Tuesday, September 28, 2010

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Monday, September 27, 2010

SWOT analysis definition

According to Wikipedia Encyclopedia the definition of SWOT analysis:

SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies.

A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model. Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research.

    * Strengths: attributes of the person or company that are helpful to achieving the objective(s).

    * Weaknesses: attributes of the person or company that are harmful to achieving the objective(s).

    * Opportunities: external conditions that are helpful to achieving the objective(s).

    * Threats: external conditions which could do damage to the objective(s).


Identification of SWOTs are essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs.

First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated.

The SWOT analysis is often used in academia to highlight and identify strengths, weaknesses, opportunities and threats. It is particularly helpful in identifying areas for development

TOWS Analysis for Decision Making Strategy

How does a firm decide to pursue one course of action over another? Along with SWOT analysis, TOWS analysis is a process that requires management to think critically of its operations. By identifying several action plans that could improve the company's position, TOWS analysis allows management to choose those strategies that most effectively capitalize on the available opportunities.

For companies to develop adequate and successful business strategies, they must sufficiently analyze their internal and external environments.
(article continues below)

One helpful strategic development tool entails SWOT analysis, which identifies the strengths, weaknesses, opportunities, and threats facing a company.

However, a major shortcoming of this method involves its focus on the company's internal environment at the expense of its external situation. Subsequent to the SWOT model, organizations should conduct a TOWS analysis, a procedure that focuses more on the external environment. Although the acronym is simply SWOT reversed, TOWS analysis takes a different approach to linking a company's internal strengths and weaknesses with its external opportunities and threats. This approach allows a business to clearly identify and evaluate the options it could pursue.

To perform a proper TOWS analysis, the company must first conduct a SWOT analysis to identify its internal strengths and weaknesses and external opportunities and threats. The rest of the procedure involves dividing and linking the appropriate classifications into four categories:

    * Maxi-Maxi

    * Maxi-Mini

    * Mini-Maxi

    * Mini-Mini


Creating a TOWS matrix is an easy and visually helpful way to aid in this process.

"Maxi-Maxi" Strategy

Under the Maxi-Maxi classification, an organization identifies the appropriate strengths it can use to take advantage of its opportunities. The firm needs to distinguish and list the strengths that could aid in the maximization of each one of its listed opportunities. For example, possible strengths that could help a company penetrate a new market could include high-brand recognition, high-brand loyalty, large levels of research and development spending, and superior customer service.

"Maxi-Mini" Strategy

The Maxi-Mini category identifies the strengths the company can exploit to minimize its external threats. For instance, a potential threat to a firm could be the loss of market share to a new competitor entering the market. One way the firm could protect its position involves developing a marketing campaign emphasizing its superior customer service or its competitor's inferior customer service.

"Mini-Maxi" Strategy

With the Mini-Maxi strategy, a company wants to use its external opportunities to minimize its internal weaknesses. To illustrate, consider a company that faces rising labor costs in its home country. Simultaneously, it has identified an attractive opportunity to outsource some of its operations to another country where the cost of labor is far cheaper. This outsourcing prospect reduces the company's threat of rising labor expenses.

"Mini-Mini" Strategy

Mini-Mini strategies attempt to minimize the company's weaknesses and prevent external threats. This section matches the firm's threats and weaknesses in order for the company to recognize the potential situations that could harm its operations. Once these possible conditions are realized, the company can conceive of ways to protect its business. For example, a firm can enter into a strategic alliance or merge with one of its competitors to protect its operations from a rival firm. Moreover, the options to withdraw from a market or suspend operations are always present.

SWOT Analysis Model

SWOT analysis, method, or model is a way to analyze competitive position of your company. SWOT analysis uses so-called SWOT matrix to assess both internal and external aspects of doing your business. The SWOT framework is a tool for auditing an organization and its environment.

SWOT is the first stage of planning and helps decision makers to focus on key issues. SWOT method is a key tool for company top officials to formulate strategic plans. Each letter in the word SWOT represents one strong word: S = strengths, W = weaknesses, O = opportunities, T = threats.
SWOT model analyzes factors that are internal to your business and also factors that affect your company from outside. Strengths and weaknesses in the SWOT matrix are internal factors. Opportunities and threats are external factors.

