This paper attempts to discuss the theoretical SWOT analysis including its functions and purposes. Moreover, the study try to find out the advantages and disadvantages of the SWOT analysis by taking past studies and actual examples in the real business world, then evaluates and examines the practicability of the SWOT analysis
The SWOT analysis has been developed since asses and been commonly used in business for strategic analysis.
However, with the commercial environment being changing dramatically, the practicability of the SWOT analysis has been a controversial issue in both academic and business areas. Therefore, this paper is going to discuss the advantages and disadvantages of the SOOT analysis and aims to examine its practicability. What is SWOT analysis? As William R. Osgood had defined that SOOT analysis is the process of carefully inspecting the business and its environment through the various dimensions of Strengths, Weaknesses, Opportunities, and Threats. SWOT is a way to analyses a company or a departments position in the market in elation to its competitors” (Stacy Collect, 1999)
Strengths are skills and resources that the firm has more abundantly than other firms. They can be classified according to their value to the business and firm ability to exploit. On the contrary, weaknesses represent a lack of important skills or competencies relative to the presence of those resources in competing firms. They should be classified according to their risk to the business and firm ability to address.
Opportunities are outside conditions or circumstances that the company could turn to its advantage, and could include a specialty niche skill or technology that suddenly alkalizes a growth in broad market interest. Opportunities can be classified according to their success probability and their attractiveness. Threats are current or future conditions in the outside environment that may harm the company, and might include population shifts, changes in purchasing preferences, new technologies, changes in governmental or environmental regulations, or an increase in competition.
Threats should be classified according to their probability of occurrence and seriousness. SWOT analysis concept
Source: Paul Elgin, Mastering Business Planning and Strategy, p. 4 The ultimate objectives of the SWOT analysis, then, are to identify the overall strategy and the CIFS of the firm and to begin to develop a consensus among executives and managers regarding them. In devising a SOOT analysis, there are several factors that will enhance the quality of the material: I’ Keep it brief iv pages of analysis are usually not required.
SWOT Analysis By Expressway Contributor I’
Strengths and weaknesses should also be stated in competitive terms, if possible. It is reassuring to be
*good: at something, but it is more relevant to be
*better than the competition. :
Statements should be specific and avoid blandness iv there is little point in stating ideas that everyone believes in
Analysis should distinguish between where the company wishes to be and where it is now. The gap should be realistic. I’ Sufficient accurate information available on which to base Judgments. ‘ It is important to be realistic about the strengths and weaknesses of none own and competitive organizations. (RI) The process described thus far assumes that strategists are analytically objective in estimating the relative capacity of their company and the opportunity they see or anticipate in developing markets. Here is a good illustration of how Dell Computer Corporation can use a SWOT analysis to carve out a strong business strategy: sat first, Dell recognized that its strength was selling directly to consumers and keeping its costs lower than those of other hardware vendors.
As for weaknesses, the company acknowledged that it lacked solid dealer relationships. Identifying opportunities was an easier task. Dell looked at the marketplace and saw that customers increasingly valued convenience and one-stop shopping and that they knew what they wanted to purchase. Dell also saw the Internet as a powerful marketing tool. On the threats side, Dell realized that competitors like IBM and Compact Computer Corp… Had stronger brand names, which put Dell in a weaker position with dealers.
Dell put together a business strategy that included mass customization and Just-in-time manufacturing (letting customers design their own computers and custom-building systems). Dell also stuck with its direct sales plan and offered sales on the Internet. I” (RI) Advantages From the exposition of SWOT analysis mentioned above, SWOT analysis can be regarded as a systematic procedure for helping companies identify critical success factors based on objective facts and on marketing research findings and then can build on vital strengths, correct glaring weaknesses, exploit significant opportunities, and avoid disaster-laden threats.
