Background for Strategic management

SWOT analysis

drs. Fiona Courtens

Overview

1. SWOT: Definition of the concept

2. How to perform a SWOT analysis

1. SWOT: Definition and use
• Strengths, Weaknesses, Opportunities, and Threats
• SWOT: a tool for identifying strategic options, based on the identification of, and
search for a fit between, environmental and internal variables.

• Can be used for specific objectives:

• Preparing strategic plan;
• Improve part(s) of your business;
• Assess feasibility of a new initiative;
• Make a specific decision;
• Set goals;
• Planning your career.
1. SWOT: Definition
1. Strengths: internal strong points of organisation
2. Weaknesses: internal weak points of the organisation
3. Opportunities: interesting external factors with which the organisation deals and which bear
possibilities to improve performance
4. Threats: external factors that weaken the organisation or threaten its existence

Internal External
Positive
S O

W T
Negative
 2. How to perform a SWOT analysis

• Step 1: Definition of the business objective/problem you want to address

• Step 2: Analysis of the internal environment: S&W Identification
• Step 3: Analysis of the external environment: O&T
• Step 4: Confrontation of elements Cross-
referencing

*Step 2 and 3 do not need to be in chronological order necessarily, you can start by analyzing O&T, and afterwards S&W.
2. How to perform a SWOT analysis
• Step 1: Definition of the business objective/problem you want to address

• Influences which variables are relevant and which are less relevant for the
discussion
• Define unit of analysis (UoA): company, department, team, individual. This
influences the boundaries (internal vs. external)
2. How to perform a SWOT analysis
• Step 2: Analysis of the internal environment: S&W

• S&W: under control of the company (or other UoA)

• Can be tangible (e.g., IT infrastructure, financial base, etc.) or intangible (e.g.,
human skills, reputation, network, etc.) elements
• Include those most relevant to the question the team is trying to answer
• Strength or weakness: sometimes up for discussion
• Compare in time: doing better (S)/doing worse (W); or
• Benchmark: better than competitors (S)/worse (W).
2. How to perform a SWOT analysis
• Step 2: Analysis of the internal environment: S&W
• Strengths include:
• Capabilities & resources that enable your company to perform superiorly
• “Core competencies”: where your company is exceptionally good at and what your
customers value
• Examples:
• Leadership abilities
• Intellectual property
• Quality
• Customer Service
• Alliances or partnerships
• Technology
2. How to perform a SWOT analysis
• Step 2: Analysis of the internal environment: S&W
• Weaknesses include:
• Disadvantages (compared to competitors)
• Something you lack or do poorly, or has become worse over time, e.g. decreasing
market share
• Flip side of strengths, e.g., weak leadership abilities, poor customer service
• Examples:
• Low quality
• Weak brand
• High cost structure
• Inefficiency
• Poor customer service
2. How to perform a SWOT analysis

• Step 2: Analysis of the internal environment: Models

2. How to perform a SWOT analysis
• Step 3: Analysis of the external environment: O&T

• O&T: outside organization, usually similar for direct competitors

• Environment of organization today, and of the future
• For analysis of external environment: all relevant stakeholders are involved as
well as overall trends
• Stakeholder management approach, PEST-analysis, etc.
2. How to perform a SWOT analysis
• Step 3: Analysis of the external environment: O&T

• Opportunities include:
• Trends, forces and events your company can capitalize on
• Broad-reaching trends (e.g., demographic shifts and removal of international
trade barriers) or more narrow forces (e.g., identification of an unmet customer
need, loosening of regulation) that affect your industry or niche
• Examples:
• Potential partners
• Regulation
• Changes in technology
• Opening of new markets
2. How to perform a SWOT analysis
• Step 3: Analysis of the external environment: O&T

• Threats include:
• Events or forces outside of your control that may negatively affect your company
• Broad-reaching trends (e.g. demographic shifts) and more narrow events (e.g.
entrance of a new competitor)
• Examples:
• Competitor lowering its prices
• Shift in consumer tastes
• Suppliers exerting price pressure
• New product that could be a substitute for our product or service
• Increased trade barriers
 2. How to perform a SWOT analysis

Step 3: Analysis of the external environment: Models

2. How to perform a SWOT analysis

Step 2 & 3: Analysis of the external & internal environment: SWOT checklist

1. BUSINESS & ECONOMIC ENVIRONMENT.

• Economic, socio-cultural, techno, political.
2. MARKET ENVIRONMENT.
• Size, growth, trends, mix development.
3. COMPETITIVE ENVIRONMENT.
• Major competition, sizes, shares, reputation, capabilities, ‘profitability’.
4. OWN ORGANISATION.
• Sales, ‘profitability’, market share, mix, costs, resources.
2. How to perform a SWOT analysis
• Step 4: Confrontation of elements

• Inside-out: how can we use our S and W to enjoy O or fence of T?

• More proactive

• Outside-in: what O & T exist, and are there S or W that can grasp O or influence T?
• Idea that UoA cannot influence environment
2. How to perform a SWOT analysis
Step 4: Confrontation of elements
Factors Strengths (S) Weaknesses (W)

OFFENSIVE: TURNING
Opportunities (O)
Exploiting the AROUND:
chances improving,
changing

DEFENSIVE: SURVIVING:
Threats (T)
defending crisis
against potential management,
attacks preparing for exit
2. How to perform a SWOT analysis
• Step 4: Confrontation of elements
• When different strategic decisions (SDs) are possible:
• See which one would have most impact for the discussion at hand;
• Adding criteria e.g., on importance, on urgency can reveal the most suitable SD.

SD Importance Urgency Priority

(A) (B) (AxB)
SD1 6 5 30
SD2 9 2 18
SD3 7 7 49
 Example Wumart: SWOT
Strengths Weaknesses
• Wumart ranked 7th in China’s chain stores • Wumart’s core strategy is regional positioning
• Its corporate culture • Difficult for Wumart to translate its competitive advantage in other regions
• Expand its network very fast • Brand not recognized
• Ability to expand at very low costs through joint venture with government district’s SOE
• Forged close relationship with government
• Different retail formats: hypermarket, supermarket and convenient stores
• “most still frequented neighbourhood supermarkets and convenience stores given the
relative geographic distance of hypermarkets”
• “Such a strategy turned out to be effective to avoid head-on competition with the
strongest competitor “
• IPO boosts Wumart for expansion with greater financial capacity
• Technology
• Acquired close competitors

Opportunities Threats
• Since SOEs are not able to compete in new environment • Fragmented markets
• Supermarkets and convenience stores still the preferred retail in China • Different preferences of customers per region
• Massive Urbanisation • Wumart might run the risk of losing other attractive markets before the markets are
• More and more transport saturated by rivals.
• Higher and more sophisticated demand, and wealth in China • Weaker bargaining power in other regions (Possibly)
• No brand recognition
• Foreign competition more intense in other regions were Wumart did not discourage entry
• Retailing increasingly competitive
 Example Wumart: Confrontation Matrix

Strengths Weaknesses
• Offensive: • Turning around:
Opportunities

• Wumart can use its experience in joint ventures, i.e. • Engage in collaboration the SOEs inability to compete in
collaboration with government (S), to obtain and other regions (O), and use this new experience to learn
modernize new retail in other regions, where how to translate ‘home’ (Beijing) competitive advantage
traditional retail-SOEs are unable to compete with in other regions (W).
modern retail (O).
• Defensive: • Survival:
• Wumart can counter the already present foreign • Reorganize the resource-bundles and form new
competition (T) who often employ one retail form, competitive advantage (W) to adapt to new market (T).
Threats

often hypermarkets, with another form, convenience

store or supermarket (S)

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