Critics of SWOT Analysis - Essay Example

CRITICS OF SWOT ANALYSIS Executive Summary Business operations have had diverse challenges which led to thedevelopment of SWOT analysis, which aims at evaluating the strengths, weaknesses, open avenues and threats before making a venture into a new market. Despite the tool being widely approved, challenges have also been experienced. Due to the flaws in the approach, some scholars have argued that implementing it in the market place is detrimental to the business. Introduction It is important to evaluate a Company’s Resources and its competitive position. There are five most common areas used to analyze a company’s own particulars. These include evaluating the progress of the existing strategy (Aaker, 2001, p.18). Evaluation should be done from a qualitative perspective such evaluation of completeness, internal consistency, rationale and the suitability. More so, quantities point of view should be put into consideration including the strategic and financial outcomes for the strategy (Sanchez and Heene, 2010, p.11). With stronger company’s overall performance, there is no need for changes. Secondly, the evaluation is important because company’s competitive capabilities and the core competencies are identified. The capabilities which are most logical lay a foundation for company’s achievement (Aaker, 2001, p.19). The most strategic competences are competitive rare and hard to imitate or to find substitute. Previously, a good strategy to size up company’s resource strength was the SWOT analysis. It is powerful in determining the company’s strengths and competitive deficiencies, opportunities and other external threats empowering its future (Thompson, Strickland and Gamble, 2010, p.10). However, recent investigation has pointed out some weakness in SWOT analysis. Despite the longevity and extensive use of the analysis in firms and classrooms, SWOT analysis has been shown to yield misleading consequences that some of the authors have advised scrapping it (Smith, 2006, p.2). DOE analyzes the firms system resulting to better information when surveying internal and external nexus (Valentin, 2005 p.54). The paper addresses the intrinsic worth of SWOT analysis framework. SWOT Analysis SWOT analysis is a criteria used to define business internal context in terms of strength, weakness, opportunities and threats. It provides strategic insight of a business to fragment facts and figures for effective planning. Such superior and strategic approach enhances competitive advantage to a firm (Smith, 2006, p.4; Valentin 2005, p 53). Organization strengths include all the skills and capabilities that they facilitate implementation of strategies. These skills may include aspects such as managerial talent or brand name. The best competences are those which are remarkably distinctive. The weaknesses include skills and capabilities that fail to support a firm’s objectivity (Hamada& Radi, 2002, p.10). Organization have two approaches which they can resolve the weaknesses. To start with, it may require improving their investment and/or even modifying or adjusting its mission so that it correlates with the skills and capabilities available (Smith, 2006, p.5). Both weaknesses and strengths focus on internal context whilst threats and opportunities deal mainly with external context. Some of the areas a firm should look into include the political situation in the area the firm is situated. Are there environmental regulations, tax policy, stability or other political regulations which would impact its activities? The socio-economic activity is also important because it highlights economy growth rate, inflation rate and the population demographic trends (MartInez-Costa, Choi, MartInez and MartInez-Lorente, 2009, p.495-500). Case study of SWOT analysis There are various activities which add value and competitive advantages to Apple Inc Company. However, the value, rarity, inimitability and organization (VRIO) of a firm’s resource significantly impact on its sustainability. According to the case study, some of the Apple Inc Strengths include the stability and user friendly product lines. Arguably, Apple Inc makes and sells iPod music players ranked amongst the sexiest technological devices of the time. iPod is based on propriety standards and retailed through Apples retail stores (Huzefa et al, 2009, p.8; Anon. 2009, p.1). Strengths: Its strengths include the ability and its willingness to have a diverse customer base together with its progressed technical expertise. For instance, the recent integration of Microsoft products lines with those of Intel processors. Secondly, it’s financial strength which makes it remain robust and stable even with when the global market is stagnating. It does so by reduced costs and integrating product packages as well as participating in strategic alliances such as the iTunes. Apple Inc has brand loyalty which is extremely costly and one which cannot be imitated (Huzefa et al, 2009, p.33). Weaknesses: One of the major weaknesses of Apple Inc is the departure of Steve Jobs who was the limelight to many. The company has continuously exploited his rare and valuable resource to yield positive