S W O T Analysis

Internal Analysis of:– Strengths and Weaknesses– Resources and Capabilities– Competitive Competencies

The Aim of Strategy is ....

to find a position in the industrywhere the company can best defenditself against competitive forces orcan influence them in its favour.

Porter 1980

Competitive SuccessRequires

Re-shape Environment byChoice ofStrategy

The Degree ofFit of the Strategywith the ExistingEnvironment

Creates a NewEnvironmentwhere there isa New Fit betweenStrategy and theEnvironment

Fit between Firm Strategy and its Environment

Internal Analysis

• The SW part of the SWOT analysis that often forms the first part of any strategic assessment of a company. This analysis feeds into the development of strategic options that a company is considering

• The internal analysis is related to how the firm develops and leverages its competitive advantage.

Internal Analysis

When we conduct an Internal Analysis we

are trying to assess:• The competitive strengths of the firm• The competitive weaknesses of the firm• Its resources • Its capabilities

Internal Analysis

• The firm must build on its strengths and use them to leverage any competitive advantage it has

• Minimise or neutralise any weaknesses and ensure that the firm does not rely on these elements to build its strategy around

Strategy built around SW

• Identify - Key Success Factors (KSFs) ie what factors are necessary to create success in an industry

• Identify - Resources & Capabilities (R&C) the firm can call upon

• Analyse & Evaluate - the gap between the KSFs and the R&C

Key Success Factors

Technology & MATCH ?Market Context

Resources & NO - Poor Capabilities Performanceof the Firm

Key Success YES - HighFactors Performance

Typically we

• Define the Strengths and Weaknesses• Assign the priorities to close the gap• Develop a strategy to enhance the

strengths and reduce the weaknesses

This assumes that we can identify such KSFs and make sense of what is happening. Frequently we can’t, and when we can it isprobably too late as the game has moved on.

Analysing ResourcesProviding the Data Base

Identify the attributes Measure its effectivenessMeasure its efficiency

Drawing Comparisons Assessing the Balance

Historical analysis Company portfolioIndustry norms Internal skillsNormative criteria Key success factors Costs... etc

Identification of CapabilitiesDistinctive competenciesResource assessmentEvaluation of gap between success factors & SW profile

Typical SW Items

• Financial Aspects• Marketing Aspects• Production Aspects• Personnel Aspects• Cost Base

SW Profile

• Identify Strengths and Weaknesses• Rank them in importance in leveraging

Competitive Advantage• Score them against desired criteria• Total and assess

Quest for Competitiveness in the Quest for Competitiveness in the 1990s1990s

Restructuring/ Process Re-inventingDownsizing Re-engineering the BusinessRe-evaluating Continual the Portfolio Improvement

Smaller Better Different

Hamel & Prahalad 1994

T O W S MatrixInternal Factors

External Factors

Strengths Weaknesses

Opportunities

Threats

Leverage ConstraintOS OW

Vulnerability Problematic TS TW

Source: adapted from- Weihrich, H (1982)

SWOT Profile and Possible Strategies

O

T

S W

Aggressive Strategy Reconfiguration Strategy

Diversification Strategy

Turnaround Strategy

Resources & Skills

Resources and skills can erode over time• Need to continually invest• Need to continue to be innovative• Need to continue to renew the skills

base

Examples of firms that “took their eye off the ball “

Resources as the basis for corporate profitability

• Conventional approaches to competitive advantage focus upon the “generic” sources (cost, differentiation)

• Resource-based view concentrates upon the resources and capabilities that underlie these advantages.

• Conventional approaches to competitive advantage focus upon the “generic” sources (cost, differentiation)

• Resource-based view concentrates upon the resources and capabilities that underlie these advantages.

RBV approach to strategy analysis - (R M Grant)

Strategy

Competitive Advantage

Capabilities

Resources

Identify GapsInvest and AugmentResource Base

We see this later in this presentation

The Role of Resources and Capabilities in

Strategy Formulation

Two Important Points:

• Individual resources; items of capital equipment, the skills of individual employees, patents, brand names, etc.

• How the resources work together to create capabilities and competitive advantage

Link between R&C and Strategy

Resources & Capabilities Strategies(Competencies)

Shape

Build

Elements in Distinctive Competencies

DistinctiveCompetencies

Superior Efficiency

Superior Quality

Superior Innovation

Superior Customer Responsiveness

Competitive Advantage SimplifiedSuperiorQuality

Superior Efficiency

SuperiorCustomerResponsiveness

Superior Innovation

Competitive Advantage

Low-costDifferentiation

Day & Wenley’s Model of Comp Adv

Superior Resources

Superior Skills

Positional Advantage

•Differentiation•Low-cost•Niche

PerformanceOutcomes

•Satisfactory•Premium

Invest to maintain comp advDay & Wensley 1988

Durability of Comp Advantage

Durability of a Firm’sCompetitive Advantage

Barriers to Capability IndustryImitation of Competitors Dynamism

Lets expand on this a little more

Sustainability of Com Adv depends on:

• Durability• Transparency• Replicability• Transferability

Resources & Skills of a Firm• Are central when considering strategy• They are primary constructs around which the

firm can– establish its identity– frame its strategy

• Fundamental to leveraging advantage• Primary sources of the firm’s profitability.

PatentsBrandsRetaliatory capacity

Market share

Firm sizeFinancial ResourcesProcess TechSize of plantsAccess to low-cost inputs

BrandsProduct technologyMarketing, distribution,service capabilities

Barriers to Entry

Monopoly

VerticalBargaining

Power

CostAdvantage

DifferentiationAdvantage

Competitive Advantage

IndustryAttractiveness

Rate of Profitin Excess of theCompetitive Level

Resources as the Basis of Superior Profitability

Source: R M Grant(1991)

Issues surrounding Resources &Capabilities

Resources and Capabilities can be often be:• Transferable• Replicable • Transparent

If so, then sustaining comp adv is difficult, but firms can use these factors to their own advantage in their own strategies

Examples ...

Examples

Industries where Resources & Skills are easily transferable or imitated:

• Retailing• Financial services• Fashion• Toys Firms have brief windows of opportunity to exploit their strengths before imitators erode it away.

HoweverFirm can exploit these issues in developing their

own strategies when they expand or diversify their interests:

• Geographic expansion• Product expansion• Mergers• Alliances

BUT • Can success in the home market lead to success

in the foreign market ?– Marks & Spencer Plc– Sainsburys– Bass– Dixons– Laura Ashley etc..

• The evidence is mixed for these firms

WHY is this difficult ?Barriers.

• Barriers to Transferability• Barriers to Replicability• Barriers to Durability• Transparency

But can we actually ‘see’ into other firms ?

• Success factors are ‘difficult to identify never mind observe

• Firms are entrepreneurial and change is a way of life

• The game moves on• Identify the success factors now and act, may be

too late, firm need ‘foresight’

Entrepreneurial view of Strategy …. Austrian School

And FinallyAnd Finally

A Model to show how Resources & Capabilities are Linked to

Strategy Formulation

RESOURCES

Tangible Intangible Human

ORGANIZATIONALCAPABILITIES

STRATEGYINDUSTRYKEYSUCCESSFACTORS

COMPETITIVEADVANTAGE