All businesses face occasional crises, big and small. Most are of the smaller variety and are easily handled with existing systems. But occasionally, a crisis can be so large it spreads fear and threatens the business itself. The old saying that “when the going gets tough, the tough gets going” is a little short on details; a more helpful maxim might be, “when the going gets tough, the tough gets creative and agile”.
During times of crisis, while investors would increase the scans of the political and economic situation in the country, share prices and exchange rates, company executives would also be scanning the internal and external environments. And among their favourite tools for doing this would be the SWOT (acronym for strengths, weaknesses, opportunities and threats).
It never fails to surprise me to find many young business managers taking SWOT analysis for granted. My advice to them is this: Don’t be fascinated by the simple SWOT analysis. Take it for granted and you shall miss the tremendous benefits which this tool avails.
SWOT is commonly used as part of strategic planning and looks at:
Opportunities in the external environment (positive factor)
Internal strengths (positive factor)
Internal weaknesses (negative factor)
Threats in the external environment (negative factor)
SWOT can help management in a business discover:
Whether the business is making the most of the opportunities available
What the business does better than the competition
What competitors do better than the business
How a business should respond to changes in its external environment
Strengths and weaknesses relate to the present situation. Opportunities and threats relate to changes in the environment which will impact the business. The result of the analysis is a matrix of positive and negative factors for management to address.
. Key points
SWOT analysis should be more than a list - it is an analytical technique to support strategic decisions. Strategy should be devised around strengths and opportunities.
This is how it is done. The key words are ‘match’ and ‘convert’:
A key challenge for any business is to convert weaknesses into strengths. For example:
Dependence on a single product --- by diversifying the product portfolio through new market penetration
Outdated technology --- by acquiring competitor with leading technology
Skills gap/poor customer service --- by investing in training and more effective recruitment
High fixed costs --- by examining potential for outsourcing
Don’t forget that for every perceived threat, the same change presents an opportunity for business. Framework
Now, let us delve little deeper into these four factors. 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:
Exclusive access to high grade natural resources
Good reputation among customers
Strong brand names
Cost advantages from proprietary know-how
Favourable access to distribution networks
The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses:
Lack of access to the best natural resources
Poor reputation among customers
Lack of patent protection
A weak brand name
High cost structure
Lack of access to key distribution channels
Often, a weakness is the flip side of 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.
The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include:
Arrival of new technologies
An unfulfilled customer need
Loosening of regulations
Removal of international trade barriers
Changes in the external environment 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
Increased trade barriers
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 is shown below:
S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.
S-O strategies pursue opportunities that are a good fit to the company’s strengths.
W-O strategies overcome weaknesses to pursue opportunities.
W-T strategies establish a defensive plan to prevent the firm’s weaknesses from making it highly susceptible to external threats.
There are a few simple rules for a successful SWOT analysis.
Always apply SWOT in relation to your competition i.e. better than or worse than your competition.
SWOT analysis should distinguish between where your organisation is today and where it could be in the future.
Be realistic about the strengths and weaknesses of your organisation.
SWOT should always be specific. Avoid grey areas.
Keep your SWOT short and simple. Avoid complexity and over analysis.
Once the key issues have been identified with your SWOT analysis, they feed into marketing objectives. SWOT can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter’s Five-Force analysis.
‘A word of caution’ - SWOT analysis can be very subjective. Do not rely on SWOT too much. Two people rarely come up with the same final version of SWOT. Use SWOT as a guide and not a prescription.
Some management gurus maintain that SWOT as taught in today’s business schools is little more than SWAG (Scientific Wild Ass Guess). They have a good point. Many threats as indicted in SWOTs are the same regardless of the business environment that is being audited. For example, common threats would include the weather, competitors, changes in technology, regulation and deregulation and the impacts of competing countries. In strengths, you’ll get good products – but that could mean anything. Under weaknesses you get equally general and hollow points such as the ‘price is too high’. This type of SWOT analysis is too general and is not much use to marketing managers.
SWOT needs to be segment specific. SWOT should look at groups of customers and their perception of your brand, what price they will pay, the place where they buy it, the products that they buy and so on. Otherwise, your SWOT analysis is averaged and not specific.
SWOT analysis should be focused upon a segment of the market. Then you can ask – what are the critical success factors (CSFs) that are pivotal to the buyer decision process – in that segment? Then you need to weight the CSFs so that you can separate those drivers that are most important. When considering strengths and weaknesses, in true marketing fashion, you need to take the consumers’ perspective when completing the SWOT. You also must factor in the customers’ view of your business in relation to the competition i.e. relative to competitors. So, you can match key CSFs to opportunities. You can rank those opportunities that are most profitable or sustainable. Then, you need to factor in the impact of threats. Finally, you should dovetail SWOT with the rest of your strategic thinking.
My last advice is instead of SWOT go to TOWS. Go after the external threats and opportunities first. Only then you could be more honest and forthcoming with your own internal strengths and weaknesses. Most important of all, compare such strengths and weaknesses against those of your strongest competitor, lest you become isolated from the real scenario. (The writer is a corporate director with over 25 years’ senior managerial experience. He can be contacted on [email protected])