earnings to shareholders and market share. Apple Inc geographical market is described to be the most US geographical and educational markets. However, recent trends shows tightened and constrained educational market with US becoming PC saturated. This implies that the firm must introduce appropriate strategies which will help the firm succumb to cost pressures in the market (Huzefa et al, 2009, p.33). Opportunities: Opportunities for Apple Inc include the market growth for PC hardware and software. The introduction of Intel based processed grew remarkably into the businesses replacing PC with iMacs. This move was to tighten the loop holes concerning stability and reliability which lacked in PC. iMacs has gained popularity especially in the banks such as Japan’s Aozora Bank Ltd who replaced 2,300PCs with iMacs. Apple Inc expanded its market through the iTunes concepts of downloadable mobile phone features and movies. This has opened doors to build strategic alliances with manufacturers such as transmission giants like Disney amongst others (Huzefa et al, 2009, p.34; International situation analysis, 2010, p.74). Threats: Threats includes the legal risk especially with such industries puts patent, infringement and copy right risks being high. This is because of easy to imitate and continual convergence of support software. E.g. the claims by Apple Inc against iTunes are still unresolved. Other threats include competition especially in two areas. The areas include the competition from the PC hardware/Software and from consumer electronics. More so, threat for imitation will increase such as cloning, pirating. More so, with the relative increase of newcomers in the consumer arena, will the firm be able to sustain its competitive advantage (Huzefa et al, 2009, p.34). Discussion Undeniably, SWOT analysis has advantages including the neutrality in its application. The analysis is usually conducted through brain storming action with the firm’s employees to identify factors that positively or negatively influence its productivity. Secondly, the information collected is usually multi-level analysis because the information obtained is from each of the four elements. The analysis is generally simple since it does not require technical or training skills making it relatively cost effective. Any person can perform it regardless of their affiliations provided the individual is well acquainted with the business organization (Valentin, 2011, p.89). Despite the longevity and extensive use of the analysis in firms and classrooms, SWOT analysis has been shown to yield misleading consequences. For instance, SWOT analysis theoretical origins are shallow. It relies on the plausible fact that businesses that prosper are those which possess good fit between its environments (Martinez, et al, 2004, p.495). Their guideline only outlines the assorted generic strengths, weaknesses, opportunities and threats. They seem to be shaky because identifying business context as favorable or unfavorable only depends on the strategic insight of a firm. There are no existing matrixes or conceptual underpinning which would facilitate on how to note worthy particulars. SWOT is merely fortified checklists which outline myriad forces that drive a business (Valentin, 2011, p.91; Texeira-QuirOs, AlmaCca, Fern and Es-Justino, 2010, p.258-271). Additionally, SWOT guidelines are superficial and promote scanning of unrehearsed particulars in lieu of taxonomic inquiry. The consequences are false impressions that favorable particulars can be spotted a glance and that their impact is palpable. They stipulate that strengths of a firm thwarts potential threats thus producing opportunities, while weaknesses make a business vulnerable and incapable of thriving or generating adequate values that suit customers satisfaction (Teixeira et al, 2010). SWOT analysis encourages the analysts to reflect on the particulars, impede regulations with threats expecting a rapid growth and vast opportunities. The reality is that circumstances that are threat to a certain firm pose opportunity to others; and such opportunities which are examined in the light of competition context often evaporate (Teixeira, 2010, p.258) Moreover, SWOT framework neither recognizes nor accommodates tradeoffs. For instance, a certain airline may decide not to offer customary in-flight meals. Would such a decision constitute the firms weakness or strength. From one point of view, not serving meals works against the airline compared to other competitors. On the other hand, serving meals will diminish the low cost services offered by the airline. In such scenario, the issue of not serving meals gets debatable, confusing and beclouds the SWOT quadrant diminishing its relevance in the firm (Sanchez and Henee, 2010, p. 4). Undeniably, the issue of tradeoffs and their impacts are complex and dynamic but very significant phenomenon. They cannot be effectively predicted by taxonomic schemata of any analysis because they are complex (Valentin, 2011, p.90). SWOT guidelines bring chaos to accomplishments and strengths. Market-share leadership is often categorized as strength. However, equating market share leadership as strength is