SWOT can be used in conjunction with other tools for strategic planning, such as the Porter's Five-Forces analysis or the Balanced Scorecard framework. SWOT is a very popular tool in marketing because it is quick, easy, and intuitive.

What is SWOT matrix?
The concept of determining strengths, weaknesses, threats, and opportunities is the fundamental idea behind the SWOT model. To present the model in a more understandable way, scholars came up with so-called SWOT matrix. SWOT matrix is only a graphical representation of the SWOT framework.
SWOT analysis matrix

The above is a schema of how SWOT works. You start at the top level and go down to details. When this is filled with content, it gets the shape of a matrix, such as the example below:
SWOT matrix makes understanding the model easier.

Can you show SWOT analysis on an example?

Strengths and weaknesses are internal value creating (or destroying) factors such as assets, skills, or resources a company has at its disposal relatively to its competitors. Below you can find a few examples of what your strengths might be:

    * Unique product

    * Location of your business

    * Patents, know-how, trade secrets

    * Worker's unique skill set

    * Corporate culture, company image

    * Quality of your product

    * Access to financing

    * Operational efficiency


The following list shows a few examples of weaknesses:

    * Location of your business

    * Lack of quality and customer service

    * Poor marketing and sales

    * Access to resources

    * Undifferentiated products or services


Opportunities and threats are external value creating (or destroying) factors a company cannot control but emerge from either the competitive dynamics of the industry or market or from demographic, economic, political, technical, social, legal, or cultural factors.

An opportunity in the SWOT model could be for example:

    * A new emerging or developing market (niche product, place - new country, less competition)

    * Merger, joint venture, or strategic alliance

    * Market trends

    * New technologies

    * Social changes (for example demographics)


And now the final one, threats. A threat could be:

    * New competition in the market, possibly with new products or services

    * Price wars

    * Economic conditions

    * Political changes

    * Competitor oligopoly or monopoly

    * Taxation

    * Availability of resources


Factors related to each aspect of the SWOT model depend very much of the nature of your business. SWOT for a manufacturing company will be different from a SWOT for an internet start-up.

Is SWOT analysis a hard science?

The answer is no. SWOT analysis can be very subjective. Someone can see a new firm coming into the market as a threat because it takes away your current customers. Someone else might see the same company as opportunity because that company might have innovative ideas which your business can explore, and your business might even benefit from possible takeover of that new competitor.

What is the difference between SWOT and TOWS?

TOWS analysis is very similar to the SWOT method. TOWS simply looks at the negative factors first in order to turn them into positive factors.
How should I do the SWOT analysis?

There is a number of simple rules that you can go by when creating a SWOT matrix in SWOT analysis.

Be realistic: Make sure you assess your situation objectively. It is better to be more pessimistic about weaknesses and threats and lighter about strengths and opportunities.

Today versus future: When doing the SWOT analysis, distinguish between today's state of your business and your expectation for the future. Mixing your expectation with the current state will result in skewed outcome.

Simple: Keep your SWOT matrix short and simple. Avoid complexity and over analysis. If you want to include many points to each quadrant of the SWOT matrix, it is a good idea to weight them.

What is the next step in SWOT analysis?

We mentioned that the SWOT analysis is very subjective. One way to bring numbers into the SWOT analysis and make it more useful is to weight individual items. Give a weight to every item in the SWOT matrix and then add them together. Each quadrant in the SWOT matrix will result in some number which as a whole will give you a better picture where your business is relative to other quadrants. This leads us to two models called the IFE matrix and EFE matrix that are rooted in the SWOT analysis.

There are three other models related to this called the BCG matrix model, SPACE matrix model, and QSPM model which you can find here: BCG matrix, SPACE matrix model, QSPM model.

In case you have any questions about SWOT analysis, you are welcome to ask them at our management discussion forum.
 

McDonalds SWOT Analysis


Strengths

    * It has a strong global presence and is considered as a market leader in both the domestic as well as the international markets.