Viewed in this light, SWOT analysis combines key environmental influences with the capability of the organization and hence the agenda for developing new strategies. Therefore, it provides highly competence of integration, which helps firms formulate strategies through all-round consideration. Sites SWOT analysis will also help management identify ways to capitalize on company’s strengths, correct any weaknesses, and ultimately assist in mapping out a Lana for the future success of your business. I” (Bubbler & Patricia 1994) sis SOOT analysis is a very important component of a company’s overall business plan. ” (Kenneth Fox) Sites goal is to identify all the major factors affecting competitiveness increasingly competitive marketplace, a challenge is generated that strategists have to structure and analyses complex situations with a large amount of information within a highly limited time scope.
Consequently, strategists have to limit their efforts to those issues that have the most impact on the situation. Thus, SWOT analysis revised a framework for identifying these critical issues and helps strategists accomplish strategic analysis efficiently. AS SWOT analysis of the organization iv its strengths, weakness, opportunities and threats iv is a useful way of summarizing the current status of the organization. I ” (Kenneth Andrew) sis SWOT analysis is relatively simple to carry out, yet it can reveal key factors that influence your business, both right now and in the future, helping you make key decisions for your business. I” (RE) Furthermore, by carefully identifying the critical success factors in this way, executives and managers can discover preferences in viewpoints. For example, what some managers might view as a strength others might view as a weakness.
SWOT analysis is being incorporated into all the large organizations and levels, therefore serves as a means for obtaining greater understanding and provides a highly productive way to get the key personnel involved in the management decision-making process. Thus, it develops consensus among managers regarding the factors that are crucial to the firm success. For capitalizing the external opportunities, the company needs to possess an internal strength in that area. If the capacity of company is weak for an opportunity, the opportunity should be foregone or the capacity should be improved.
That is, SOOT analysis assists firms to analyses a situation and develop suitable strategies and tactics as shown in the following table.
The TOWS Matrix Strength Weakness Opportunity
SO Strategies WOO Strategies Generate strategies here that use strength to take advantage of opportunity
Generate strategies here that take advantage of opportunity by overcoming weakness
SST Strategies WET Strategies Generate strategies here that use strengths to avoid threats
Generate strategies here that minimize weakness
Source: Adapted from Long-Range Planning, April 1982, H.Hierarchic, Sites TOWS Matrix Tool for Situational Analysis” p. 60.
Here is a good example that demonstrates how SWOT analysis benefits the company: sat GE, SOOT analysis is designed to give managers a platform for rethinking how to compete with other firms. Using SWOT analysis, Welch has more than tripled Gee’s productivity growth rate, doubled the proportion of annual revenues coming from high-growth technology and service sectors, and initiated Joint ventures with foreign firms like the Tungsten Company of Hungary (light bulbs) and Ericson of Sweden (cellular communications).
Welch is continuing to reshape GE by applying SWOT to both domestic and global businesses.
Disadvantages Nevertheless, the practicability of SWOT analysis has been the subject of controversy such as Richard Lynch commentary in 1997: supposable the biggest mistake that is commonly made every conceivable issue and is truly comprehensive. Nothing could be further from the truth. This merely demonstrates a paucity of real thought and a lack of strategic judgment about what is really important for that organization. Another common error is to provide a long list of points but little logic, argument and evidence.
A shortlist with each point well argued is more likely to be convincing. I” (RE) First of all, as mentioned that the process assumes that strategists are analytically objective in estimating the relative capacity of their company and the opportunity they see or anticipate in developing markets. However, here is the evidence against this assumption: Sites study of 303 INSTEAD Mambas and executives, using the Minnesota bank case, found that southern European managers were more likely to interpret an issue as a threat or a crisis, while northern Europeans tended to be more phlegmatic Schneider and De Meyer 1991). ” (RE) Therefore, it can be seen that national culture can make a difference to how manager analyses firm SWOT, which means that the SWOT analysis is very likely subjective. This circumstance can be also revealed from the following experiment: Jackson and Dutton (1998) tested eighty-three American MBA alumni with eight different (threatening or opportunity) scenarios involving a fictional Minnesota bank. They presented these scenarios in different kinds of language-I%neutral : ,
*ambiguous : ,
The result of the experiment was that presentation in up-beat language improved the average ratings of opportunities, and threatening language increased ratings of threats. However, ambiguous language significantly increased respondents: anxiety over threats, while making little difference to opportunity ratings. Moreover, while threatening language decreased ratings for opportunities, optimistic language did not significantly reduce rating for threats. ” (RE) Moreover, this experiment obviously illustrates that people are not only influenced by the language of issue presentation but also do not follow the same cognitive rules for opportunities and threats, noticeably being more subjective and sensitive about threats. Snitcher can strengths and weaknesses be objectively determined. (RE) siding a SWOT analysis actually has little to do with logical analysis, but in reality is nothing less than a creative interpretation of a problem situation. “
(RE) Likewise, due to that top managers put a great deal of emphasis on financial issues and very little on technical ones; middle and lower managers were concerned for technical issues but most completely ignored finance, position in the organizational hierarchy makes a preference to what issues get identified as. This point can be proven by another scholars study: islander et al. I (1987) study of fifty-six Latin American managers likewise found very little commonality on issues between different levels in the hierarchy. “(RE) On the other hand, in theory, SOOT framework suggests that a sound strategy should match the firm strengths and weaknesses to the opportunities and threats encountered in the firm environment.
