QUESTION 2

What do you understand by SWOT analysis? Explain how it is important for the organizations in
taking strategic decisions. Illustrate your answer with the help of an example.

SWOT ANALYSIS

One of the components of strategic thinking requires the generation of a series of strategic
alternatives, or choices of future strategies to pursue, given the company's internal strengths and
weaknesses and its external opportunities and threats. The comparison of strengths, weaknesses,
opportunities, and threats is normally referred to as a SWOT analysis

♦ Strength: Strength is an inherent capability of the organization which it can use to gain
strategic advantage over its competitors.
♦ Weakness: A weakness is an inherent limitation or constraint of the organization which creates
strategic disadvantage to it.
♦ Opportunity: An opportunity is a favourable condition in the organisation’s environment which
enables it to strengthen its position.
♦ Threat: A threat is an unfavourable condition in the organisation’s environment which causes a
risk for, or damage to, the organisation’s position.

Its central purpose is to identify the strategies that will create a firm-specific business model that
will best align, fit, or match a company's resources and capabilities to the demands of the
environment in which it operates. Strategic managers compare and contrast the various
alternative possible strategies against each other with respect to their ability to achieve major
goals and superior profitability. Thinking strategically requires managers to identify the set of
strategies that will create and sustain a competitive advantage:
♦ Functional-level strategy, directed at improving the effectiveness of operations within a
company, such as manufacturing, marketing, materials management, product development, and
customer service.
♦ Business-level strategy, which encompasses the business's overall competitive theme, the way
it position; itself in the marketplace to gain a competitive advantage, and the different
positioning strategies that can be used in different industry settings-for example, cost leadership,
differentiation, focusing on a particular niche or segment of the industry, or some combination of
these.
♦ Global strategy, addressing how to expand operations outside the home country to grow and
prosper in a world where competitive advantage is determined at a global level.
♦ Corporate-level strategy, which answers the primary questions. What business or businesses
should we be in to maximize the long-run profitability of the organization, and how should we
enter and increase our presence in these businesses to gain a competitive advantage? The
organization’s performance in the marketplace is significantly influenced by the three factors
♦ The organization’s correct market position
♦ The nature of environmental opportunities and threat
♦ The organization’s resource capability to capitalize the opportunities and its ability to protect
against the threat
The significance of SWOT analysis lies in the following points:
♦ It provides a Logical Framework SWOT analysis provides us with a logical framework for
systematic and sound thrashing of issues having bearing on the business situation, generation of
alternative strategies and the choice of a strategy. Variation in managerial perceptions about
organizational strengths and weaknesses and the environmental opportunities and threats lead to
differences is approaches to specific strategies and finally the choice of strategy that takes place
through an interactive process in dynamic backdrop.
♦ It presents a Comparative Account: SWOT analysis presents the information about both
external and internal environment in a structured form where it is possible to compare external
opportunities and threats with internal strengths and weaknesses. The helps in matching external
and internal environments so that a strategist can come out with suitable strategy by developing
certain patterns of relationship. The patterns are combinations say, high opportunities and high
strengths, high opportunities and low strengths, high threats and high strengths, high threats and
low strengths. In case a different strategy is needed, as situation varies.
♦ It guides the strategist in Strategy Identification: It is natural that a strategist faces a problem
when his organization cannot be matched in the four patterns. It is possible that the organization
may have several opportunities and some serious threats. It is equally, true that the organization
may have powerful strengths coupled with major weaknesses in the light of critical success
factors. In such situation, SWOT analysis guides the strategist to think of overall position of the
organization that helps to identify the major purpose of the strategy under focus.

SWOT analysis helps managers to craft a business model (or models) that will allow a company
to gain a competitive advantage in its industry (or industries). Competitive advantage leads to
increased profitability, and this maximizes a company's chances of surviving in the fast-
changing, global competitive environment that characterizes most industries today.

Faced with a constantly changing environment, each business unit needs to develop a marketing
information system to track trends and developments, which can be categorized as an
opportunity or a threat. The company has to review its strength and weakness in the background
of environment’s opportunities and threat, i.e., an organization’s SWOT analysis.

Potential Resource Strengths and Competitive Potential Resource Weaknesses and

Capabilities Competitive Deficiencies

A B

Potential Company Opportunities Potential External Threats to Company’s Well-

Being

C D

A. Potential Resources Strengths and Competitive Capabilities

 ♦ A powerful strategy supported by competitively valuable skills and experience in key
areas.
♦ A strong financial condition; ample financial resources to grow the business.
♦ Strong brand name, image/company reputation.
♦ A widely recognized market leader and an attractive customer base.
♦ Ability to take advantage of economies of scale and/or learning and experience curve
effects.
♦ Proprietary technology/ superior technological skills/ important patents.
♦ Superior intellectual capital relative to key rivals.
♦ Cost advantages.
♦ Strong advertising and promotion.
♦ Product innovation skills.
♦ Proven skills in improving product processes.
♦ Sophisticated use of e-commerce technologies and processes.
♦ Superior skills in supply chain management.
♦ A reputation for good customer service.
♦ Better product quality relative to rivals.
♦ Wide geographic coverage and/or strong global distribution capability.
♦ Alliances/joint ventures with other firms that provide access to valuable technology,
competencies, and/or attractive geographic markets.