    * It is a global brand that owns 31,000 restaurants serving in 120 countries. Of these 31,000 restaurants at least14,000 restaurants are situated in the US.

    * It uses economies of scale for reducing the cost, as its huge expansion diversifies the overall risk involved with the economic performance.

    * They own an active children’s charity by the name‘The Ronald McDonald House’.

    * It takes steps in adjusting the Ingredients and product offerings in order to comply with the upgraded health standards deemed necessary by the USDA.

    * It earns revenue by fast food sales as well as a property investor and a franchiser of restaurants.

    * It has a firm real estate portfolio.

    * It has branded menu items i-e Big Mac, Chicken McNuggets, which further promote McDonalds.

    * Its recognized as one of the world’s most recognized logos.

    * It is recognized as a socially responsible and community oriented firm.

    * It adapts to the cultural differences regarding the region where the restaurant is set up.

    * It has located itself in major airports, cities, highways, tourist locations, theme parks.

    * It has an efficient food preparation style that follows the process in a systematic way.

    * It takes food safety extremely cautiously.

    * It was the first to provide the customers about nutrition facts.



Weaknesses

    * It uses advertising that mostly targets children.

    * High employee turn-over.

    * It has yet to accomplish going on the trend of organic food.

    * Price competition with the competitors resulting in low revenue.

    * Lack of innovative products.


Opportunities

    * It can adapt to the needs of the societies and undergo an innovative product line.

    * It can research ways to use ‘green’ energy and packaging which will work as a part of their promotional effort as well as fulfill their social responsibility.

    * It can create new product offerings, use mobile text messaging to offer services that appeal to consumers.

    * It can upscale some of its restaurant settings at luxurious locations to attract more customers.

    * It can provide optional items that are regarded to be the basis of allergy for some.

    * It can slow down the level of expansion in order to increase the profitability of the organization.


Threats

    * The recession negatively impacts the holding position of the firm regarding its revenue streams, even though they are quite diversified.

    * Foreign currency fluctuations are regarded to be a major problem as it uses standard pricing for its food items.

    * More restaurants that are increasing their food offering and declining the price.

    * Health issues regarding the fast food chain.

    * Heavy investments on promotional campaigns which decrease the gaining of market share.

    * Some parents criticize the firm’s ‘cradle to grave’ marketing strategy that focuses on kids, who later on take it as a trend to their adulthood.

    * Sued various times for unhealthy food, usually with addictive additives.

    * Emergence of major fast food competitors: Burger King, Starbucks, Wendy’s, Taco Bell, KFC.

    * The expansion has made the firm vulnerable to the slow economies of the other countries.

SWOT Analysis (Strategy)

SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats

SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment.

Once key strategic issues have been identified, they feed into business objectives, particularly marketing objectives. SWOT analysis can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis. It is also a very popular tool with business and marketing students because it is quick and easy to learn.


The Key Distinction - Internal and External Issues

Strengths and weaknesses are Internal factors. For example, a strength could be your specialist marketing expertise. A weakness could be the lack of a new product.

Opportunities and threats are external factors. For example, an opportunity could be a developing distribution channel such as the Internet, or changing consumer lifestyles that potentially increase demand for a company's products. A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete.

it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment. Accordingly, SWOT analysis is best used as a guide and not a prescription. Adding and weighting criteria to each factor increases the validity of the analysis.


Areas to Consider

Some of the key areas to consider when identifying and evaluating Strengths, Weaknesses, Opportunities and Threats are listed in the example SWOT analysis below:

SWOT Analysis Benefit

You don't have to be running a multinational company to benefit from a SWOT analysis. No matter what size your enterprise, you will take a benefit from running a quick SWOT check.

For those who don't know, a SWOT analysis covers your STRENGTHS, WEAKNESSES, OPPORTUNITIES, and THREATS.

Take your strengths to begin with. All businesses have them; otherwise, there wouldn't be a business in the first place. The point of highlighting them, is to increase them. If you can STRENGTHEN your STRENGTHS, you are on to a winner. And if you clearly understand what your strengths are, it is so much easier to add to them.

