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SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile)

As the firm operates under dynamic environment and strategic fit of internal strengths andweaknesses with external opportunities and threats is a must and a matter of constant and regular

exercise of the firm. Without this a firm can not be able to create a perfect match of its

capabilities with external demands. The approach to match internal capabilities withenvironmental opportunities and threats are known as SWOT analysis. The basic aim of SWOT

is to provide an insight to the managers the abilities of the firm (Strength and Weakness) in terms

of handling opportunities and threats. The SWOT provides a framework within which a firm candevelop and alter its strategies and shape the actions of functional and other levels of firms.

Internal analysis reveals the strength and weaknesses of the organization in term of its internal

capabilities, competencies, efficiencies, financial position, track record, experience.

Strengths: are resources, skills or other advantages relative to competitors. Strength is a DC that

gives a firm comparative advantage in the market and competition.

For Exp. Financial Resources, image, market leadership etc.

Weaknesses: limitations or deficiencies in resources, skills and capabilities of the firm thatseriously affect the firms performance under competition i.e. Disadvantages.

Opportunities: Major favorable situations in the firms environments. Opportunities may occurdue to poor performance of competitors, consumer demand shift, government policies, unique

raw materials, technological changes, better buyer-supplier relationships etc.

Threats: major unfavorable situations in the firms environment which may affect firms currentand potentials performance. A particular threat may be an opportunity for competitor and vice

versa.

Strategic Management Process:

Analysis of Internal Environment for Strength and WeaknessExternal Environment for Opportunities and Threats

Formulation and

Statement of

Vision, Mission The ultimate goals

Objective Market to CompeteStrategies & Competencies to develop

Policies and major Actions

Implementation of best fit organization structure, resources, culture and operation

control.

Evaluation &Control Developing counter strategies if necessary.

Effectiveness of HR, level of commitments, loyalties (all quantitative and qualitative) to compete

with the rival firms within industry are counted as Strength. Firms weaknesses are internal

deficiencies in term of above. The deficiencies are regarded as organizational constraints anddisadvantages to compete and fight with rival firms. When a firm analyzes its internal

capabilities as stated above the process is known as SAP (Strategic AdvantageProfile).

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On the other hand , analysis of external environment to find out opportunities and threats are

known as ETOP Analysis (Environmental Threats and Opportunities Profile). Thus we cansay SWOT is a function of SAP & ETOP.

Implications of SWOT Analysis:

1. SWOT provides the basis for exploiting the opportunities out of its internal strengths and

capabilities. These Strategies are called as Exploitative or Developmental Strategies.

2. Environmental Threats and their impacts can be minimize through minimum

exposures of weaknesses these strategies are called Blocking strategies.3. If firm is able to recover and repair its weaknesses these strategies are called as

Remedial Strategies.

STRENGTHS OPPORTUNITIES

- Clear vision & Mission - Increasing Income- Better Financial Position - Better Education

- Better Track Record - Developed Society- State of Art Technology - Govt. Support

-Better Network for Marketing - Absence of Strong

Competitors- Un-served Market

Segmentation

WEAKNESSES THREATS

- Poor Selling & Marketing Team - Potential Rivalry

- Poor Strategies - High Rate of Tech.

- Weak Customer Services in Future- Poor Understanding with channel members - MNCs Threats due

to Policies of

Govt.

Fig:SWOT Model

4. Cost Efficiencies Strength of a firm can be used to increase market share throughappropriate pricing strategy.

5. Firms internal and external situations and its strategic match can put the firm in a unique

position in market.

6. As stated above SWOT provides a strategic framework to firm within which it can plan

to compete in market. As shown in the figure below, there are 4 cells representing

respective strategies.

Firm

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Various Opportunities

CELL 3 CELL 1

Turnaround Aggressive Growth OrientedStrategy Strategy i.e. Offensive Strategies

Comparative Internal Substantial

Weakness Strength

CELL 4 CELL 2

Defensive Diversification & DefensiveStrategies Strategies

Major Environmental Threats

CELL 1: Represent most favorable situation with various opportunities and firms internalStrengths. Under these situations a firm can choose aggressive growth oriented strategies.

CELL 2: Shows the mixed situation with substantial internal strengths to face majorenvironmental threats. Firms strength can be used to exploit long term opportunities and to cop

with threats.

CELL 3: Various opportunities are there but the firm is unable to cash due to its internalweaknesses.

CELL 4: is just opposite to the cell -1 i.e. most unfavorable situation under these conditionwithdrawal or reduced operations is suggested in product market.

ETOP Analysis:

A profile of environmental threats and opportunities is considered to be a very useful device and

is a summarized depiction of environmental factors and their impact on future functions of firm

under competitive environment. The environment is a significant source of change and is highly

dynamic in nature. Some organizations become victim of the change and dynamism ofenvironment.

