STRATEGIC PLANNNING 1: ANALYSIS TOOLS

1. SWOT ANALYSIS


STRENGTHS:

A firm’s strengths are it’s resources and capabilities that can be used as a basis for developing a competitive advantage.

Examples of such resources are:

 Strong brand awareness

 Patents

 Customer loyalty

 Cost advantages

 Exclusive access to resources

 Favorable access to distribution channels


WEAKNESSES:

Absence of particular strengths

 Weak brand awareness

 No patent protection

 Poor reputation among customers

 High cost structure

 Lack of access to resources

 Lack of access to distribution channels

In some cases, a weakness may be a flip-side of strength. Take the case in which a firm has a large manufacturing capacity. While the capacity may be taken as a strength in which the competitors do not share, it may also be considered a weakness if the large investment in the manufacturing capacity prevents the firm from reacting quickly to changes in the strategic environment.

OPPORTUNITIES:

Changes in the external environment that can be leveraged for growth and increase in profit

 Favorable trade policies

 Loosening of regulations

 Emergence of substitute products

 Changes in consumer behavior or tastes

THREATS:

Changes in the external environment that puts the firm at risk

 Unfavorable trade policies

 New regulations

 Emergence of substitute products

 Changes in consumer taste or behaviors

THE SWOT MATRIX

A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the firm’s strengths and the upcoming opportunities. In some cases, a firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity.

• S-O Strategies pursue opportunities that are a good fit to the company’s strengths

• W-O strategies overcome weaknesses to pursue opportunities

• S-T Strategies identify ways that the firm can use it’s strengths to reduce it’s vulnerability to external threats

• W-T Strategies establish a defensive plan to prevent the firm’s weaknesses from making it highly susceptible to external threats



DEVELOPING BUSINESS STRATEGIES

Once the SWOT is complete, the future strategy may be obvious or as is more likely the case, a series of strategies or combinations of tactics will become apparent

Use SWOTs to help identify possible strategies as follows:

 Build on strengths

 Resolve weaknesses

 Exploit opportunities

 Avoid threats

WHY STRATEGIES FAIL

There are many reasons why strategic plans fail, especially:

• Failure to understand the customer

o Why do they buy

o Is there a real need for the product

o inadequate or incorrect marketing research

• Inability to predict environmental reaction

o What will competitors do

 Fighting brands

 Price wars

o Will government intervene

• Over-estimation of resource competence

o Can the staff, equipment, and processes handle the new strategy

o Failure to develop new employee and management skills

• Failure to coordinate

o Reporting and control relationships not adequate

o Organizational structure not flexible enough

• Failure to obtain senior management commitment

o Failure to get management involved right from the start

o Failure to obtain sufficient company resources to accomplish task

• Failure to obtain employee commitment

o New strategy not well explained to employees

o No incentives given to workers to embrace the new strategy

• Under-estimation of time requirements

o No critical path analysis done

• Failure to follow the plan

o No follow through after initial planning

o No tracking of progress against plan

o No consequences for above

• Failure to manage change

o Inadequate understanding of the internal resistance to change

o Lack of vision on the relationships between processes, technology and organization

• Poor communications

o Insufficient information sharing among stakeholders

o Exclusion of stakeholders and delegates



SWOT ANALYSIS EXAMPLE

 The scenario is an imaginary business-to-business manufacturing company, which historically relied upon distributors to take their products to the end user market

 The opportunity, and therefore the subject for the SWOT analysis, is for the manufacturer to create a new company of it’s own to distribute it’s products directly to certain end user sectors, which are not being covered by the distributors

STRENGTHS

 End-user sales control and direction

 Right products, quality and reliability

 Superior product performance vs. competitors

 Better product life and durability

 Spare manufacturing capacity

 Some staff have experience of end user sector

 Have customer lists

 Direct delivery capability

 Product innovations ongoing

 Can serve from existing sites

 Products have required accreditations

 Management is committed and confident

WEAKNESSES

 Customer lists not tested

 Some gaps in range for certain sectors

 We would be a small player

 We have no direct marketing experience

 Need more sales people

 Limited budget

 No pilot or trial done yet

 Delivery-staff need training

 Customer service staff need training

 Management cover insufficient

 We cannot supply end-users abroad

OPPORTUNITIES

 Could develop new products

 Local competitors have poor products

 Profit margins will be good

 End-users respond to new ideas

 Could extend to overseas

 New specialists applications

 Can surprise competitors

 Support core business economies

 Could seek better supplier deals

THREATS

 Legislation could have a negative impact

 Environmental effects would favor larger competitors

 Existing core business distribution risk

 Market demand very seasonal

 Retention of key staff critical

 Could distract from core business

 Possible negative publicity

 Vulnerable to reactive attack by major competitors

SWOT ANALYSIS-POTENTIAL ERRORS

Common SWOT analysis mistakes:

 Conducting a SWOT analysis before defining and agreeing upon an objective (desired end state). If the desired end state is not openly defined and agreed upon, each participant may have a different end state in mind and the outcome is confusion

 Opportunities (external to the company) are often confused with strengths (internal to the company). Keep them separate

 Another error is to confuse SWOTs with possible strategies. This error is made especially with reference to opportunities. To avoid this error, it may be useful to think of opportunities as “auspicious conditions”. It may also be useful to keep in mind that SWOTs are descriptions of conditions. Possible strategies define actions



2. PEST ANALYSIS

It’s a scan of the external macro-environment in which the firm operates. Can be expressed in terms of the following factors:

 Political

 Economic

 Social

 Technological

PEST ANALYSIS-POLITICAL FACTORS

The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses.

You must consider issues such as:

 Tax policy

 Employment laws

 Environmental regulations

 Trade agreements, restrictions, and tariffs

 Political stability

PEST ANALYSIS-ECONOMIC FACTORS

Economic factors affect the purchasing power of potential customers and the firm’s cost of capital.

Important macro-economic issues to consider include:

 Gross Domestic Product [GDP] per capita

 Economic growth

 Interest rates

 Exchange rates

 Inflation rate

PEST ANALYSIS-SOCIAL FACTORS

Social factors include the demographic and cultural aspects of the external macro-environment. These factors affect customer needs and the size of potential markets

Some social factors to consider include:

 Age distribution

 Population growth rate

 Religion

 Language

 Roles of men and women in society

 Health consciousness

 Amount of leisure time

 Distribution of wealth by age

PEST ANALYSIS-TECHNOLOGICAL FACTORS

Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions.

Some technological factors to consider include:

 Research and development [R&D] activity

 Level of automation

 Technology incentives

 Degree to which technology allows for cheaper and/or higher quality production

 Degree to which technology allows for more innovative products and services

 Opportunities for new distribution channels

 New ways to communicate with customers