Strategic Analysis Formulation - Coursework Example

Strategic Analysis Formulation Strategic analysis is the process of developing a strategy for a business through conducting research on the business and its operational environment. During strategic analysis, the following steps are followed: first, an organization must define its problem or goal that has made it necessary for the analysis to be done, for instance, the organization’s problem would be how to improve its production. Secondly, the organization must gather the information required in order to assess its strengths and weaknesses regarding the problem which will be followed by defining the potential opportunities and threats that may be within the scope of the organization’s problem. By doing so, they will generate a solution and find the best possible way of implementing it in order to effect the required change within the organization. The last step is reviewing the results of the analysis which will assist in defining how to use the organization’s strengths in the best way possible, find remedy to its weaknesses, counter the threats and maximize opportunities. Strategic analysis is important in that it gives one a clear view of the organization in terms of its business operations, their objectives, goals and methods of achieving their targets. In order to successfully measure the failure or success of a strategy implemented by an organization, the SWOT analysis is used. A SWOT analysis, also referred to as SWOT matrix is a structured planning technique used to evaluate strengths, weaknesses, opportunities and threats involved in a business venture, and can be carried out for a product, place, industry or person (Helms & Nixon, 2010 p.216). In SWOT analysis, one specifies the objective of the business venture and identifies the internal and external factors that can favour or hinder achievement of that objective. Strengths are the characteristics of the business which give it advantage over the others while weaknesses are characteristics that put a business at a disadvantage in comparison to others. Opportunities are elements the business could exploit to its advantage whereas threats are elements in the environment that could cause problems to the business hence hinder achievement of the business objective. SWOT was developed by Alfred Humphrey in the 1960s and 1970s, while he was working on a research project at the Stanford University when he first coined a technique known as SOFT analysis. This he did using the data he had gathered from Fortune 500 companies where he was doing his project. In the word SOFT, S stood for what things are Satisfactory at the present, O stood for what Opportunities can be explored in the future, F was used to mean the Faults in the present and T stood for the Threats that could surface in the future. Later on Urick and Orr, while at the Long Range Planning seminar in Zürich, derived the concept of SWOT analysis from SOFT by replacing the F for Faults with W for Weaknesses (Koo & Koo 2007, p. 70). The SWOT concept was first promoted in Britain then gained recognition afterwards among strategic planners and management consultants all over the world. The interpretation of SWOT as used currently has some slight difference from that of SOFT, in that the S in SWOT stands for the strengths, which give the business an advantage over similar businesses, W represents the weaknesses, which can be defined as the comparative disadvantages a business faces as against other similar businesses. O represents the Opportunities, which in this context can be defined as the external possibilities that can be utilized to boost the growth of the business while T stands for the Threats, which can be defined as the environmental factors which can cause problems to the business. Later on in 1982, the SWOT matrix was developed by Dr. Heinz Weihrich when he proposed a 2 by 2 matrix of carrying out a SWOT analysis initially popular as TOWS matrix, which is a synonym of SWOT matrix even today. TOWS matrix is the last phase of evolution of the SWOT analysis since its development, and is seen as the modern form of the SWOT analysis. Since gaining popularity in the 1980s, the SWOT has attracted much interest from management professionals and it actually forms an integral part of strategic planning mechanism in most business organizations (Bose 2008, p.511). Historically, many concepts similar to SWOT have been introduced via various researches, but none of them has survived for too long, despite the fact that the tools used in some of these researches were very similar to those ones used for SWOT. This leaves SWOT to be the best and most widely used tool for strategic planning tool in most organizations, either profit making or non -profit making (Agarwal, Grassl, & Pahl 2012, p. 15). Being the most widely used planning tool, SWOT has both the advantages and limitations, and therefore management professionals must be aware of its limitations despite having a number of advantages. First, SWOT analysis involves little or no cost since anyone who understands the business can perform a SWOT analysis; it is the most useful tool when the manager does not have enough time to address a complex situation. Therefore, the diagnosis phase of strategy formulation is easily carried whether the organization is struggling financially or not. This means that managers will not incur expenses of external business consultants or advisors in the processes of improving their businesses. SWOT analysis provides the best way to carry out competitor analysis in a business, which is paramount for any marketing plan (Dodge & Bennett 2011, p.26). Here, the manager first does the PEST analysis before the SWOT analysis in order to be able to identify the opportunities and threats to the business (PEST stands for Political, Economic, Social and Technological factors). Upon completing SWOT diagrams of the organization’s competitors and its own, it will carry out situational analysis and then make better decisions regarding its marketing plan. Once it has ensured that its competitor’s weaknesses are identified, it can highlight them in its adverts, press releases and landing pages. It is also important to take note of common weaknesses between an organization and its competitor and include them in its marketing strategy in order to make it more appealing for many people, especially those seeking alternatives (Murray & Haubl 2009, p. 140). The SWOT analysis is also useful in helping one identify their weaknesses and make necessary adjustments for the benefit of their business by improving their marketing strategy (Johns & Van Doren 2010, p.553). This usually takes place in the second phase of diagnosis, where managers analyze the organization’s external