SWOT Analysis and Its Purpose - Toyota Company - Case Study Example

SWOT analysis SWOT analysis and its purpose A SWOT analysis is an assessment of the internal and external environment of a business. It is a strategic planning method used in the evaluation of the strengths, weaknesses, opportunities and threats that are involved in a business venture. The SWOT analysis is useful in providing information that helps firms in matching their resources and capabilities to the competitive environment in which they operate in. It is therefore important in the selection and formulation of a firm’s strategy (Boone and Kurtz 263). The purpose of a SWOT analysis is to analyze, evaluate information and identifying strategic options facing a firm at any given time. Carrying out a SWOT analysis helps in focusing activities in areas where the greatest opportunities lie (Boone and Kurtz 263). Based on this, the big picture of the most influential factors that affect the prosperity and survival of a firm is developed and acted on. The strengths and weaknesses are internal while the opportunities and threats are external. The strengths and weaknesses are matched with the opportunities in the external environment to counter the threats in the external environment that may pose a danger to the strategic plans of a firm. The SWOT analysis helps a business organization to respond effectively to the changes in the environment. An understanding of the internal and external contexts of an organization helps in developing a strategy that links these environments. SWOT analysis makes it easier to know which factors are controllable and which are uncontrollable and based on this they are able to know whether the venture will be successful or not (Boone and Kurtz 263). Components of a SWOT analysis A SWOT analysis is a strategic tool used to evaluate the strengths, weaknesses, opportunities and threats of a business venture. It itemizes the external and internal factors that either help or act as hindrances a business from achieving its goals and objectives. Strengths The strengths are the internal factors that are favorable to the business. They are the competencies, areas that make the business the most money, assets, they can also be intangible assets such as good business relationships and reputation and the relevant experiences of the business. The strengths reflect the current situation of the business which has been maintained to guarantee success for the business. The strengths are: Sales channels Financial resources Profitability Market position Customer base Products and services Weaknesses These are the internal factors that at present may harm the progress of the business. They are areas that need to be improved such as the areas where the business lacks resources, skills or experience. It is also the areas where the business is losing money caused by declining trust and loss of reputation. The weaknesses are areas that need to be corrected by addressing them head on. Weaknesses are: Staff turnover Sales channels Competitive vulnerability Low profit margins Lack of new products and services Opportunities These are external factors that have the potential of helping the business to flourish. Opportunities evaluate elements of the external environment that may be exploited to the advantage of the business. They are future strengths that should be prioritized as the business progresses such as new technology that may help to make business easier such as the social media networks. The needs of the customers that are currently not being met by the competitors are an opportunity that can be exploited to the advantage of the business. Opportunities are: Mergers and acquisitions which are strategic alliances Weakness of competition Projected future growth of the market Threats These are external conditions that may impede the objectives and goals of the business. They are future weaknesses of the business that need to be countered. These include unfriendly economic, political and social environments. These changes such as new regulations, legislation and competitor positions may hinder the progress of the business. The treats facing a business are: New government regulation New technology Economic conditions Changes in the business environment. SWOT matrix for Toyota Toyota has had tremendous success in the auto industry for many years and has therefore established itself as a market leader in this industry. This success is mainly due to their product mix which serves the various markets in which the company operates in. the SWOT analysis of the company is therefore thus: Strengths Strong industry position Toyota has steadily risen to become the market leader in the auto industry. This steady rise to the top has pitted the company against US car makers such as General Motors and Ford Motor Company (Liker al., 435-437). This strong industry position is based on: The company’s highly targeted marketing which is based on marketing techniques aimed at identifying and satisfying the various customer needs made this has made Toyota to be a household name in many countries (Liker al., 435-437). The company’s commitment to quality and lean manufacturing and this has ensured