SWOT Analysis and Organisational Strategy - Essay Example

SWOT Analysis and Organisational Strategy Introduction Organisations must improve continually in order to optimise on operations. Various methods canbe used to know where improvements should be made. One critical approach involves the analysis of a firm’s strengths, weaknesses, opportunities, and threats, otherwise known as SWOT. SWOT has been employed extensively in many industries to improve performance and strategy for companies to overcome common management obstacles. SWOT analysis precedes strategic planning and is conducted by a team of professionals who can evaluate the company from a critical standpoint (Ahmad, 2013:32). This team comprises of employees, technical experts, board members, senior leaders and community leaders. Team members base their evaluations on outcome measures, performance metrics, customer satisfaction statistics, utilisation rates and financial ability. Although based on facts and data, the inferences drawn from SWOT are a professional opinion of the panel. Process The main aim of strategic planning is to balance organisations’ internal and external environments and sustain this balance in the long-term (Mishra, Anand, and Kodali, 2008:51). Organisations achieve this balance by assessing new programs and services with the objective of optimising performance. SWOT is a precursory decision-making instrument that prepares the stage for other analyses. Step 1 This involves the gathering and evaluation of vital data. Data can vary depending on the organisation. Once collection is done, organisation’s capabilities in various areas are assessed. Step 2 Collected data is organised and categorised into four groups: strengths; weaknesses; opportunities, and threats. Strengths and weaknesses derive from external elements. Organisational surveys are an effective method of data collection. Data may be on organisational finances, processes and operations. Step 3 This phase involves the design of a SWOT matrix for all organisational alternatives under consideration (Hindle, 2008:18). For example, say a manufacturer is considering opening new plant in a separate town. It is looking at two routes: the first is a joint venture with foreign investors, and the second is a wholly owned industrial complex. The organisation’s expert panel would develop a separate SWOT matrix for each option. Step 4 Involves the incorporation of the SWOT analysis into the decision-making process in order to establish which business choice best fulfils the organisation’s general strategic plan. Strengths SWOT treats strengths as current aspects that have necessitated excellent organisational performance. For example, the latest technology, investments in processes, a focus on CSR, and good distribution networks (Huber, 2014:12). Other strengths may involve highly-educated and competent personnel, a good organisational culture, a focus on quality enhancement, and a good working relationship among employees. Strengths are anything that has a positive effect on the organisation. Strengths add value or provide competitive advantage. They may also include tangible assets like credit, copyrighted materials, information and processing materials, equipment, patents, capital, loyal and established customers, and other valuable resources. Organisations should consider and evaluate their strengths based on function. For example, marketing, support, production and finance. Viewing things in this manner can make the identification of positive attributes in each function easier. Certain teams can have unique or specialist credentials, education, backgrounds, knowledge, or reputations that offer a competitive advantage or add value to service or product. The following questions should be asked when ascertaining strengths: a) What resources are available to us? b) What do we do well? c) What features or aspects convinced our customers to choose our service or product? d) What do other entities see as our strengths? e) What (competitive) advantages do we have over our competition? f) What areas are we viewed as being experts in? However, a company judges the responses to these questions and it must be from the view of its operating environment rather than an internal perspective (Biech, 2011:37). For example, if assured 24 hours delivery is the slogan in your industry then this cannot be viewed as a real strength because consumers would expect it. On the other hand, if “assured 24 hours delivery” is not normal in a market then it can be formally classified as a competitive advantage; a strength. Weaknesses These are organisational factors that will increase operational costs or reduce product and service quality. Examples include redundant production methods and a lack of continuity in service delivery, which can lead to monotony of efforts. Weaknesses can be narrowed down further to determine underlying causes (Fine, 2009:46). For example, disruption in normal service delivery often originates from poor communication. Weaknesses create more weaknesses. Poor communication inhibits the