environment. It is always advisable for one not to talk about their weaknesses in their marketing material, although they can make necessary adjustments themselves. Since weakness is comparative it is better for one to always compare their performance with their competitors in order to identify areas they are doing better than them and make necessary adjustments (Huq et al. 2008 p.390). SWOT analysis also provides a visual summary of one’s product or service and how it compares with their competitors in the market since SWOT diagrams quickly convey the relevant information in a very easy to understand form. SWOT is useful in identifying one’s strengths, i.e. what differentiates them business from others in order to identify expertise and advantages that are held over the competition thus laying the groundwork for services that one will be presenting to their clients as a way of strengthening sales presentations. It will basically help the marketers in identification of what makes the business stand out and to take advantage of these findings. Once one has identified strengths and weaknesses of their business, the next SWOT can be used in profit maximization, since strengths and weaknesses are internal and opportunities are viewed as external openings to achieve growth of the business. If as a marketer one can discover new opportunities which match the strength of their business, then they will create an avenue for more revenue for the business. This goes hand in hand with identification of external challenges that will hinder the success of one’s business in order to anticipate them in advance. By identification of the threats, marketers are in a position to avoid making mistakes that are common to new businesses, for instance trying to position a product into a crowded market or entering an environment with political and economic constraints. This will further enable one make adjustments and modify plans midcourse, due to the fact that new opportunities may open wider avenues whereas new threats may result in the closure of an avenue that once existed. Focusing on the four elements of SWOT provides one with facts needed for a better understanding of their business (Zaerpour et al. 2008, p.190), which will enable them develop goals and objectives for their business. SWOT provides the simple and precise way of communicating about one’s program and the best way to organize information they have gathered from the field, besides helping the organization to gather meaningful information that will assist in the maximization of its potential. Despite the fact that this method is the most preferred by business managers, it is associated with a number of limitations hence it should be applied cautiously. SWOT in itself is not independent since it is only one stage of business planning (Marston et al. 2011, p.180); in addition, it only covers issue that can be definitely considered a strength, weakness, opportunity or threat, making it difficult to address uncertain or two sided factors. Before carrying out a SWOT analysis, one must first analyze political, economic, social and technological factors; this means that one cannot rely on SWOT analysis alone in their strategic planning. SWOT doe not prioritize issues, hence no limits as to what is relevant and what is not, implying that it is just creation of lists of issues and classifying them arbitrary without any external influence. This makes identifying major critical issues as part of strategy formulation difficult hence vague. SWOT is preferred for its simplicity but the simplicity does not provide a mechanism for getting solutions to any disagreements that may arise from the discussion nor does it offer alternative decisions (Flint 2013, p.260). It is difficult to verify statements with hard data or asses the practicalities of implementation since the technique is often used in a brainstorming environment, implying that these so called factors are often opinions. This methodology can compress a large number of situational factors into a manageable number, thus encouraging the tendency of oversimplifying the situation. It therefore means that there is lack of detail and in addition, no justification is required by SWOT for classification of classifying whatever is classified under the element it was classified. It is a subjective methodology (Abdi et al. 2011, p. 30); in that it is rather difficult to classify some issues as either strengths or weaknesses in an organization since there people have different views as to what is a weakness and what is a strength. For instance, a change in technology whereby manual labour is replaced by machinery can be seen as a threat by those individuals who are going to lose jobs, whereas the organization may see this as an opportunity since it will cut operational costs. On the same note environmental problems like climate change can appear as a threat to those who depend on rain fed agriculture, but not to owners of industries that use carbon based fuels. The model does not provide clear guidelines as to what is a threat and what is an opportunity since there is a thin line between opportunities and threats. It is important therefore to take into consideration these vested interests, something that is going to be difficult because the manager may not be willing to consider some options that may threaten the current business model of the organization. During a SWOT analysis, participants in those discussions can generate a lot of ideas but cannot help one choose the best due to the fact that there is no prioritization of issues in this kind of model. This model put a lot of emphasis on strengths, weaknesses, opportunities and threats but does not provide any guidance on how individual organizations can identify these elements for themselves, making it vague. This means that strategic planners may not have all the information required to identify strengths and weaknesses for instance, an organization may believe that its customer relations services is its strength but the top management may not know of any problem existing in this area. As a technique, SWOT can be designed without the designers thinking critically (Ward, Runcie, & Morris 2009, p.80), which in most cases leads to misrepresentation of Strengths, Weaknesses, Opportunities and Threats within an organization’s internal and external environment. SWOT analysis is designed to defend goals and objectives that were decided previously, which leads to limitations in the real identification of barriers, which may place the organization’s interests above those of the community, which may trigger a conflict between the organization and the community. However, it still stands out as the best model that can be used in strategic management compared to