swot analysis

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SWOT Analysis

SWOT analysis is a simple framework for generating strategic alternatives from a situation

analysis. It is applicable to either the corporate level or the business unit level andfrequently appears in marketing plans. SWOT (sometimes referred to as TOWS) stands for

Strengths, Weaknesses, Opportunities, and Threats. The SWOT framework was described

in the late 1960's by Edmund P. Learned, C. Roland Christiansen, Kenneth Andrews, andWilliam D. Guth in Business Policy, Text and Cases (Homewood, IL: Irwin, 1969). The

General Electric Growth Council used this form of analysis in the 1980's. Because it

concentrates on the issues that potentially have the most impact, the SWOT analysis isuseful when a very limited amount of time is available to address a complex strategic

situation.

The following diagram shows how a SWOT analysis fits into a strategic situation analysis.

Situation Analysis

/ \

Internal Analysis External Analysis

/ \ / \

Strengths Weaknesses Opportunities Threats

|

SWOT Profile

The internal and external situation analysis can produce a large amount of information,

much of which may not be highly relevant. The SWOT analysis can serve as aninterpretative filter to reduce the information to a manageable quantity of key issues. The

SWOT analysis classifies the internal aspects of the company as strengths or weaknessesand the external situational factors as opportunities or threats. Strengths can serve as a

foundation for building a competitive advantage, and weaknesses may hinder it. By

understanding these four aspects of its situation, a firm can better leverage its strengths,

correct its weaknesses, capitalize on golden opportunities, and deter potentially devastatingthreats.

Internal Analysis

The internal analysis is a comprehensive evaluation of the internal environment's potentialstrengths and weaknesses. Factors should be evaluated across the organization in areassuch as:

• Company culture

• Company image

• Organizational structure

• Key staff



• Access to natural resources

• Position on the experience curve

• Operational efficiency

• Operational capacity

• Brand awareness

•

Market share• Financial resources

• Exclusive contracts

• Patents and trade secrets

The SWOT analysis summarizes the internal factors of the firm as a list of strengths andweaknesses.

External Analysis

An opportunity is the chance to introduce a new product or service that can generate

superior returns. Opportunities can arise when changes occur in the external environment.Many of these changes can be perceived as threats to the market position of existing

products and may necessitate a change in product specifications or the development of new

products in order for the firm to remain competitive. Changes in the external environmentmay be related to:

• Customers

• Competitors

• Market trends

• Suppliers

• Partners

• Social changes• New technology• Economic environment

• Political and regulatory environment

.

The SWOT analysis summarizes the external environmental factors as a list of opportunities and threats.

SWOT Profile



When the analysis has been completed, a SWOT profile can be generated and used as the

basis of goal setting, strategy formulation, and implementation. The completed SWOT

profile sometimes is arranged as follows:

Strengths Weaknesses

1.2.

3.

.

.

.

1.2.

3.

.

.

.

Opportunities Threats

1.

2.3.

.

.

.

1.

2.3.

.

.

.

When formulating strategy, the interaction of the quadrants in the SWOT profile becomes

important. For example, the strengths can be leveraged to pursue opportunities and to avoidthreats, and managers can be alerted to weaknesses that might need to be overcome in order

to successfully pursue opportunities.

Multiple Perspectives Needed

The method used to acquire the inputs to the SWOT matrix will affect the quality of theanalysis. If the information is obtained hastily during a quick interview with the CEO, even

though this one person may have a broad view of the company and industry, the

information would represent a single viewpoint. The quality of the analysis will be

improved greatly if interviews are held with a spectrum of stakeholders such as employees,suppliers, customers, strategic partners, etc.

SWOT Analysis Limitations

While useful for reducing a large quantity of situational factors into a more manageable profile, the SWOT framework has a tendency to oversimplify the situation by classifyingthe firm's environmental factors into categories in which they may not always fit. The

classification of some factors as strengths or weaknesses, or as opportunities or threats is

somewhat arbitrary. For example, a particular company culture can be either strength or aweakness. A technological change can be a either a threat or an opportunity. Perhaps what

is more important than the superficial classification of these factors is the firm's awareness

of them and its development of a strategic plan to use them to its advantage.

http://www.netmba.com/strategy/process/

http://www.netmba.com/strategy/process/



The BCG Growth-Share Matrix

The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce

Henderson of the Boston Consulting Group in the early 1970's. It is based on the

observation that a company's business units can be classified into four categories based oncombinations of market growth and market share relative to the largest competitor, hence

the name "growth-share". Market growth serves as a proxy for industry attractiveness, and

relative market share serves as a proxy for competitive advantage. The growth-share matrix

thus maps the business unit positions within these two important determinants of profitability.