Basic Characteristics of Environment:

1. Uniqueness

2. Dynamic in Nature

3. Variability of Control

4. Environment Carries Risk, Uncertainties and Opportunities

On the basis of impact on a business house we can divide the environment into 4 categories:

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1. The Mega Environment or Broader Environment:a) Demographic Factors

b) Political Factorsc) Legal & Regularity

d) Socio-Cultural

e) Economic2. The Micro or Immediate Environment or Industry Environment:This environment and its components are very close to the firm; in fact the firm operates within

this environment. Therefore, the intensity of negative or positive effects are directly hit the firmand its strategies/decision making. Porter Model of 5 Forces is the best tool to evaluate this

environment.

Porters 5 Forces Effects on Industry Profitability and Functioning

High Rivalry Low Profitability

High Power of Suppliers Low Profitability

Low Power of Buyers High Profitability

Threats of Potential Rival- High Low Profitability in

Future and UnattractiveIndustry

Threats of Substitutes Low Profitability

3. The Technological Environment:

4. Global Environment

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Organizational Life-cycle & Decline

An organization undergoes changes in its conceptual and structural dimensionsover a period oftime, analogous to biological organisms, it is born, and it attains growth, gets matured and

eventually dies. Most research on life-cycle suggest three major growth stages and a decline

stage, each has its own conceptual variations and they result in observable change in structureand vision.

Entrepreneurial stage

It is the conceptual stage where the new product is defined, its market is identified and

development plan is executed.

Leadership Focus is on successful development of prototype or marketable product,

while able to manage the necessary finance.

Organization size is small, its reporting structure is flat and non-bureaucratic, and

founder bears the responsibility of managing all aspects of the organization.

The culture is informal, promotes innovation and risk-taking, the decision making iscentralized and mostly lies with the founder, long working hours are expected.

The specialization and growth are limited to the core functionalities like R&D,

manufacturing or service. The staff is usually highly skilled with relevant experience in

the core functions and the supporting staff is minimal.Individual effectiveness is most important at this stage.

Expansion

The organization emerges from entrepreneurial stage if it succeeds in its initial goal of product

creation and had secured finance and perhaps few customers. It then enters the

commercialization stage where it has to build the product in larger quantities, reach wider

customers and become a profitable venture. Leadership focus is on making the product work well and to increase the sales and

revenue.

The organization size needs to grow since it needs more resources for larger production

and sales. While a consistent growth in core functionality continues, additional growth

occurs in sales and marketing.

The culture gets inclined towards market culture since external environment is for the

time being stable, the entrepreneurial success provides some buffer time beforecompetition emerges on the horizon.

Organization structure starts its initial shift towards being more hierarchical; the

founder is incapable for managing everything and starts delegating tasks to his

subordinates creating management hierarchies. Since the expansion is particularly inR&D and sales, the supporting staff is still minimal; the organization adopts a functional

structure.

The organizational growth brings in more specialist and subordinates through hiring, it

inadvertently creates a leadership crisis at the top level since the changed organization

demands delegation of responsibility. All the initial founders and the individual technical

leads need to part with their autonomous powers that they enjoyed during the

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entrepreneurial phase and learn to delegate decision making and perform the new task of

coordination and team building. Middle management evolves and is responsible for

operations while the top management focuses on business strategies.

The management processes began to emerge in the activities related to production and

control, though they are still not very well defined and are still flexible.

Leadership challenge is to constantly scan the external environment for competition andhostility while it is so much focused on the growth.

Consolidation

The expansion phase results in an expanded operation related to production like purchasing,inventory control, etc and also diversely deployed sales staff. The organization was geared

towards maximizing its production and sales capacity. In consolidation stage, the focus shifts

towards cost control, productivity and profit.

The leadership focus is on achieving the organizational effectiveness.

The organization size is almost stable, the expansion stage might have lead to some

redundancies in core functions, but consolidation stage might include additional

manpower in supporting functions. The growth can occur in additional staff related toquality control, customer support, administrative functions and marketing. Unlike growthstage when the size increases linearly, the consolidation stage involves both downsizing

and hiring.

There is an increase in number of products, even though they might be still related to the

core competencies; as a consequence, the organizational structure becomesdivisionalwith more departments.

The organizations culture becomes bureaucratic due to high degree of formalization

and processes that are deemed necessary as a way to better control the operations.

The leadership challenge is to establish seamless communication protocol between

different departments, look for signs of external environmental changes and make

necessary corrective actions.

Decline

An organization enters the decline phase when it experiences continuous reduction in resources

and revenue over a substantial period of time. Ironically, the decline can be recognized with

certainty only when it is too late to recover from it, early signs are often mistaken to betemporary. The decline can occur after any growth stage, not necessarily after consolidation

stage; also growth does not always lead to decline, there is also possibility of long period of

stagnation. Stagnation can be defined as a state with no growth, fewer but dedicated customers,few competitors, a niche market or availability of abundant resources. Stagnation does not

usually result in loss of revenues or downsizing.