continuity of production, distribution or delivery, and then this breakdown causes inefficiencies in the whole system. Inefficiencies, in turn, reduce financial, human, and other resources. Other common weaknesses include a lack of financial resources, unstable organisational structure, poor use of technology, inadequate management training, and rigidity in dynamic industries. Weaknesses detract from product and service value and create competitive disadvantages when compared to rivals. Weaknesses are often explicitly or subtly unsuitable for organisations, meaning they can be obvious or hard to spot (Ghazinoory, Abdi, and Azadegan-Mehr, 2011:37). For example, a large retailer is headquartered in the South of the United States but 87% of its clients are in the West. This means that not only is its distribution costs much higher than some of its rivals’, but it is unable to provide assured 24-hour delivery if competitors in the West offer this. Identified weaknesses can be minimised or eliminated using appropriate restructuring or investment. In the above example, it is possible to move the business or build a large distribution centre in the West. However, both of these actions would demand changes in the business’ manner of operations. The following questions should be asked and discussed so that weaknesses can be identified: a) How do we match up to others? b) What can be changed or improved? c) What have our clients communicated to us? d) How does our performance match up to our rivals? e) What do we do wrongly? f) How do we respond to the customers’ feedback? g) Have we imposed any restrictions on ourselves? h) How do third parties rate our performance, products or services? The more accurately organisations identify their weaknesses, the more useful the SWOT analysis will be. However, since weaknesses are by nature internal, there can be huge resistance to accepting them (Etep, 2013:34). In fact, identify weaknesses can mean drawing attention to parts of the organisation which have been badly run or where bad decisions have been made. This can inhibit efforts to discuss weaknesses objectively if an employee wants to keep his job. Organisations should not lose sight of the issue that the current senior management will liable for the current state of the company. This is usually the bottleneck in complete and open acceptance of organisational weaknesses. If employees do feel able to talk about their organisations’ weaknesses frankly, then it is vital that they do so because the more practical their assessment is at this phase the more useful the SWOT analysis will be (Gopinath and Siciliano, 2014:43). Many firms employ basic matrix to compare the importance of each of its strengths and weaknesses known as a performance-importance matrix. The degree of significance is usually simply portrayed as high, medium, or low, with the level of importance classified as key, significant, minor, or neutral. The items organisations identify as being both vital to their success and display a poor performance for the company are the aspects your strategy should be addressing. Opportunities Traditional SWOT analysis perceives opportunities as important new business efforts available to organisations (Bertelsen, 2012:14). Examples include cooperation among major firms through the development of industry benchmarks and standards, increased financing for innovative measures, community initiatives to spark new development programs, and the creation of new regulations to improve efficiency and quality. Industry benchmarks and standards influence organisational strategy at the local, state, and national levels (Görener, Toker, and Uluçay, 2012:1529). They also influence employee and employer satisfaction by encouraging participation and ensuring their representation on teams and workgroups. Organisations that are effective in using data to enhance operations have lower costs and better quality products or services. Opportunities can occur for a number of reasons and may be as a result from the following: a) Changes within the market. b) New production methods. c) Advances in technology and consumer lifestyle changes. d) Resolutions of problems related to organisations’ current products. For example, Skoda’s market share increased significantly once its cars became known for their reliability. e) Government policy. f) Supply methods. g) Global offerings. h) Population profiles. Successful companies are continuously reviewing the products, markets and services to know how they can grow their market share. In recent times, the increased pace of technological advancement has allowed many companies to realise rapid growth through off-shoring and outsourcing. Changes in industry structure alongside changing social and lifestyle trends also offer opportunities for expansion. For example, most supermarkets offer a wide range of common products from books to processed foods (Rostirolla and Rostirolla, 2011:722). Having started as little more than large kiosks, they have pursued the opportunities offered by alterations in lifestyles to fulfil