Aswotanalysis (see Chart 9.1 on the next page) could be viewed as bringing together the outputs from the strategic review, in particular:
the analysis of the firm (internal elements);
the market analysis (internal and external elements);
the product, portfolio and matrix analysis (internal and external elements);
the analysis of the general environment (external elements).
The first step of the swotanalysis is to list strengths, weaknesses, opportunities and threats. Only important factors should be included, but some factors will invariably be more important than others. Factors should be listed in order of importance or ranked, and an importance score could be assigned to each factor.
Each factor should be a short bullet point, so that the swotanalysis fits on one page.
Assertions should be specific and if possible include some quantification. For example, a statement about strength in distribution might say: “Our products are distributed through
85
1,000 outlets, compared with our nearest rival’s 400 outlets.” Some explanation may also be required, but this can be provided in a supporting paragraph on a separate sheet. This could include a more detailed quantification of factors, such as demand growth
projections or the number of pieces of environmental legislation under discussion. It is not necessary to provide a long list of all possible factors. It is better to focus on factors that really matter and follow a rationale that links factors, for example weaknesses in the context of identified threats.
In a larger business, ideally the swotanalysis is carried out by a multi-disciplinary team in a workshop dedicated to producing such analysis. The workshop techniques suitable for this process are the same as for the political, economic, social and technological (pest) analysis (see Chapter 5).
Strengths and weaknesses
The strengths and weaknesses analysis should be closely related to the analysis of the firm, which is an input into the strengths and weaknesses analysis. However, it is
important to look at strengths and weaknesses in the context of opportunities and threats.
The crucial question is relevance.
Strengths matter only if you can use them to exploit an opportunity or counter a threat.
Similarly, a weakness is problematic if it relates to a threat. Thus an external factor can be an opportunity or a threat. For example, if new technology is becoming available and a business has an excellent product-development department that can take advantage of the new technology to develop products, this is an opportunity. In contrast, if a business cannot make use of the new technology, there is a threat from substitution if rivals make use of the technology.
Chart 9.1 SWOT analysis
POSITIVE NEGATIVE
INTERNALEXTERNAL
Strengths Weaknesses
Opportunities Threats
Relevance Relevance
Analysis of the firm VRIO analysis
Key differentiators and USPs Value add analysis Value chain Value system Resource audit
– Operations – Human – Organisational – Financial
Market analysis
Product, portfolio and matrix analysis
Environmental analysis PEST
Industry and competitor analysis 5 forces
Competitor analysis KSF analysis Industry life cycle
The analysis should be made bearing in mind the objective of strategic planning: to gain sustainable competitive advantage. A strength is a potential source of competitive advantage, such as core competencies or financial strength.
Because competitive advantage can only be sustained if customer needs are addressed, the market analysis is an important input into the swotanalysis. Enormous marketing strength is derived from a well-positioned product. This means a swotanalysis should, like your business, have a customer focus. To derive real advantage from a strength, it must be useful in satisfying the needs of customers. Similarly, a weakness that relates to specific customer needs should be addressed as a priority.
The analysis of the firm focuses on resources and does not address weaknesses.
Entrepreneurs and managers generally find it easier to think of strengths rather than weaknesses. Weaknesses may not be immediately apparent, so considerable time should be spent on identifying potential weaknesses. After an initial pass and following the listing of threats, the list of weaknesses should be revisited. The inability to neutralise or sidestep a threat is a fundamental weakness.
The matrix analysis of products may also identify weaknesses, such as an unbalanced portfolio with too many products in the mature stage of the product life cycle, or too many sbus with a weak business position. Carrying out a swotanalysis for competitors is recommended. A competitor’s strengths may well be a potential weakness for your business.
Chart 9.2 on the next page provides a non-exhaustive checklist of factors that may be relevant to yourswotanalysis. However, since these are specific to each business and environment you may use other factors. You can also use Chart 8.10 on page 76 as a checklist.
Opportunities and threats
An essential input into the analysis of opportunities and threats is the pestanalysis (see Chapter 5). You must be aware of the major changes in the environment in which your business operates.
Again, opportunities and threats should be considered in the context of strengths and weaknesses. For example, there may a new market opportunity but at present your business does not have the resources to exploit it. Indeed, you may be preparing a business plan to raise funds for this purpose. To be successful in this, you must use resources to acquire the strengths that are necessary to exploit the opportunity.
Changes in the competitive environment may pose a threat. Therefore the industry and competitor analysis is an input into the analysis of opportunities and weaknesses. For example, a business could be threatened by consolidation taking place in the industry which may relegate the business to a secondary position unless that business also becomes part of the consolidation process.
Conducting a SWOT analysis 87
Chart 9.2 Checklist for SWOT analysis Internal
Strengths Weaknesses
Market dominance Low market share
Core competencies Few core competencies
Economies of scale Old plant
Low-cost position High cost base
Leadership and management skills Weak balance sheet and cash flow
Financial resources Low R&R capability
Manufacturing skills and technology Undifferentiated product
Research and development Weak positioning
Brand and reputation Quality problems
Differentiated products Lack of distribution
Patents and copyrights Skills gap
Distribution network
External
Opportunities Threats
Technology innovation New market entrants
New demand Competitive price pressure
Diversification opportunity Higher input prices
Market growth Changing customer needs
Demographic and social change Consolidation among buyers Favourable political support Threat from substitutes
Economic upswing Capacity growth outstrips demand growth
Acquisition and partnerships Cyclical downturn
Cheap funds Demographic change
Trade liberalisation Regulation and legislation
Threat from imports
Source: Based on Lynch, R., Corporate Strategy, Prentice Hall, 2000
USES OF OUTCOMES IN THE BUSINESS PLAN
Aswotanalysis is a snapshot of a business’s position and provides an input into the generation of strategic options. It gives management an outline of the major issues affecting the industry and the business and identifies the basis for developing strategies.
Aswotanalysis is well understood and easily communicated. Of particular value is the identification of weaknesses and threats. In addressing these realistically, a business plan will become more plausible and robust. It demonstrates that you are not just looking at the upside but are aware of the challenges that face your business.
10 Generating strategic options
OBJECTIVES
This chapter addresses the generation of strategic options based on the analysis covered in previous chapters. Chapter 18 covers the evaluation and selection of options.
The discussion of the generation of strategic options is approached in three steps:
The basis for achieving competitive advantage (Michael Porter’s generic strategies).
Exploring alternative strategic directions.
Alternative methods to employ in pursuit of a strategic direction.
This methodical approach suggested by Garry Johnson and Kevan Scholes has been adapted by the authors and is shown in Chart 10.1. Chapter 18 also explains the linkage between the portfolio and matrix analysis covered in Chapter 8 and in this chapter.