BCG Growth-Share Matrix

This framework assumes that an increase in relative market share will result in an increase

in the generation of cash. This assumption often is true because of the experience curve;

increased relative market share implies that the firm is moving forward on the experience

curve relative to its competitors, thus developing a cost advantage. A second assumption is

that a growing market requires investment in assets to increase capacity and thereforeresults in the consumption of cash. Thus the position of a business on the growth-share

matrix provides an indication of its cash generation and its cash consumption.

Henderson reasoned that the cash required by rapidly growing business units could be

obtained from the firm's other business units that were at a more mature stage and

generating significant cash. By investing to become the market share leader in a rapidly

http://www.netmba.com/strategy/experience-curve/

http://www.netmba.com/strategy/experience-curve/



growing market, the business unit could move along the experience curve and develop a

cost advantage. From this reasoning, the BCG Growth-Share Matrix was born.

The four categories are:

•

Dogs - Dogs have low market share and a low growth rate and thus neither generatenor consume a large amount of cash. However, dogs are cash traps because of the

money tied up in a business that has little potential. Such businesses are candidates

for divestiture.

• Question marks - Question marks are growing rapidly and thus consume large

amounts of cash, but because they have low market shares they do not generate

much cash. The result is a large net cash comsumption. A question mark (alsoknown as a "problem child") has the potential to gain market share and become a

star, and eventually a cash cow when the market growth slows. If the question mark

does not succeed in becoming the market leader, then after perhaps years of cash

consumption it will degenerate into a dog when the market growth declines.

Question marks must be analyzed carefully in order to determine whether they areworth the investment required to grow market share.

• Stars - Stars generate large amounts of cash because of their strong relative marketshare, but also consume large amounts of cash because of their high growth rate;

therefore the cash in each direction approximately nets out. If a star can maintain its

large market share, it will become a cash cow when the market growth ratedeclines. The portfolio of a diversified company always should have stars that will

become the next cash cows and ensure future cash generation.

• Cash cows - As leaders in a mature market, cash cows exhibit a return on assets

that is greater than the market growth rate, and thus generate more cash than theyconsume. Such business units should be "milked", extracting the profits and

investing as little cash as possible. Cash cows provide the cash required to turnquestion marks into market leaders, to cover the administrative costs of thecompany, to fund research and development, to service the corporate debt, and to

pay dividends to shareholders. Because the cash cow generates a relatively stable

cash flow, its value can be determined with reasonable accuracy by calculating the present value of its cash stream using a discounted cash flow analysis.

Under the growth-share matrix model, as an industry matures and its growth rate declines,

a business unit will become either a cash cow or a dog, determined soley by whether it had

become the market leader during the period of high growth.

While originally developed as a model for resource allocation among the various businessunits in a corporation, the growth-share matrix also can be used for resource allocation

among products within a single business unit. Its simplicity is its strength - the relative

positions of the firm's entire business portfolio can be displayed in a single diagram.

Limitations



The growth-share matrix once was used widely, but has since faded from popularity as

more comprehensive models have been developed. Some of its weaknesses are:

• Market growth rate is only one factor in industry attractiveness, and relative marketshare is only one factor in competitive advantage. The growth-share matrix

overlooks many other factors in these two important determinants of profitability.• The framework assumes that each business unit is independent of the others. In

some cases, a business unit that is a "dog" may be helping other business units gaina competitive advantage.

• The matrix depends heavily upon the breadth of the definition of the market. A

business unit may dominate its small niche, but have very low market share in theoverall industry. In such a case, the definition of the market can make the difference

between a dog and a cash cow.

While its importance has diminished, the BCG matrix still can serve as a simple tool for

viewing a corporation's business portfolio at a glance, and may serve as a starting point for

discussing resource allocation among strategic business units.

PESTEL Analysis

A PEST analysis is an analysis of the external macro-environment that affects all firms.P.E.S.T. is an acronym for the Political, Economic, Social, and Technological factors of the

external macro-environment. Such external factors usually are beyond the firm's control

and sometimes present themselves as threats. For this reason, some say that "pest" is anappropriate term for these factors. However, changes in the external environment also

create new opportunities and the letters sometimes are rearranged to construct the more

optimistic term of STEP analysis.

Many macro-environmental factors are country-specific and a PEST analysis will need to be performed for all countries of interest. The following are examples of some of the

factors that might be considered in a PEST analysis.

