SWOT and a
corporate appraisal are the same thing:
Corporate
appraisal. A critical assessment of the strengths and weaknesses, opportunities
and threats (SWOT analysis) in relation to the internal and environmental
factors affecting an entity in order to establish its condition prior to the
preparation of the long-term plan.
Purpose of
a SWOT analysis:
1. Strengths and weaknesses are usually
internal and specific to the firm. Strength is something the firm is
good at doing or a resource it can call upon to reach its goals. They are
sometimes termed distinctive
competences. A weakness is generally a resource shortage which renders
the firm vulnerable to competitors.
2. Opportunities and threats are generally
external to the firm. Opportunities and threats are strategic challenges
to the firm. Because these are so often things like competitors, changing
technology or imminent economic recession, most managers assume them to be
solely external. However some things inside the firm can also be threats or
opportunities, for example, unrest among the labour force or the discovery of a
new product innovation respectively (although these are often linked to
external factors such as better job offers elsewhere or a market need which the
innovation can satisfy, for instance).
From SWOT to
strategy:
If the organization’s approach to strategy is
to make itself ‘fit’ the environment this might be achieved by:
1. Matching. The firm should build on
those strengths that enable it to take advantage of the opportunities in the
market place. For example, the local brewer in figure consider:
q
Marketing its beer as a bottled real ale
through supermarkets and independent off licenses;
q
Converting some of its pubs to restaurants;
q
Arranging distribution deals with importers
of bottled lagers;
q
Creating children’s ‘fun areas’ in suitable
pubs.
2. Converting.
This is a more complex process in which management question their
interpretation of a factor as a threat or weakness and consider whether it can
be reinterpreted or turned to its advantage (sometimes called flip siding the negative). The local
brewer decide to:
q
Emphasize its traditional brewing methods as
the reason for its relatively higher costs and prices;
q
Distribute maps of the city in which most of
its pubs were based and introduce a promotion based on having a ‘passport’
stamped by each pub the drinker visited- this emphasized how easy it was to
walk to the pubs;
q
Introduce a ‘designated driver’ scheme where
the driver was given free soft drinks and coupons for alcoholic drinks, which
could be redeemed at a later date.
3. Remedying.
Removing weaknesses that leave the firm exposed to threats or unable to grasp
opportunities is a priority for strategic action. The regional brewer in figure
decide to:
q
Set up a franchised brewing arrangement for
larger with known brand to reduce its reliance on sales of the major national
brands brewed by its rivals;
q
Rationalize its public houses by introducing
a scheme where landlords could buy their pubs from the brewery;
q
Adopt selective investment in developing
restaurant areas inside suitably located pubs;
q
Institute provision of training to publicans
in providing cooked food;
q
Increase the quality and variety of wins,
spirits and mineral waters on sale.
The TOWS
approach
Another approach to generating strategic options from
a SWOT analysis was identified by Weihrich (1982).
This uses
the extended matrix shown in Figure below
Method
Management
insert the elements of SWOT into the outsides of the matrix in the same way as
discussed in section
Strategic
options are identified in the four internal quadrants
q
SO Strategies- ways in which the business
could use its strengths to take advantage of opportunities.
q
ST strategies- Considering how to use
company’s strengths to avoid threats. It can be hoped that rivals with be less
able to do this and hence they will suffer deteriorating relative competitive
performance.
q
WO Strategies- Attempting to take advantage
of opportunities by addressing weaknesses.
q
WT strategies – Primarily defensive and seek
to minimize weaknesses and avoid threats.
When
should SWOT take place?
In the
model shown in Figure the SWOT takes place after the setting of mission and
objectives and the conduct of the environmental analysis and position audit. Not
all strategists are agreed that objectives should be set before the position of
the firm is understood. There are arguments for putting SWOT elsewhere in the
strategy formulation process.
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