Strategic planning process: The SWOT
Analysis
A scan of the internal and external
environment is an important part of the strategic planning process.
Environmental factors internal to the firm usually can be classified as
strengths (S) or weaknesses (W), and those external to the firm can be
classified as opportunities (O) or threats (T). Such an analysis of the
strategic environment is referred to as a SWOT analysis.
The SWOT analysis provides information that
is helpful in matching the firm's resources and capabilities to the competitive
environment in which it operates. As such, it is instrumental in strategy
formulation and selection. The following diagram shows how a SWOT analysis fits
into an environmental scan:
SWOT
Analysis
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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:
Patents
Strong brand names
Good reputation among customers
Cost advantages from proprietary know-how
Exclusive access to high grade natural
resources
Favorable access to distribution networks
Weaknesses
The absence of certain strengths may be
viewed as a weakness. For example, each of the following may be considered
weaknesses:
Lack of patent protection
A weak brand name
Poor reputation among customers
High cost structure
Lack of access to the best natural
resources
Lack of access to key distribution channels
In some cases, a weakness may be the flip
side of a 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.
Opportunities
The external environmental analysis may reveal
certain new opportunities for profit and growth. Some examples of such
opportunities include:
An unfulfilled customer need
Arrival of new technologies
Loosening of regulations
Removal of international trade barriers
Threats
Changes in the external environmental 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
New regulations
Increased trade barriers
The
SWOT Matrix
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 (also known as a TOWS Matrix) is shown below:
SWOT / TOWS Matrix
Strengths
Weaknesses
Opportunities
S-O
strategies W-O strategies
Threats
S-T
strategies W-T strategies
S-O strategies pursue opportunities that
are a good fit to the company's strengths.
W-O strategies overcome weaknesses to
pursue opportunities.
S-T strategies identify ways that the firm
can use its strengths to reduce its vulnerability to external threats.
W-T strategies establish a defensive plan
to prevent the firm's weaknesses from making it highly susceptible to external
threats.
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