Developing Strategy:
The SWOT Analysis
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We continue on our path to business success this month by reviewing a tried and true process that produces great results. Individuals and organizations have to strategically align themselves with their target markets to maximize success, and this process, called the SWOT Analysis will help you achieve success in several ways: |
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It allows us to review what is good about ourselves and our organization
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It allows us to analyze our competitors, and
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It allows us to do that across the organization so that all involved will be on the same page, thereby focusing the total assets of the organization towards the strategic goals established. I hope you find this interesting and can use it as a tool to help you in developing strategy.
An Overview of the Process
The SWOT analysis: Strengths, Opportunities, Weaknesses and Threats. This important activity should be part and parcel of a continuous quality improvement program, and should be completed regularly as a component of the strategic planning for your organization. Let’s take a careful look at this process.
First, we look at strengths. What makes us great? What makes us successful? What are the things we do correctly, and what we should capitalize on to make us competitively viable as an organization? These and other questions should be done as objectively as possible to really gain an understanding of our strengths. They should be based on value, rareness of our services and offerings, imitability- can what we do be easily imitated, and sustainability- can we continue to perform at the same excellent level day in and day out.
Second, we look at weaknesses. They are things we may not do so well. What areas do we need to improve upon, and what are we doing incorrectly. No one individual or organization is the “best” at everything they do, and we must understand where we are weak to be able to key on strengths and minimize damage from the weaknesses and improve upon them.
Next we need to evaluate opportunities. Are there opportunities for expansion, new markets, increasing sales revenues with the addition of new products or services, and finally is there room for improvement?
Finally we must look at the threats organizations face, and they are many. Outside sources always want what you have and you must remain on your toes to be competitively viable in today’s health care market, and in particular the eye care industry. Can someone imitate us and do it cheaper? Can someone else do it more efficiently? Is a competitor’s training and/or education better?
Notice that the strengths and weaknesses are internal in nature. These are things we have some control over, and can improve or focus upon rapidly. For example, if we have expertise in a specific area, say contact lenses, and it is a real strength, why not focus upon that in our marketing efforts. We may be weak in the lab, so consider hiring someone to do that for you, or farm it out. Work on your strengths, but at the same time, try to improve constantly in areas in which you are weak.
Opportunities and threats are external, and we may not have control over them. We can however affect them by gaining an understanding of the forces involved.
The SWOT analysis will be used as the basis for two different lines of analysis. The first will be to develop an Internal Factor Evaluation (IFE) and an External Factor Evaluation (EFE) which leads to an I/E matrix that suggests some very broad strategic directions. The second use will be to form the basis of a T.O.W.S. matrix that will be used to develop some very specific strategies.
SWOT: The External Analysis
Let us begin by looking outward first at the opportunities and threats to our organization. An opportunity can be thought of as any market possibility for your business to be positively impacted by an action that it takes. Opportunities positively impact your business’s profitability and competitive well being. Positive impacts could include such things as company growth, market share increase, potential new market entry, increased profits, chance to exploit the weakness of a competitor, or any other positive outcome.
A threat can be thought of as any possibility for your business to be negatively impacted by an external action of the market or a competitor. Threats negatively impact your business’s profitability and competitive wellbeing. Negative impacts could include such things as competitor plans to introduce new products, economic forces, the potential of a hostile takeover, the chance of a new entrant entering into your market, or looming price wars.
To begin your SWOT, first focus on the external factors that either do now, or could in the future, impact your business. Consider the critical success factors that pertain to your business’s external environment. Where does this information come from? It should draw upon your research about your company in particular, and the industry, and external environment in general. Note that you are not proposing strategies or solutions here. You are identifying critical issues that will need to be addressed in subsequent strategy development sections.
It is important to think broadly here. Consider the Automotive industry in the 1990s and the early 2000s. The industry was highly dependent on trucks, SUVs and minivans. These types of vehicles had larger engines and lower fuel economy. It is unlikely anyone could have predicted that 9/11 was going to happen or the effects that followed, such as war, gas price increases, and economic recession. How effective would strategists in the automotive industry have been, however, if they had identified the threat of a sustained oil price spike and a resulting shift in customer preference for fuel efficient vehicles, and then developed a corresponding strategy? This type of external threat is not dependant on a single event like 9/11, but rather could have evolved from a multitude of issues. The strategist is not expected to have a crystal ball and be able to predict the next 9/11, but rather should be considering questions like “What if oil and gas prices spike due to some unforeseen event?”
As a further example, let’s look outside the optical industry for a moment to a hypothetical small “all natural” soda company. Look at this organization and exchange it for your business and see if you can use them as example of external analysis for your organization.
Opportunities
1 Products expansion
2 Stock growth
3 More exposure
4 Move towards globalization
5 More stadium contracts
6 Expand target market
7 License agreements
8 Company growth
Threats
1 Multiple competitors
2 Dependency on sugar cane
3 Suppliers have the power
4 Recent lawsuit
5 License agreements
6 Seasonality of sales
7 Dependence on suppliers
8 Dependence on contract packers
9 Dependence on distributors
We will continue with the SWOT Analysis from the internal perspective next month. I think you will find it a useful tool. Can you find opportunities for improvement or growth? Are there threats you can foresee? By using this process, the organization can and will improve its opportunities for success.
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