B. Potential Resource Weaknesses and Competitive Deficiencies

♦ No clear strategic direction.

♦ Obsolete facilities.
♦ A weak balance sheet, burdened with too much debt.
♦ Higher overall unit costs relative to key competitors.
♦ Missing some key skills or competencies/lack of management depth/ a deficiency of
intellectual capital relative to leading rivals.
♦ Subpar profitability; no cost control measures or cost accounting practices.
♦ Plagued with internal operating problems.
♦ Falling behind rivals in putting e-commerce capabilities and strategies in place. ♦ Too
narrow a product line relative to rivals.
♦ Weak brand image or reputation.
♦ Weaker dealer network than key rivals and/or lack of adequate global distribution
capability.
♦ Subpar e-commerce systems and capabilities relative to rivals.
♦ Short on financial resources to fund promising strategic initiatives.
♦ Lots of underutilized plant capacity.
♦ Behind on product quality and/or R&D and/or technological know-how.
♦ Not attracting new customers as rapidly as rivals.

C. Potential Company Opportunities

♦ Serving additional customer groups or expanding into new geographic markets or
product segments.
 ♦ Expanding the company’s product line to meet a broader range of customer needs.
♦ Utilizing existing company skills or technological know-how to enter new product
lines or new businesses.
♦ Using the internet and e-commerce technologies to dramatically cut costs and/or to
pursue new sales growth opportunities.
♦ Integrating forward or backward.
♦ Falling trade barriers in attractive foreign markets.
♦ Openings to take market share away from rivals.
♦ Ability to grow rapidly because of sharply rising demand in one or more market
segments.
♦ Acquisition of rival firms or companies with attractive technological expertise.
♦ Alliances or joint ventures that expand the firm’s market coverage or boost its
competitive capability.
♦ Openings to exploit emerging new technologies.
♦ Market openings to extend the company’s brand name or reputation to new geographic
areas.

D. Potential External Threats to Company’s Well-Being

♦ Likely entry of potent new competitors.
♦ Loss of sales to substitute products.
♦ Mounting competition from new Internet start-up companies pursuing e-commerce
strategies.
♦ Increasing intensity of competition among industry rivals – may cause squeeze on
profit margins.
♦ Technological changes or product innovations that undermine demand for the firm’s
product.
♦ Slowdowns in market growth.
♦ Adverse shifts in foreign exchange rates and trade policies of foreign governments.
♦ Costly new regulatory requirements.
♦ Growing bargaining power of customers or suppliers.
♦ A shift in buyer needs and tastes away from the industry’s product.
♦ Adverse demographic changes that threaten to curtail demand for the firm’s product.
♦ Vulnerability to industry driving forces

SWOT Analyses at Moser Baer

.

Strengths Weaknesses

♦ Integrated manufacturing allowing cost ♦ Need to scale up operations and evolve

efficiencies and enhanced speed to market. internal controls to meet exponential
♦ Lower capital investment, manpower and growth.
overhead costs allow cost leadership. ♦ Need to constantly expand capacities,
♦ Strong focus on R&D and engineering to requiring continuing capital investment.
constantly innovate products and reduce
costs.
♦ Committed shareholders add strength,
longevity and sustainability to future plans
Opportunities Threats
♦ Exploding DVD-R market: With ♦ Emerging technologies: In a
world-class capacities, existing top- dynamic technology environment,
tier customer base and efficient in- the Company’s business could be
house technology, the Company is threatened from more efficient
well positioned to tap this emerging technologies. However,
opportunity. the extent of the threat is mitigated
♦ Domestic market: India has one by the explosive growth in digital
of the largest movie industries in content, low cost and ease of
the world and customers are storage on optical media, the huge
shifting to CDs for audio and DVDs installed base of read/write drives
for video requirements. and time to market for a new
♦ Blu-ray/HD-DVD: Efforts are on format.
worldwide to define and develop ♦ Anti-dumping and anti-subsidy
the next-gen storage format and levies: The Company derives a
Moser Baer is part of that effort. significant part of its revenues from
international markets. These have
seen a growing protectionist attitude
and a tendency by some local
governments to use anti-dumping
and trade protection tools to provide
protection to local businesses.
However, the Company continues
to keep a close watch on this front
and take necessary steps to
minimize any fallout.
♦ Fall in product prices: As
products move into the mature
phase in their life-cycle, they start
to emulate commodity-type
characteristics. Also, as the industry
is characterized by high volumes,
large capacities and investments, a
sharp reduction in product pricing
can impact performance. Pricing
could fall due to oversupply, low
demand, cost reduction due to
reduction in input costs or setting
 up of capacities in low-cost regions

About Moser Baer: Moser Baer, incorporated in 1983, is one of India's leading
technology companies and ranks among the top three media manufacturers in the world.
Based in New Delhi, India. it has a broad and robust product range of floppy disks,
compact discs (CDs) and digital versatile discs (DVDs). (Source:
http://moserbaer.com/investor_swot.asp)