination and properly managed animal husbandry practices, coupled with higher income to rural milk producers should automatically lead to improvement in milk yields.

 

Logistics of procurement: Woes of bad roads and inadequate transportation facility make milk procurement problematic. But with the overall economic improvement in India, these problems would also get solved.

 

Problematic distribution: Yes, all is not well with distribution. But then if ice creams can be sold virtually at every nook and corner, why canít we sell other dairy products too? Moreover, it is only a matter of time before we see the emergence of a cold chain linking the producer to the refrigerator at the consumerís home!

 

Competition: With so many newcomers entering this industry, competition is becoming tougher day by day. But then competition has to be faced as a ground reality. The market is large enough for many to carve out their niche.

 

 

 

 

 

Opportunities:

"Failure is never final, and success never endingĒ. Dr Kurien bears out this statement perfectly. He entered the industry when there were only threats. He met failure head-on, and now he clearly is an example of Ďnever ending successí! If dairy entrepreneurs are looking for opportunities in India, the following areas must be tapped:

Value addition: There is a phenomenal scope for innovations in product development, packaging and presentation. Given below are potential areas of value addition:

Steps should be taken to introduce value-added products like shrikhand, ice creams, paneer, khoa, flavored milk, dairy sweets, etc. This will lead to a greater presence and flexibility in the market place along with opportunities in the field of brand building.

 

Addition of cultured products like yoghurt and cheese lend further strength - both in terms of utilization of resources and presence in the market place.

 

A lateral view opens up opportunities in milk proteins through casein, caseinates and other dietary proteins, further opening up export opportunities.

 

Yet another aspect can be the addition of infant foods, geriatric foods and nutritionals.

 

 

 

Export potential: Efforts to exploit export potential are already on. Amul is exporting to Bangladesh, Sri Lanka, Nigeria, and the Middle East. Following the new GATT treaty, opportunities will increase tremendously for the export of agri-products in general and dairy products in particular.

 

 

 

Aggressive
Strategy

 

Threats:

Milk vendors, the un-organized sector: Today milk vendors are occupying the pride of place in the industry. Organized dissemination of information about the harm that they are doing to producers and consumers should see a steady decline in their importance.

Suggested Strategy for Indian Dairy Ind.

 

Numerous Environmental

Opportunities

Substantial

Internal

Strenghts

 

Critical

Internal

Weaknesses

 

 

 

 

 

 

 

 

 

 


Major Environmental

Threats

 


Conclusions & Recommendation

I believe that this paper can able to show the importance and application of SWOT analysis. A modern manager should have to have some skills for analyzing his/her firm. SWOT is a simple but an effective tool for analyzing.

For a quick listing of SWOT elements, simply answer the questions I mentioned before. But keep in mind that SWOT is not just a list of items. It is not a magical tool that gives you directions. After you make list related with each area, you must evaluate what this list offers. I mentioned some of the strategies for evaluating SWOT. But the manager can have different intuition and view of evaluating these items. It is up to you. As long as you match your companyís needs with its resources, no matter how you evaluate SWOT, you will probably be successful.

SWOT analysis should have to be done continuously for the success of the strategic plan. World is changing rapidly, thus your external environment which are opportunity and threats for you can be reversed. Your distinctive competence may become a weakness for you. So, SWOT analysis should be revised and adapted to the firmís ongoing strategy.

I believe that, SWOT analysis is not just for the firms. In every area of the life we can use it. For example, you can apply SWOT to yourself. By this method, you can get an overview of your internal strengths and weaknesses with external opportunities and threats for your future career. By applying SWOT, you can realize what is your difference among other people and also your skills that needed to be improved.

To summarize, SWOT analysis is a powerful way to see where are you, and where are you going. The guidelines and methods in this paper can helpful for you to improve your management style in your organization and your quality of life.

 

 

 


Bibliography

 

1.      Pearce II, John A.; Robinson, Richard B., Formulation, Implementation, and control of competitive Strategy (1998)

2.      Higgins, James M., Strategic Management and Organizational Policy (1986)

3.      Thompson, Arthur A., Strategic Management: concepts and cases (1990)

4.      Web Site of Office.com http://www.office.com/biztools/sales/analyze_competition.html

5.      Hatten, Kenneth J., Strategic Management (1987)

6.      Dobson, Paul, The Strategic Management Blueprint, (1993)

7.      Web Site of http://www.indiadairy.com/ind_swot.html 

 



[1] Pearce II, John A.; Robinson, Richard B., Formulation, Implementation, and control of competitive Strategy (1998), page 173

[2] Higgins, James M., Strategic Management and Organizational policy (1986), page 32

[3] Thompson, Arthur A., Strategic Management: concepts and cases (1990), page 90

[4] Thompson, Arthur A., Strategic Management: concepts and cases (1990), page 92

[5] These questions are taken from http://www.office.com/biztools/sales/analyze_competition.html#2

[6] Thompson, Arthur A., Strategic Management: concepts and cases (1990), page 92

[7] These questions are taken from http://www.office.com/biztools/sales/analyze_competition.html#2

[8] Thompson, Arthur A., Strategic Management: concepts and cases (1990), page 92

[9] Hatten, Kenneth J., Strategic Management (1987), page142

[10] Dobson, Paul, The Strategic Management Blueprint, (1993), page 44

[11] These questions are taken from http://www.office.com/biztools/sales/analyze_competition.html#2

[12] Higgins, James M., Strategic Management and Organizational Policy (1986), page 34

[13] These questions are taken from http://www.office.com/biztools/sales/analyze_competition.html#2

1 This section was taken from; Pearce II, John A.; Robinson, Richard B., (1998), page 172

[14] This section was taken from; Dobson, Paul, The Strategic Management Blueprint, (1993), page 45-46

 

[15] These section is taken from http://www.office.com/biztools/sales/analyze_competition.html