If you have a strong line of product sellers, then try and increase them. If you have a good agent, or good employee, producing great results, then give them more work and responsibility. If you have an exclusive line that pays a great margin, then market it more aggressively. Push your strengths, and ignore those products and lines that don't produce enough, or sufficient, profit.

WEAKNESSES? All businesses have those too. Know what they are, and attack them relentlessly as if they were the devil incarnate. Business is war, and it is a war that needs winning. Perhaps your products are too dear. Then do something about it. Perhaps they are not producing sufficient margin. Then tackle that head on. Perhaps you have a shop and too much of your stock is going missing. Then install CCTV. Perhaps your products are going out of date. Then wake up, and modernise. May be you don't spend enough time on your business. Then quit watching soaps. I did, and it was the best thing I ever did. A good businessperson always knows their weaknesses inside out, and addresses them as much as they are able. Identify and destroy weaknesses as if they are an alien force about to obliterate your particular planet. If you don't, they will.

OPPORTUNITIES: If any business is to survive in the longer term, it must create and take on board new opportunities. Any business that chugs along doing the same thing month in month out, year in year out, without keeping one eye to the future, is a business that is ultimately doomed. So, what opportunities are currently out there for you? Perhaps there is a range of new ebooks that have come on the market with reproduction rights. May be there is an opportunity there for you increase your range, or venture into a completely new field, for you. May be the local pet shop in your town is closing down. Perhaps there is an opportunity there to enter that trade and mop up their previous business, and goodwill. Or may be the company you work for full time is closing down, or the boss you work for is retiring. Is there an opportunity there for you to take over, or buy that business? Perhaps you could even arrange easy payment terms to pay for it out of your ongoing profits over the next year, or better still, the next five years. There are many stories about, of employees buying the business they work for, and ultimately making a huge success of it. And why not? After all, who knows any business better, than an inside employee? They know where there is hidden value, and they know where the skeletons are buried. We have all heard people say "I could run it better myself". Well, perhaps you could. But have you got the bottle, the energy, and the financial muscle to do so, or could you find it? And if that chance really does come along, may be you should look seriously at grabbing it, before someone else does. Chances like that only appear so many times in life. Your OPPORTUNITIES analysis will highlight that, and any other potential opportunities too.

THREATS: lastly the worst one of all, and the one that is so easy to ignore, and even not notice at all, until it creeps up on you, and thumps you in the profit line. In my local town, there were two newsagents. They have been there for as long as anyone could remember, and both have a loyal and enthusiastic bunch of customers. Then along came the giant Tesco. It wasn't one of those superstore all embracing bullies, but a smaller convenience store. But it was still going to be open all hours, it was still going to be a price efficient and formidable competitor. As soon as the planning permission for that store appeared in the local press, one of the newsagents sold out. Got a good price for it too, by all accounts, while the other one showed no signs of even noticing the aggressive newcomer about to open on his doorstep. This story is only in its infancy, but if that newsagent is still open in three or four years time, I for one will be very surprised. Identify your threats, and don't be afraid of doing something about it. All businesses have threats. It does not matter whether you run a small mail order business from home, a letting agent on the high street, or a boat builder on the river. All businesses have threats of some kind, that's the way of things.

That is why a regular SWOT analysis will keep you fully aware of what they are, and where they are coming from, and if you do that, you can react against them in the most positive way. If you do nothing, and hope those threats evaporate, you run the risk of being swamped, or gobbled up. Threats rarely disappear by themselves. Always try and confront them head on.

If you are running a successful business, then instigate a yearly SWOT check. It will not take you too long to carry out, and it could save you your business and your livelihood. If you are running an unsuccessful business, then perhaps it is even more imperative that you run a SWOT analysis right now. Once you understand your weaknesses and threats, you can attack them. Once you understand why you are not making any money, you can introduce a well thought out plan to do something about it. Running a business is not just about selling, it is about managing too. A SWOT analysis is an essential tool for any good manager. Running a SWOT is a sign of a well-run business; and more often than not, a sign of a successful business too