The Significance of SWOT Analysis - Essay Example

SWOT Analysis and Table Introduction SWOT or strengths, weaknesses, opportunities and threats analysis is a technique used by business analysts to identify and analyze environmental factors that influence a business organization’s performance in a variety of ways, including its decision making and corporate behavior (Mello, 2003, p.40). A baby store sells baby-care products such as soaps, shampoos, skin lotions, oils, creams, clothes and dresses, diapers, cots, play-pens, toys and distracters and a sundry of other stuff. Some store in fact go for little diversification by stocking and selling milk powders, candy, baby food, biscuits, breakfast cereals, fresh fruits, green veggies and so on. Strengths in this market environment is an internal organizational quality that enables the business to survive and compete against other similar stores, e.g. good positive cash flow. A weakness is also an internal organizational problem that affects it negatively while giving an opportunity to rivals such as accumulating bad debt. An opportunity comes basically from the external environment such as a rival’s inability to meet demand. Finally a threat is also a basically external matter, e.g. a rival’s sales promotion campaigns. Analysis SWOT analysis enables the organization to plan and execute its programmes of action with a degree of certainty about the external environmental factors that influence its own existence. A baby store would necessarily be faced with a number of external economic influences such as the government policies on taxation, interest rates, inflation, money supply, balance of payments, Gross Domestic Product, National Income, foreign governments’ protectionist policies and so on. Imported baby-care products would be more expensive if the government imposes a higher import tariff on them. The government might impose higher corporation taxes in order to control inflation. This would affect the business in a number of ways. For instance a baby store which depends much more on imported products would find that higher tariffs to be a threat to its survival, especially in the long run. It might find it difficult to reduce prices to match its rivals’ prices. Rivals might be selling domestic products that are not subject to taxes except some GST or BTT. This gives them an advantage over rivals that sell imported products. Higher sales taxes imposed on baby care products by the government in order to control inflation also could affect them. Baby stores are affected by such taxes because now people buy less (McIntyre-Mills, 2004, p.373). Next the government might impose regulations on baby-care products, e.g. standards. The European Union (EU) from time to time requires its member governments to pass compliance legislation in national legislatures to meet its overall regulatory regimes’ demands on product standardization. Such regulations though are imposed on manufacturers, sellers are expected to display information concerning product specifications. Baby care product sellers have to act in conformance with them. Such extra selling costs as the printing of material and the purchase of display equipment would reduce profit margins. However some businesses have weaknesses which could be exposed by such regulations. For example baby care products can be subject to stiffer regulatory regimes that demand expensive product monitoring technologies. Such costs are passed onto sellers by manufacturers. The inability to stock such standardized products could mean loss of business for some. Especially when price elasticity of demand for a product is very high the outcome is quite predictable. Baby care products including baby food are highly price elastic in demand because alternative brands are available at lower prices. While brand dependency is relatively marked in respect of some multinationals’ products, there are numerous substitutes for baby products coming from low-cost firms. Baby stores have a tendency to raise their profit margins by stocking latter’s products that come with hassle-free trade credit. Technological developments also influence businesses. A baby care product seller could be influenced by such developments in technology as irritation reducing skin lotions and mild shampoos. Also the baby food market, for instance, has been converted into a battleground for technology giants. Subtle discoveries, involving immunity enhancing or/and disease fighting biological agents, have revolutionized baby products markets. New technologies represent opportunities for baby stores. Competitors, who lag behind in introducing such new technologies or fail to sell products made by using new technologies, would be forced out of the market sooner than later. This is all the more obvious when demand and supply forces in baby product markets are taken into consideration. Demand for products with advanced features is much greater even if the price is little higher. On the other hand suppliers tend to project future sales partially on the basis of current technology trends. Baby stores operating in niche markets have a strategic advantage when it comes to innovation. Innovative product development strategies, as adopted by baby stores in popular down town markets, are basically determined by the need to align supply chain management strategy with the ever divergent demand tendencies for super brands. Similarly the organizational structure of the average baby store tends to be vertical because there are a few staffers. The leadership style tends to be less democratic or more autocratic. This might affect innovation and motivation to a certain extent. Baby store managers have been noted for aggressive salesmanship though it has helped very little by way of change at the levels of motivation and innovation. It’s primarily due to the inability of store managers to go against labour rules regulations. Social influences on organizations can be classified as cultural and religious. Baby stores are subject to such influences from a variety of sources. In the first instance in a multicultural society baby stores are visited by people belonging to a variety of ethnic groups. Organizational culture also plays a pivotal role here. For some baby stores social aspect of marketing can be converted into a tool for sales promotion. Diversity of products helps them to do better than those stores which cater