the desire for one-stop shopping by all genders who work full-time and like buying everything they need from as few stores as possible. Changes to government regulations can also create opportunities for growth. For example, in the United Kingdom the deregulation of utilities like water, electricity and gas allowed utility companies to have a license to offer their customers any product or service they felt was worth the investment. This has led to electricity firms selling domestic gas and water companies providing insurance (Boone, 2012:41). In addition, changes in legislation across the EU that made it made it mandatory for children under a specific age or height to have car seats provided anyone manufacturing these products a major growth opportunity. All the opportunities identified in the SWOT analysis are external to organisations, and some may be time-barred. For example, when the EU enacted legislation compelling all suppliers of electrical products to abide by new waste disposal laws by January 2007, firms that provided consultancy in this area sensed the short-term opportunity created by this move (Desilets and Dickerson, 2012:197). As organisations worth through the external analysis aspect of the SWOT process, they must be aware that what is perceived as an opportunity in one industry or for one product or service can be viewed as a threat for another. Threats These are factors that can negatively impact organisational performance. Instances include political, social or economic chaos, increasing state and federal regulations, a shrinking middle class, increasing pressure to minimise production costs, increasing demand by consumers for custom-made products (Dalton and Best, 2009:22). Threats are composed of external factors that go beyond our control. Despite being external, meaning that organisations have little or no control over them, they should consider creating emergency plans no matter how simple. This will ensure that they are not caught napping. More importantly, perhaps, it can put issues on the agenda for deliberation that people may be very willing to ignore. The greater an organisation’s ability to spot likely threats the more proactive they will be able to feature in their planning for and reacting to such events. Expecting and reacting to rivals’ actions is one of the greatest obstacles companies have to face and apparently proves the need for collecting good industry data/intelligence (Carlsen and Andersson, 2011:88). Rivals reducing prices, new technology, changes in consumer behaviour increase in supply costs, demographic changes, government regulations, and economic recessions or slumps. Changes within the industry itself may pose a threat to organisations, such as a new rival who significantly changes the product offering. For example, Spotify and Apple’s iTunes dramatically changed the recorded music market. There can also be drastic changes in consumer behaviour that can seriously affect product sales. For example, the near-universal social recognition of copyright infringement in the form of illegal downloads has mean that what was once a trivial activity is now omnipresent. The vital point here is not that the facilitating technology became available, but that millions of people who would never normally acquire anything now commonly do that. These forms of behavioural change are near-impossible to anticipate; they can be quite surprising and have far-reaching repercussions. Other probable threats are much more predictable (e.g. the impacts of the economic cycle). Developed countries regularly experience what are commonly called “boom and bust” phases (Coman and Ronen, 2009:5675). Talking about the threat of economic recession can appear needlessly negative when the economy is thriving, but investment in product development and new capacity is always most inviting at the peak of the boom, precisely when it carries the biggest threat. Identification of potential threats is a vital part of the SWOT analysis. During this phase of the process, persons should not be reluctant in expressing their worst fears in discussions. Some issues can be extremely speculative but discussing them enhances the SWOT analysis. SWOT Analysis as a Strategic Application Using SWOT analysis as a strategic tool requires expertise and skill to achieve success. SWOT analysis allows organisations to “scan” evaluate themselves and their environments, determine the best approach to the prevailing conditions, and develop that approach. Two methods are commonly used to apply SWOT as a strategic tool: matching and converting (Zwicker, 2010:19). Matching Matching employs competitive advantage (part of SWOT analysis) to combine strengths and opportunities (Milosevic, 2010:78). For example, in the 1980s Marks & Spencer – the UK clothing retailer – had a huge presence in the high-end clothing segment and a clientele that purchased on the basis of quality instead of price. The company was able to leverage these pluses to exploit the opportunity to retail high-quality food and beverages to its clients. It started by selling snacks and pre-made sandwiches that were prepared using higher-quality ingredients than its rivals were using. This emphasis on quality was rare at the time and allowed the company to hedge the market until its rivals started aping the formula. 