not feasible because there are no causal relationship between volume and the advantage (Thompson, Strickland and Gamble, 2010, p. 10). Therefore, market- share leadership accomplishment should be recorded in reference to their source, such as cost bargaining power of the market share (Grant, 2010, p.270). The problem with SWOT guideline is that the correlation of the strengths, weaknesses, opportunities and threats are hardly identified. For instance, a company may list the analysis stating their weaknesses and strengths. They may identify immeasurable particulars under each topic but fail to identify how they impact one another. Weaknesses usually counteract strengths and opportunities but in SWOT analysis the strengths, weaknesses, opportunities and threats are lumped together making it complicated to perceive the relationship (Thompson, Strickland and Gamble, 2005, p.12; Smith, 2006, p.5). SWOT analysis sources information in an unempirical approach. The information collected is mainly obtained from individuals employed in the company which may not be accurate. In some cases, the company involves only few firms’ representatives to perform the activity. In this case, the data obtained represents opinions form a fraction of the firm and the data generated may not be provide meaningful information for analysis. Another issue with SWOT guideline is that the technique lacks a criterion to prioritize the elements. For example, the weakness that Apple Inc are noted; but how or what criterion should be used to establish the pressing weakness from the weak ones. All factors are listed as equally important making the pressing matters go unrealized (Valentin 2011, p.92; Smith, 2006, p.7). Recommendations Core competences refer to all capabilities which are critical to make a business attain competitive advantage. The competencies are dynamic and often change in response to costumer’s demands and the company’s environment. The key core competencies of a firm include the clear and well defined brand position focused to defined customers (Ravee, 2014, p.4). Their competencies are of fundamental consumer benefits, making consumers to have brand loyalty such that they are willing to pay more or less for the product. These include customer bespoking for every manufactured product (Barney et al., 2002, p.630). The reduction of capital cost during the manufacturing processes with highly quality products being manufactured. Other core competencies include chain model, its unrivalled expertise in logistic and supply chain management (Internal situation analysis, 2010, p.75). A firm’s competitiveness requires tight fit with the internal competitiveness and exploitation of resources that are competitively valuable, which is rare and is hard to copy by competitors (Sanchez and Henee, 2010, p.6). According to Internal analysis (p.76), “companies pursue resource based strategies that attempt to exploit company resources in a way that offers value to customers in ways rivals are unable to match” (Baye, 2003,p.578). For example, a firm could invest its time and finance into cultivating relationship with its main suppliers. Consequently unmatched supply chain capabilities for the product are achieved. The plants could operate with only several hours of orders placement for various parts and components because their suppliers can access daily production schedule. Another reason is its direct sales model which makes products to be relatively cheap than those of its rivals (Kotler, 2003, p.4). Business evaluation is vital because it indicates the company’s competitive capabilities and the core competencies. Most firms adopt strategies which exploit company resources to maximum in order to meet customer’s satisfaction. SWOT has proven to be not so useful. Bluntly, it is just four headings which enumerate valuable and invaluable factors in a firm. It is inconclusive to note the SWOT without further analysis. The firm should identify why each strength or weakness exists and the effects it has on other aspects of the firm (Romano, 2000, p.39). Similarly, threats should be identified on how they rose and its future implications identified. Unless a firm understands the correlation between the four elements and how they impact each other, the business will fail to thrive (Porter, 2000). Conclusion In summation, the shortcomings that plague SWOT analysis have discussed above. the longevity and extensive use of the analysis in firms and classrooms, SWOT analysis has been shown to yield effective consequences in some setting. However, SWOT analysis can be misleading and some of the authors have advised scrapping it where as others instructs on refining it. Some of the replacement proposed by Valentin 2011 (p.92) includes Defensive/offensive evaluation (DOE). References Aaker, D. A. 2001. Strategic market management. Wiley& Sons, Inc., New York Barney, J. B. 2001. The resource based view of the firm: ten years after 1991. Journal of management Vol.27 625-641 Available at: http://www.uk.sagepub.com/chaston/Chaston%20Web%20readings%20chapters%201-12/Chapter%206%20-%2019%20Barney%20et%20al.pdf [Accessed: 20 Feb 2014]. 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