to a single ethnic group, either consciously or unconsciously selling a particular line of products. This is a weakness that a competitor can turn into his opportunity. Strategic processes and systems within the organization involve all management functions and corporate decisions. A baby store would have to initiate its strategic functional processes and systems in keeping with its own strategic competitive environment as determined by SWOT analysis. For instance internal organizational arrangements for communication, quality management, internal value chain management, employee relations, HRM function, budgetary control, cash flow management, motivation and so on will have to be aligned with organizational goals. A baby store would have to take into consideration the competitive environment and available choices. Efficient resource management techniques have to be adopted in order to face off competition in a highly regulated environment. A baby store has to face more threats on a day-to-day basis from its rivals so that efficient resource utilization and rationalization to enhance capacity would be much more desirable form the viewpoint of strategic competitive strength. Rivals depend on their brand image and promotion strategy to increase sales while much of their competitive edge consists of pricing and quality policies. Consumers of baby products are often influenced by exogenous variables like professional writing on current baby care trends. In this backdrop the baby store should be able to manage its resources more on line with a ratio perfect basis such as resources spent per sale. Labour resources matter here to a greater extent. Multinational companies (MNCs) in baby care product and baby food markets tend to obtain a multitude of patents on their new discoveries. Intellectual property rights have an international dimension to it arising from the World Trade Organization’ s (WTO) involvement in trade dispute settlement. Baby stores which sell such patented products are more likely to achieve their sales volumes and profit targets while those stores which sell non-patented products have to cope with numerous problems. Thus it’s strength to sell patented or branded products of MNCs rather than unpatented and unbranded ones. Strategic capabilities of baby stores partially or wholly depend on this link with MNCs which manufacture their products. While strategic market orientation is determined by its own internal strengths, strategic product orientation comes from selling branded and patented products. Strategic marketing capabilities coupled with brand loyalty of customers, help baby stores to position themselves in the market at an advantageous level vis-à-vis their rivals who might lack such capabilities. However, baby stores do not always enjoy benefits related to brand loyalty due to the inevitable outcomes related to consumers’ incomes and tastes. Low income consumers are influenced more by prices and less by quality. Product dimensions like texture, colour and content give an added value to it in the eyes of the potential customer. Baby stores which have strategic capabilities would be able to enhance those values through better customer relations. The international appeal of the product plays a very significant role here as consumers tend to associate brand with product quality. Brand dependency is probably the most inescapable outcome related to this strategic approach. Finally competitive strength of the organization is determined by its corporate strategies including the marketing strategy (Stone and Jacobs, 2007, p.23). For example a baby store would have to initiate its corporate strategy of satisfying the consumer with a basket of services provided with the product so that competitors would be compelled to match its own strength or adopt a different policy approach such as lower prices to attract customers. How best a baby store would be able to match its competitors in this environment of stiffer competition depends on the inner organizational strengths such as leadership style and motivation of staff. SWOT Analysis and Table Examples: External Environmental Strengths Weaknesses Opportunities Threats political, e.g. Gov interference good positive cash flow. as accumulating bad debt as a rival’s inability to meet demand a rival’s sales promotion campaigns economic, e.g. Gov. policies substitutes resource waste Selling domestic products Substitutes social- e.g. Cultural differences product differentiation lack of diversification patents rivals’ ability to cut down cost technological, e.g. latest developments innovation poor communication capacity rationalization low cost imports Foreign, e.g. import tariffs super brands negative employee relations Better customer relations higher tariffs legal/ e.g. environmental laws motivation Greater price elasticity Market research poor employee relations regulatory, e.g.standards quality control lack of branding democratic leadership style standards. Conclusion SWOT analysis in respect of a baby store can be carried out with specific reference to external environmental factors such as government policies – fiscal and monetary policies, exchange rates policy and national minimum wages. These policies along with government regulations and environmental laws affect businesses in a manner that leads to organizational responses in keeping with its own competitive environment for long term survival. A baby store depending on its location is similarly exposed to this strategically important competitive environment as any other organization is. The strengths and weaknesses of a baby store are determined by these external influences as much as they are determined by its own internal structures, processes and systems. This outcome bears on the organization’s capacity to respond to these influences by adopting corporate strategies that enable it to overcome threats and make use of opportunities successfully given the degree of competitors’ relative position in the market. REFERENCES 1. McIntyre-Mills, J. (2004). Critical Systemic Praxis for Social and Environmental Justice (Contemporary Systems Thinking). New York: Springer. 2. Mello, S. (2003). Customer-centric Product Definition: The Key to Great Product Development. Massachusetts: PDC Professional Publishing. 3. Stone, B. and Jacobs, R. (2007). Successful Direct Marketing Methods, 8th Edition. New York: McGraw-Hill. Read More