30 years later the firm still has a strong presence in the United Kingdom’s quality food and beverage sector and these items represent a huge percentage of its total profits. Converting This means transforming threats or weaknesses into opportunities and strengths. For example, many Scottish whiskey distilleries based on islands cannot expand their production facilities due to environmental or logistical obstacles (Ramooshjan, Sobhanallahi, and Khamseh, 2014:84). This weakness can be transformed into strength by emphasising the unique and artistic feature of the product and linking the small production to exclusivity. This means that the companies can maintain high prices and decent profits even when industrial-scale producers eat into their market share. While these methods are practical, they should be put into perspective. In the first case, it would have been far from perceptible that selling great sandwiches meant an opportunity for a clothing merchant with no prior experience in that sector. Further, there were many established competitors, although they sold lower-quality sandwiches compared to the ones Marks & Spencer sold. The logic is that even if a SWOT analysis is employed to identify opportunities that compliment an organisation’s strengths, the right choice may be far from perceptible. Whoever proposed that Marks & Spencer start selling food possibly struggled to have the suggestion taken seriously. This is because even though this represented and opportunity, there were many other clear opportunities available. In the second instance, converting can result in little more than fashioning a virtue out of a necessity. The small whisky plants cannot grow production to any major extent and marketing approach is probably an inevitable outcome of this, instead of one option selected from many other possibilities. Marketing and converting are critical ways of examining the results of SWOT analysis. However, both require a lot of discussion and analysis instead of immediate answers. References Ahmad, M. (2013) Marketing case studies and SWOT analysis SWOT analysis applied to marketing case studies, Saarbrücken, LAP LAMBERT Academic Publishing. Bertelsen, B. (2012) Everything you need to know about SWOT analysis, Newmarket, Ont., BrainMass. Biech, E. (2011) The 2011 Pfeiffer annual: consulting, San Francisco, CA, Pfeiffer. Boone, L. (2012) Contemporary marketing, 2013 update, S.l., Cengage Learning. Carlsen, J. & Andersson, T. (2011) ‘Strategic SWOT analysis of public, private and not-for-profit festival organisations’ International Journal of Event and Festival Management, vol. 2, no. 1, 83-97. Coman, A. & Ronen, B. (2009) Focused SWOT: Diagnosing Critical Strengths And Weaknesses’ International Journal of Production Research, vol. 47, no. 20, pp. 5677-5689. Dalton, C. & Best, N. (2009) Enterprise Management 2010 Edition, Burlington, Elsevier. Desilets, L. & Dickerson, P. (2012) ‘SWOT Is Useful In Your Tool Kit’ The Journal of Continuing Education in Nursing, vol. 39, no. 5, pp. 196-197. Etep, I. (2013) Gender analysis, SWOT analysis, survey design & analysis, Saarbrücken, LAP LAMBERT Academic Publishing. Fine, L. (2009) The SWOT analysis: Using your strength to overcome weaknesses, using opportunities to overcome threats, S.l., Kick It. Ghazinoory, S., Abdi, M. & Azadegan-Mehr, M. (2011) ‘Swot Methodology: A State-of-the-Art Review for the Past, A Framework for the Future’ Journal of Business Economics and Management, vol. 12, no. 1, 24-48. Gopinath, C. & Siciliano, J. (2014) Strategise!: experiential exercises in strategic management, Atlanta, Penguin. Görener, A., Toker, K. & Uluçay, K. (2012) ‘Application of Combined SWOT and AHP: A Case Study for a Manufacturing Firm’ Procedia - Social and Behavioral Sciences, vol. 58, no. 3, pp. 1525-1534. Hindle, T. (2008) Guide to management ideas and gurus, London, Profile. Huber, A. (2014) SWOT: 42 most asked questions on SWOT -what you need to know, S.l., Create. Milosevic, I. (2010) Practical application of SWOT analysis in the management of a construction project, Leadership and Management in Engineering, vol. 10, no. 2, pp. 78-78. Mishra, R., Anand, G. & Kodali, R. (2008) A SWOT analysis of total productive maintenance frameworks, International Journal of Management Practice, vol. 3, no. 1, pp. 51-51. Ramooshjan, K., Sobhanallahi, M. & Khamseh, A. (2014) ‘An improved SWOT evidential reasoning based approach for strategy evaluation under uncertainty’ Decision Science Letters, vol. 3, no. 1, pp. 73-84. Rostirolla, M. & Rostirolla, P. (2011) ‘A Multivariate and Multicriterial Approach for the SWOT Analysis’ Journal of Applied Sciences, vol. 11, no. 4, pp. 719-724. Zwicker, G. (2010) From capacity to action developing tools for transition, Sackville, N.B., Rural and Small Town Programme, Mount Allison University. Read More