that the company maximizes profit through efficient manufacturing approaches propagated by the total quality management theory adopted by most Japanese companies (Liker al., 435-437). The company’s highly diversified product range has enabled the company make vehicles for private and commercial organizations (Liker al., 435-437). New investments in factories in China and the United States Toyota has invested in new factories which have contributed to increased profits. This was mainly because the company was able to increase its production capacities in Asia and America which are significant markets for Toyota (Griffin, 205-7). This has enabled the company to reap the benefits of large scale production. Weaknesses High costs of maintaining operational efficiency Car plants are a huge investment undertaking and so the company incurs huge operational costs to maintain its efficiency in operations (Griffin, 205-7). The high costs of retaining and training labor in these factories is high and so the company has to keep on producing cars in order to retain its operational efficiency. Risk of over supply The company runs the risk of over supplying their car models due the large size of the company. The company has to manufacture cars that consumers want so as not to risk their car models not being oversupplied (Griffin, 205-7). Fluctuating exchange rates impacts negatively on the profitability of the company. Opportunities Hybrid vehicles Hybrid vehicles are becoming the future in the auto industry due the environmental impact that the cars using gasoline has. The contribution of green house gases to global warming is a fact. Toyota being a market leader has been able to utilize technology that has enabled it to produce hybrid vehicles and this has viable prospects in the future. Toyota being a pioneer in this technology has increased the demand for these cars (Griffin, 205-7). New markets New and emerging markets in Africa, Latin America and also the youth provide the market necessary to propel the company forward. Toyota has a wide appeal to the young and this provides the company with competitive advantage as compared to other auto makers (Griffin, 205-7). Threats Product recalls Vehicle manufacturers always have the threat of recall of their vehicles. These recalls have financial impact on the profits of the company because of the dented image of the company as well as the law suits that sometimes come with the recalls (Griffin, 205-7). Competition from rivals Toyota faces competition from existing and new entrants. This rivalry is from the manufacturers in Asia, Europe and also in America (Ghemawat, 144). Competition slows down expansion and reduces the revenues that the company expected to have (Griffin, 205-7). Strengths Strong industry position New investments in china and the united states Strong brand name Innovative multipurpose products Weaknesses High costs of maintaining operational efficiency Risk of oversupply Opportunities Hybrid vehicles New markets Producing cost effective products Threats Product recalls Competition from rivals Impact of fluctuating exchange rates Market saturation Matching, conversion and avoidance strategies for Toyota SO strategies- strengths and opportunities strategies The company has used the internal strengths of the company to grab the external opportunities. The size of the company has enabled it to consolidate its position and edge out other auto making giants such as General Motors from the market leader position. The company tries to avoid major weaknesses and make them strengths and consequently avoid threats while concentrating on opportunities (Pride and Ferrell, 37) WO strategies- weaknesses and opportunities strategies This strategy is employed by the company so as to improve the internal weaknesses using the external opportunities. By doing this the company ensures that its internal weaknesses do not become impediments to its effective utilization of the external opportunities. To cut back on the risk of oversupplying Toyota has invested in technology that has enabled the company make hybrid cars making it the first company in the industry to do so it has been able to utilize the opportunity of this new technology in the market (Borowski, 11). ST strategies- strengths and threats strategies The company uses its internal strengths to counter the effect of the external environment threats. The strength of Toyota is its brand and so using this strength the company counters the effect of rivalry and competition from other firms. It does this by patenting its products and producing their products in mass. References Boone, Lewis and David, Kurtz. (2010). Contemporary business 2010 update. New York: Wiley and Sons. Borowski, Arkadi. 2010. Report on the Toyota Company. Hamburg: GRIN Verlag. Ghemawat, Pankaj. (2007). Redefining global strategy: crossing borders in a world where differences still matter. Cambridge: Harvard Business Press. Griffin, Ricky. (2003). Management. New York: Cengage Learning. Liker, Jeffrey et al., (2007). Toyota culture: the heart and soul of the Toyota way. New York: McGraw Hill Professional. Pride, William and Ferrell, O. (2010). Marketing. New York: Cengage Learning. Read More