Political Analysis

• Political stability

•

Risk of military invasion• Legal framework for contract enforcement

• Intellectual property protection

• Trade regulations & tariffs

• Favored trading partners

• Anti-trust laws

• Pricing regulations

• Taxation - tax rates and incentives

• Wage legislation - minimum wage and overtime



• Work week

• Mandatory employee benefits

• Industrial safety regulations

• Product labeling requirements

Economic Analysis

• Type of economic system in countries of operation

• Government intervention in the free market

• Comparative advantages of host country

• Exchange rates & stability of host country currency

• Efficiency of financial markets

• Infrastructure quality

• Skill level of workforce

• Labor costs

• Business cycle stage (e.g. prosperity, recession, recovery)

• Economic growth rate• Discretionary income

• Unemployment rate

• Inflation rate

• Interest rates

Social Analysis

• Demographics

• Class structure

• Education

• Culture (gender roles, etc.)• Entrepreneurial spirit

• Attitudes (health, environmental consciousness, etc.)

• Leisure interests

Technological Analysis

• Recent technological developments

• Technology's impact on product offering

• Impact on cost structure

• Impact on value chain structure

• Rate of technological diffusion

The number of macro-environmental factors is virtually unlimited. In practice, the firm

must prioritize and monitor those factors that influence its industry. Even so, it may be

difficult to forecast future trends with an acceptable level of accuracy. In this regard, thefirm may turn to scenario planning techniques to deal with high levels of uncertainty in

important macro-environmental variables.



Ecological Analysis:

An ecological study is an epidemiological study in which the unit of analysis is a

population rather than an individual. For instance, an ecological study may look at theassociation between smoking and lung cancer deaths in different countries. An ecological

study is normally regarded as inferior to non-ecological designs such as cohort and case-

control studies because it is susceptible to the ecological fallacy. An example of an

ecological study is the analysis of the effects of disinfection byproducts on newborn babies,using 109 Massachusetts towns as units of analysis (Wright et al. 2004). (For an

environmental definition of this term see Ecology.)

Ecological studies can be easily confused with cohort studies, especially if different cohortsare located in different places. The difference is that in the case of ecological studies there

is no information available about the individual members of the populations compared (e.g.

comparing several states based on state-wide average air pollution and state-wide average prevalence of respiratory diseases); whereas in a cohort study the data pair exposure/healthis known for each individual.

In spite of their weaknesses, ecological studies are useful because they can be carried out

easily, quickly and inexpensively using data that are generally already available. If interesting and strong associations are observed, the results of ecological studies can

provide the opportunity for later, more carefully designed studies (though more expensive

and time-consuming) to build on the initial observations.

LEGAL ANALYSIS:

Legal analysis is the way in which cases are viewed and how they might pertain to other

legal matters at hand. Your reason for analyzing legalities will determine how youapproach your homework.

Identifying the issues presented in a client's facts and determining what law is relevant and

how so, is the basis for legal analysis. It really is just the process by which the application

of the law applies to a client's case. So many variables define a court case that analyzingthe details sheds more light on the real issues underlying.

Four steps constitute the legal analysis process. The first is to identify the issue or legal

question. If a case involves a hit-and-run accident, is the question about whether or not theaccident really was hit-and-run or is the speculation on whether it was intentional or if

manslaughter charges ought to apply instead.

http://en.wikipedia.org/wiki/Epidemiological_study


http://en.wikipedia.org/wiki/Cohort_study

http://en.wikipedia.org/wiki/Case-control_study



http://en.wikipedia.org/wiki/Ecological_fallacy

http://en.wikipedia.org/wiki/Ecology


http://en.wikipedia.org/wiki/Cohort_study



http://en.wikipedia.org/wiki/Ecological_fallacy

http://en.wikipedia.org/wiki/Ecology



Secondly, the rule or law which governs the previous question of law, is sought after.

Enacted law, case or common law or a combination of either might be necessary to properly analyze the case. Together the laws can provide a more thorough understanding of

what exactly applies to the case at hand. Suppose a law states that no dog can run at largein the city limits while a court case has challenged the terminology of "at large." The

statute and the case law together could provide the best analysis and argument for your case.

Next, the analysis part arises. This part involves deciding how the law applies to the legal

question or issues asked in the first place. Breaking down the elements of the rule of law isessential to the analysis. Once the individual parts of the law are outlined, apply the facts of

your case to those components to see if there is any relation between the two. Then

consider counter arguments to your point of view to be certain you have looked at both

sides so your defense of your case will be strongest. Finally, drawing a conclusion will let

you know if you are analyzing properly.

Last, there must be a conclusion or a summary which arises to a legal analysis. Retracing

your steps in your analysis will help you see if you have gone in the right direction. If you

started out considering if the hit-and-run was intentional and ended up with the illegalitiesof hit-and-run, you have veered off in the wrong direction. Because there can be so many

aspects to a case it can be easy to get sidetracked and lose sight of your goal. Thus the

reason for reviewing and being certain you have achieved your goal.

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