However, when striving for this fit, should the company be primarily strength driven, weakness driven, opportunity driven or threats driven? Here is an actual example: seminaries at Texas Instruments (T’) split between those who wanted TTL to stick to industrial electronics (where it had consumer electronic products (where it lacked some required marketing strengths. ” (RE) Meanwhile, matching these factors, as the TOWS matrix shows, will creates strategies that may not make sense. For instance, one of the organization’s strengths is “plenty of cash” and one of its weaknesses is “lack of training”. Therefore, mixing these two factors together, SOOT straightforward develops a new strategy that has more training for the staff members. The obvious remark for this purposeless strategy will be
*so what! : A successful training program must have a specific target in response to external changes. Firms have to determine their specific needs for training in line with the external and internal factors.
That is to say, the strategy must have an external factor as a trigger in order to be feasible. From both examples above, therefore, on some occasions, SWOT analysis can not lead the company to a right direction. Moreover, while pursuing SWOT analysis, strategists consider the firm major factors horizontally without vertically thinking of their causes and consequences, which might mislead the strategies. For example, company A has a considerable advantage over company B in lower production costs, but company B is about to commission its new plant based on the newest, most efficient technology.
This situation apparently is a threat for company A rather than an advantage recognized through SOOT analysis. That is, another problem of SOOT is over simplifying problems. Sifts all its simplification, SOOT is often used poorly, and for purposes different from those it has been designed for. I” (Adam J. Koch) In addition, although many scholars eave clearly defined strength, weakness, opportunity and threat, strategists actually found that SOOT framework is handicapped by difficulties in distinguishing strengths from weaknesses and opportunities from threats.
The following two cases will reflect the practice problem of SOOT analysis: isles Michael Eisner a strength or a weakness for Walt Disney Company? To the extent that he has masterminded Disney revival over the past 17 years, he is an outstanding strength. Yet, his quadruple heart-bypass surgery and inability to implement a management succession plan suggest that he is also a weakness. ” (RI) Swiss the emergence of networked computing during the late asses a threat or an opportunity to Dell Computer?
To the extent that computer networks shift computing power from PC’s to servers, their expansion represented a threat to Deli core business. Nevertheless, while PC’s have fallen in price and their margins have narrowed, so Dell moved strongly into servers, and it has simultaneously expanded into computer servers. Therefore, that computer networking represented both a threat and an opportunity for Dell. I” (RI) Lastly, in view of dramatically changing and complex commercial oral, the development of SOOT analysis since asses seems out of keeping pace with times.
Especially with the development of technology, companies may retain their original technological superiority over most or all of their competitors, but this
*strengths: may in time diminish, or lose altogether, its significance. For example, effect on the relative quality of car finish. Leading the world in deployment of robots in coating, painting and assembly of cars, Japanese carmakers were able to more quickly catch up with and even better the standard of car finish of a vast majority of European and American companies. By contrast, possessing superior skilled mechanics is not a strength for car manufacture companies any more.
