SWOT Analysis Formulation of Business Strategy - Essay Example

SWOT ANALYSIS AND FORMULATION OF BUSINESS STRATEGY S & W 2) MAKATUME Submitted by In the globalised business environment, the company has to integrate various functions such as procurement of services, customer care, cost control, identification of growth opportunities and strategic growth planning to strive for success. For the coordination of all these activities it is essential to scan the environment. The environment for the agency includes both its internal and external environment. It is essential that the organization audits its environment to identify the strengths and weaknesses to tackle the threats and to exploit the opportunities. Often gaps between the plans and the operations is caused because of lack of information about the environment. Hence, a SWOT analysis to understand the competitive position of the agency is essential. Introduction According to Whetton( 2005) "no one doubts that the 21s century will continue to be characterized by chaotic, transformational, rapid fire change". An analysis of the internal and external environment will help in the development of workable strategic plans. Managers often devote a considerable amount of their time making plans. For these plans to be effective and not obsolete, it is essential that the environment has to be sized up first. After this analysis the company has to develop long term objectives to allocate the resources and develop a team for implementing the strategy. The budget and resource allocation has to be done by the management based on the requirement of the current status of operations and the need for improvement, but first the SWOT analysis: SWOT analysis of S & W Strengths: 1. Comprehensive range of products under the same brand name. 2. Multinational operations with major markets shares in various countries. 3. Unified strategy for all its products which helps in creating high brand equity 4. Good demand from the supply chain intermediaries 5. The brand equity helps in fixing relatively high prices and thereby increasing the profitability. Weaknesses: 1. Manufacturing plants which are relatively old. 2. Location of the manufacturing plants in relatively high labor cost urban areas. 3. Lack of differentiation between professional and consumer tools which causes confusion in the market. 4. Unfavorable sentiments of the distributors because of their perceived exploitation of the dominant position. 5. Huge in size and operations which makes the company more rigid in the changing environment. Opportunities: 1. Increase in the earning power of people in boom economies such as China, India and Mexico which creates new markets 2. Collaborations with industry associations in various countries 3. Increasing trade and business operations between countries due to globalization. 4. Increasing domination of e-commerce which helps to without the geographical limits 5. The brand equity leverage can be used to introduce new products in the markets. Threats: 1. Strengthening of USD and weakening of the local currencies in many countries due to the US financial turmoil. 2. Growing dominance of Chinese products in the consumer tools sector. 3. Recession in major economies such as the United States which can have impact on economies which are dependent on the US economy 4. Hike in the cost of production which may reduce the profit margins for the company 5. Preference of local brands by the consumers Proposed strategy The major weakness of the company at present is its inability to change. The company is not able to follow to achieve its long run objectives because of its inability to adapt to what it takes to achieve the objective. To overcome this weakness, the team for implementation should be developed. For the team to function as change facilitators, 10 most influential people in the company at each operation centre have to be selected. These 10 most influential people can be from any cadre/ department in the company, but the criteria is how far they can influence the behavior of the other members in the company. This team can be called as the change leaders who are going to be the torch bearers of the change campaign. This change leaders act as the bridge between the management and the personnel in the organization. The change leaders should be actively supported by the management which will be instrumental for the new strategy to be accepted by the members of the organization. SWOT analysis of Makatume tools Strengths: 1. Markets only professional tools, hence, no confusion in the market. 2. Good brand image in the market for the quality and durability. 3. New production plants which can be very useful to keep the production cost less. 4. Huge market share in the professional cordless market 5. Dominant position in the Japanese and US markets. Weaknesses: 1. Locked into the low voltage product markets. 2. Lack of clarity with respect to introduction of high voltage products. 3. Does not have consumer tools 4. Not focused on markets other than Japan and US. 5. Lack of strategic plans in market expansion and product development. Opportunities: 1. Can create new market in the high voltage segment 2. Can introduce new products due to its relatively new plants to suit the requirements of specific markets. 3. Ability to compete with the Chinese products because of the cost advantage it has. 4. Can enter into the consumer tools segment also to add to its product range 5. Relatively weak position of S & W in the cordless segment which provides extra room for profitability. Threats: 1. Relative instability of the USD which can create unfavorable exchange rates. 2. Recession in United States and Japan can cause huge financial burden for the company to maintain its current position. 3. Shrinking profit margins because of the increase in the cost 4. S & W's plan to introduce new products and to enter into new segments as part of its new strategy. 5. Change in competitor's strategy can again increase the cost because of the necessity to increase the R & D and advertising budgets. Proposed strategy One of the major weakness of the company is that it is very much comfortable in its current market position and the product range. It is relatively confused about the next growth stage and it has very little plan about the future plans. This is a serious handicap for the company as it has to have a clear idea about the future if it wants to continue to enjoy the current dominant position. To overcome this weakness the company should involve its staff to identify the opportunities for the company. After the identification of the opportunities, action plans have to be formulated to exploit the opportunities. Then budgets have to be allocated and specific teams have to be assigned to carryout the plans. High voltage products Like quoted by Bryne(1996), " because we are making heavy on investments in technology, we can't afford to spend a lot of money in one direction and then find out after five years later it was the wrong direction". This logical reasoning is very much applicable to Makatume also. Just because the company is doing well in the low voltage markets, it cannot neglect the other segments. To overcome this weakness, the company can do a cost benefit analysis. It can also undertake financial analysis to analyze whether the additional investment in product development is justified. If the benefit of entering the high voltage market is more, then the company has to formulate the strategy to implement the strategy. To implement the strategy, the company has to next decide what are the resource requirements. A specific business plan to be implemented by a strategic business unit will be very effective. Conclusion. According to Grant(1991), "Strategy can also be defined as the match an organization makes between its internal resources and skills and the opportunities and risks created by its external factors. David Fred(2007) opines that matching external and internal critical success factors is the key to generating feasible alternative strategies. When the analysis and change is done in a structured manner, better results are achieved. Though scientific analytical tools and models are available to formulate strategies, there are a lot of factors that hinder this analysis such as , the corporate culture, politics in the organization and corporate governance. But the organization should be beware that it should not become a prisoner of its own strategy. Because, even the best thought strategy will become obsolete sooner or later. Regular appraisal of strategy based on the internal and external environmental changes is essential to make the strategy effective. Sources 1. Bryne, John (1996)"Strategic Planning: It is back", Business Week: 46 2. Grant, Robert, (1991) " The Resource based theory of competitive advantage: Implications of Strategy formulation" California Management Review (Spring): 114 3. David R. Fred (2007) STRATEGIC MANAGEMENT - CONCEPTS AND CASES, New Jersey, Prentice Hall 4. Whetton A. D, Cameron S. K (2005), DEVELOPING MANAGEMENT SKILLS, (6th Edition), New Jersey, Prentice Hall Read More