others in terms of time and cost, which is a major concern in most organizations. Organizations can minimize these limitations in order to make it a more effective and reliable tool of strategic planning through discussing the weaknesses in-depth with a view to transforming them into strengths. Organizations should also make their SWOT analyses more detailed and weigh each one of strengths, weaknesses, opportunities and threats such that each element is ranked for the purposes of prioritizing each one of them. Despite the limitations, I would strongly recommend SWOT analysis for strategic management and planning as in my view, it is the best model so far. The SWOT analysis was applied to rescue the Giant Electronics Company, which almost faced extinction due to the fact that there were many distributors that were mushrooming in town. For a long time, this company enjoyed monopoly as there were few electronic distributors with relatively poor services, leaving Giant Electronics to be the only exemplary and luxurious electronics distributer and seller in town. Giant electronics boasted of its strategic location in the CBD, selling quality and original phones, best customer services, best technicians and a high supply chain. On the other hand, it experienced such weaknesses as high prices, limited products, lack of marketing expertise, poor reputation as a customer was robed near the shop and congestion due to limited space. However, it had a number of threats like opening of new shops that were selling cheaper counterfeits, others were selling original phones but at lower prices, opening of a new distributer, All Times electronics with more luxurious phones and release of new models every time, rendering the old stock outdated. Despite these threats, it had a number of opportunities like increased demand for smart phones, introduction of online shopping, opening more branches within the town and in other towns, government introduced a tax waiver on imported electronics. After performing situation analysis, the company began with designing the SWOT analysis model as shown in appendix 1, after which it begun its strategic planning to improve the business and increase its customer base. The SWOT analysis helps one to understand his business and address the weaknesses deter threats, capitalize on opportunities and develop business goals and strategies (Ibidunni 2013 p. 2417). First, it countered the issue of poor reputation as a result of security issues emerged when a customer was robed near our premises by encouraging online shopping. This meant that a customer buys online and then the company gets the gadget delivered to his home, which was a strategy of reassuring the regular customers that the company was concerned about their security, as well as luring new customers. In this case security was a critical issue and had to be prioritized, forcing it to promote its products through online advertisement on social media, television, radio and newspaper. It further capitalized on its strength of having the best technicians by sending them to its customer’s homes for servicing their gadgets whenever need arose. SWOT helped the company to set business goals and strategies, and the first strategy was to secure more customers in order to realize more profits. It therefore had to explore new markets, first by doing survey on major towns to explore the possibility of opening new branches. After assessing viability of its project, it increased the number of branches in the capital and other major towns countrywide, something that made it increase the number of its customers by 55%, which was a very great improvement. The increased demand for phones was the driving force for the opening of many branches, which was a success because people always prefer best customer services, the strength that Giant Electronics capitalized on. Tax waiving by the government automatically meant the company was to lower the prices, since customers will always prefer cheaper stuff (Teece 2010, p.175), of course with best services, which was a guarantee at Giant Electronics. Lowering prices also helped shut the mushrooming shops and suppliers with counterfeits, ensuring that it still controlled the market to a larger extent. Tax waiving gave it an opportunity to import more phones and other electronic gadgets, meaning the young people it was losing to All Times distributer had to come back as well as more new customers flocking in. It also capitalized on the tax waiver by importing more products thus ensuring variety and no doubt people of all tastes could satisfy themselves at Giant Electronics. In this case, the company analyzed the external environment, then formulated objectives i.e. increasing variety to capture the attention of all customers and implemented it by actually increasing the stock. Opening more branches meant reducing congestion, and security guards were hired to improve security around all our premises. The company adjusted itself in such a way that it could project the number of specific models that it could import for sale, such that it could not incur losses when new models are released by manufacturing companies. It also had to hire a marketing expertise in order to improve its product promotion, something it achieved since it was able to restore its leading command in the market. Upon improving its services, it also took advantage of its strategic position, in the CBD where most of its customers are civil servants who pass by to shop after work. From my own experience, SWOT makes the best strategic planning tool compared to others and I would encourage organizations to adopt this model in their strategic planning. Today, Giant Electronics stills commands the market, and I have no doubt, customers have the company in their hearts. Appendix 1: The SWOT Analysis Model Strengths Strategic location in the CBD Quality and original smart phones Best customer services Best technicians High supply chain that can cater for the growing demand Weaknesses High prices, meaning people will go to cheaper shops Limited products meaning people with specific tastes will go shop elsewhere Lack of marketing expertise Poor reputation as a customer was robbed near the shop Congestion due to limited space Opportunities Increased demand for phones Introduction of online shopping Opening more branches in major towns Government waivers taxation of imported electronics Threats Opening of new shops with lower prices New shops selling cheap counterfeit phones All Times shop has opened recently which sells luxurious phones preferred by the youth New models released every time rendering the old ones outdated References Abdi, M., Azadegan-Meher, M., & Ghazinoory, S., 2011. 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