Conclusion To sum up, SWOT provides a framework for identifying Strengths, Weaknesses, Opportunities and Threats. It enables key factors to be visibly recorded as a high level summary off business situation. However, a number of problems would need to be concerned for the effectiveness of the SWOT analysis. Due to the misconceptions (appendix 1) and the evaluation of SOOT which depends on the idiosyncratic views held by strategists, the SWOT analysis is very likely conducted by subjective ideas with deviation. These horologists can be resulted in poor decisions and poor performance.
In particular, within a volatile and strongly competitive business world, we saw evidence mentioned above that the SWOT analysis is not as useful as before. At present, what firms need is accurate information and decision-making. Once a firm makes wrong decisions, it is very likely to be thrown out the industry. To promote the efficiency of the SWOT analysis, the first challenge is how to enhance its accuracy. Fortunately, with the development of information technology, it assists firms to collect valid information faster by POS system, database, Internet and so on.
Thus, the traditional SWOT analysis can be improved by providing general views with further objective numbers and weighing for each internal and external factors. Furthermore, as many new theories and analysis tools such as balanced scorecard have been introduced, each method has advantages and disadvantages; it is advantageous to draw on the strength of each to offset the weakness of the other and to make better analysis. Especially from the new article shipbuilding balanced scorecard with SOOT analysis, and implementing I*Sun Tutu’s The Art of Business Management Strategies: on SF methodology” written by S. F. Lee, Andrew SAA On OK, they have integrated balanced scorecard, SOOT analysis, SF, even ancient Chinese strategic ideas I*Sun Thus iv The Art of Wan: and produce a novel strategic analysis tool which is much more effective than SOOT analysis. In conclusion, the conventional SOOT analysis is no longer effective for the changing marketplace. It is an overview approach, which is unsuited to today complex and changing markets; otherwise, it is only appropriate to the early stages of strategic analysis.
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Common Misconceptions about SOOT Misconception What’s wrong bout it Consequences of this misconception SOOT has got an analytical capacity of its own SOOT is essentially only an analytical framework of the internal and external audit. Any SWOT generated inputs may be wrongly considered a reliable basis on which to found strategy making.
SWOT should only be done at, and for, the corporate level Most organizations follow, at any point in time, a number of strategies, some of which may relate to sub- corporate levels of activity (SUB, product line etc. ). If the deployment of SOOT is restricted to the corporate level of strategic analysis, SOOT outputs will often be sledding in that they will suggest that egg. All strengths and weaknesses are equally relevant to all Subs and products; another consequence is that the opportunity learn from conducting a series of SOOT based analyses at various corporate levels and in various divisions may be foregone.
SOOT is based on the current competitive situation If SOOT is done to prepare vital inputs to assist in strategy generation, then the only truly relevant reference is the future competitive situation anticipated in the period the strategy is formulated for. Anticipated future, competitive situation; should any significant changes occur to the sit, and the significance, of current strengths, weaknesses, opportunities and threats, the strategy may turn out to be a poor fit, and a failure.
The content of SOOT generated lists does not depend on the strategy the organization would implement Different strategies may depend for their success on different strengths and address different opportunities; the degree of this dissimilarity will depend on the underlying key success factors for these alternative strategies. The relevant inventories proposed at the outset of the strategy making process are very rarely strategy-specific; they also would normally not be revised after future scenarios have been produced and the anticipated strategy performance under individual scenarios examined.
The benchmarking/ benchmarking can be based on the current list of close competitors The strategic analysis should foresee the new competitive threats and new entrants into the company’s markets; the picture of competition must be brought up-to-date and include instances of hyperventilation. Companies guilty of such an oversight will be unable to counteract new entries and may find themselves ill-prepared to find an effective long-term strategic response to the new competitive Truckee and patterns, as well as to the competitive strengths of new entrants.
The benchmarking/ benchmarking can be based on the local market The increasing globalization of competition makes it an imperative for many companies to global benchmark/trend. Companies that rely on local benchmarking/trending will not develop objectives and strategies aimed at achieving/sustaining international competitiveness.
Source: Adam J. Koch, SOOT does not need to be recalled: it needs to be enhanced, http://planning. Mall. BC. Ca/primer/display. Asp? Title=definitions§ion=2 Word count: 1875