Reasons for decline

There are several causes of decline, some are quantitative and are easier to detect while other are

qualitative and are hard to comprehend. The decline can be due to adverse changes in the

external environment or inefficiencies pertaining to internal operations of the organization.

Quantitative reasons of decline

The quantitative analysis can be found in the organizations financial statements, its internal

operation reports and by using other mathematically measurable parameters.

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1. Reduced workforce: A cutback in size of the organization reflects a reduced total Market,

reduced need of products; lack of capability to deliver the product, hence the underlying reasons

implies a decline. However, there are times when cutback is a temporary measure to realign andrevitalize the organization for another phase of growth.

2. Reduced market share: The reduction in the market share of the company implies several

issues, growing competition if the total market is indeed growing or is stable, or contraction ofoverall market due to obsolete products or technologies.

3. Reduced profit or share price: It provides the investors assessment of the companies

operating margin and its prospects of growth in future.

Qualitative reasons of decline

Fierce competition: During the entrepreneurial stage, the big players might try all tools

in their arsenal to counter the threat of a newcomer. It includes practices of aggressivepricing, luring their established client base with bonus deals, acquisition of competitive

technologies and developing parallel products etc. Many times, the hostile takeover by

large and established company is for the purpose of quick termination of a competitor.

Lack of Customers: It happens due to unexpected decline in the niche market, a changein consumers choice for a different product or simply because the organization fails to

find proper market for the product. It can happen at any stage of life-cycle, the quarterly

sales and revenue over a period of time are good indicators of change in customer base.

Obsolete technology: Older organizations are very much vulnerable to newer

technologies that can adversely impact its core business and competencies.

Economic downfall: Harsh economic environment reduces the customer spending;

multiple vendors compete for the reduced market share. It also gets hard to obtain freshcredit and finances for new ventures or existing operations.

Organizational atrophy: It usually occurs in older organizations that have experienced

healthy growth & long period of stability; the hierarchical structure & the bureaucratic

culture of such large organization cause its slow degeneration. The organization size islarge with excessive personnel, middle management is incumbent that tolerates

incompetence, management processes are excessive and counterproductive; finally there

is a leadership crisis. Employees loose trust in the leadership and its vision; the employeesatisfaction level starts to dip consistently and so does its operational efficiency.

A Model of decline stages

Decline of an organization occurs in a series of observable and distinct stages, each exhibiting a

reduced capability to counteract. The most acknowledged model of decline proposes that the

organization goes through five stages of decline, before its final termination.

Blinded StageIn this stage, the organization fails to recognize any of the internal or external changes that may

threaten its survival. Usually, causes for the decline are present but are not evident; theleadership tends be insensitive and simply fails to make a connection between the observed

changes and a possible decline. Most organizations lack a unit that performs the task of scanning

both internal & external boundaries, partly due to additional cost and uncertain advantage. Themere concept of a stable environment is a myth and exists only as a theoretical concept;

environment is stable only for short duration. Similarly the need for internal surveillance cannot

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be ignored; it includes regular performance reviews, employee satisfaction surveys, training and

skill development, and most importantly an open communication mechanism to aid in vertical

flow of information. The initial signs of decline are usually very much visible and known to thebottom of the organizational pyramid, but the information fails to propagate upwards to its

leaders.

Inaction Stage

Unlike in blinded stage, the signs of deteriorating performance are clearly evident in this stage,

but the leadership still fails to take any action. Leaders often view them as temporary changesand instead of interpreting them as a threat, they choose to take `wait and see approach, perhaps

because this approach has worked in the past. The past successful approaches fail when the

current situations are very different, however the leaders always have tendency to follow the

planned course and suppress any dissident opinions. Finally, the aging leadership might simplylack the knowledge and insight to comprehend the influence of the changing conditions.

Faulty Action Stage

In this stage, the organization is clearly on its downfall and pressure to take corrective action isvery high. The vertical and horizontal information from within the organization and the external

environment increases manifolds along with its complexity. The overload of conflictinginformation & suggestive actions, combined with time pressure, compels the leadership to

centralized decision making and they tend to create a biased task force. However, due to high

pressure, the decision makers tends to make quick, risky and often fault decisions, that furtheraccelerates the decline. This further reduces the confidence in leadership and many talented

employees might end up leaving the organization in anticipation of its fall. Some of the

prescribed cure include introduction of new leadership, diversification of core business either

though self development or acquisitions and disinvestment in failing product lines.

Crisis Stage

The organization reaches a crisis stage when all prior actions have failed and it becomes obviousthat without any major change, its survival is questionable. All the stakeholders, including

customers, investors, suppliers and employees begin to distance themselves from the

organization and have lost faith in it. At this stage, the organization requires a massive structuralchange, a new strategy to deal with the external environment and a new ideology to revitalize the

ailing organization.

Dissolution Stage

This is the last stage of its demise and is irreversible; it is marked by depletion of its finance,

diminished market for its products and exodus of its talented employees. The new leadership and

the strategy had failed to revive the business and now their responsibility lies in properdissolution of the organization and its resources.

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