Lesson 6. SWOT Analysis

6.1. INTRODUCTION

It has always been important for any enterprise to know and understand how it fits in and interacts with the surrounding environment on both an internal (office/factory/shop environment) and external level (how the business operates with the outside world). Examining the environment  proves fruitful  to develop a strategy for both  long and short term plans. The process of liberalization and economic reforms, of course, create remarkable opportunities for development of numerous industries but it also put up new challenges against the industries. The 21st century, would guarantee a bright future for industries provided that a conscious and sincere effort is made to avoid all hurdles. The entrepreneurs have to give more importance to the quality of their production and hence, sufficient attention must be there on research and growth. Innovation is very much necessary to maintain constant progress. And for that, an entrepreneur has to analyze the existing situation. The analysis of the current situation is done by conducting (1) Internal Analysis and (2) External Analysis, jointly known as SWOT analysis that refers to identifying the strengths, weaknesses, opportunities and threats of an organization. SWOT Analysis is basically a tool, often used by organizations in planning its future. This tool can be explained in a better way as under:

S - Strengths

W - Weaknesses

O - Opportunities

T - Threats

The Internal Analysis of the organization includes the organizational position with respect to different functional areas like Production, Finance, Marketing & Distribution and so on. This will reveal its strength and weakness. The External Analysis will include the industry performance, competitive activity and a review of the growth and decline of the user industries.

6.2. Analyzing the Business

The most influential way to evaluate the business is to perform a SWOT analysis of the company. It is important to know that the SWOT analysis is only based upon information that is known by the assessors, but SWOT is still a powerful tool considering its immediate benefits. It’s quite obvious that recognizing the Strengths and Weaknesses before tackling the Opportunities and Threats is the best way to approach the analysis. There is no fixed way of doing a SWOT analysis, but it should be done in the most comfortable way. The objective of SWOT should be to plan a strategy for the future to improve your company’s overall performance.

6.3. STRENGTHS AND WEAKNESS

Every business must assess its strengths and weaknesses sporadically. It can be done by the management itself or by some outside expertise. The sole aim of SWOT analysis should be to overcome their weakness gradually and transform it into its strength later on.

Some of the strengths of an organization are:

a) Accessibility of required infrastructure

b) Sufficient manufacturing capability

c) Skillful manpower

d) Quality assurance and quality control

e) Manufacture at low cost

f) Facilities for product development

g) Good locality

h) Wide network

i) Motivated employees

j) Latest equipments installed

k) Brand name at National/Regional/Local level

l) Consistency in gaining profits

m) Good financial position

n) Efficient administration

o) Human resource development

p) Excellent transportation

q) Healthy competition

Some of the Weaknesses of an organization are

a) Increasing expenditure of operations

b) Union pressures

c) Low level of employees

d) Lack of raw material

e) Lack of capital

f) Weak credit in market

g) Problem of utilization of capacity

h) Out-of-date technology

i) Poor planning

j) Insufficient infrastructure

k) Less number of trained technicians

l) Poor managerial expertise

m) Unorganized work culture

n) Ineffective co-ordination

o) Brand name not recognized on a National/Regional/Local level

p) Poor location for business

q) Too much waste

Recognizing these weaknesses require one to be honest and practical. This is an important part as to realize what needs to be done to minimize weakness in the future.

6.4. OPPORTUNITIES

If the business is to achieve its goals, an entrepreneur has to know the parts of the environment to be monitored. A business has to monitor environmental forces like customers, competitors, distribution channels, suppliers, etc. as they can affect its profits. A marketing intelligence system should be developed to track important developments. For each trend or development, management needs to identify the hidden opportunities and threats. An opportunity is an area of need in which a company can perform profitably.

Some of the opportunities of an organization are:

a) Rising population

b) Increase in disposable earnings

c) Skilled workforce

d) trouble-free accessibility of money

e) Appropriate technology

f) Positive government policies

g) Availability of market information, distribution outlets and media.

h) Existence of good cultural environment.

i) Opponent going bankrupt

6.5. THREATS

Some developments in the external environment characterize threats. An environmental threat is a challenge posed by an unfavourable trend or development.

Some of the threats of an organization are:

a) Scarcity of power, water, fuel

b) Negative response by the market

c) Recession

d) Cut throat competition

e) Political unsteadiness

f) End of season approaching

g) Technical obsolescence

h) Financial crisis in the  market

i) Ever-increasing interest rates

j) Resource crisis

k) Difficulty in retaining technical expertise

l) Rising cost of wages

m) Change in customers’ tastes and preferences

n) Existing product becoming old-fashioned

On completion of a SWOT Analysis, an organization can know ‘where it stands’.

Therefore, it can proceed to develop specific objectives and goals for the future.

6.6. ADVANTAGES OF SWOT ANALYSIS

The advantages for conducting a SWOT Analysis are mentioned as under:

1. An entrepreneur can come to know the demand and can accordingly choose respective field, keeping their strengths in mind.

2. It certainly helps in the development of innovative technology.

3. An entrepreneur can make an analysis as to develop a completely new product, or to just bring slight change in the existing product.

4. Improvements can be brought about in the practice of production.

5. New goals can be set through SWOT on the basis of previous findings.

6. Short term task and long term task can be planned.

7. Opportunities and threats can be recognized.

8. Batter plans can be formalized for effective communication & implementation.

9. Major functions & minor-functions can be set out in achieving the objectives of the firm.

10. Expansion of the range of services and benefits.

11. The social, political, legal, economic, technological factors can be analyzed

12. An analysis of the competitor’s strategies can be made and their policies can also be known.

6.7. CASE STUDY

To understand SWOT analysis better, let us go through a case study of SWOT Analysis conducted in a five star Hotel in Bangalore:

The strengths of this five star Hotel are

1) It has got more than 95 years of experience

2) It has hotels in different places in India

3) It has many heritage properties which adds to its charm and represents Indian culture

4) It has a few low budgeted hotels, which caters to the needs of middle class tourists

5) It has hotels not only in big cities but also in small cities which are of tourist importance

The weaknesses are

1) It has tough competition from rivals, and hence their concentration is diverted.

2) It has very few low budget hotels, which are of need today.

3) It has more than one hotel in one city, which is a waste of investment.

Its opportunities are

1) There is availability of government support in the form of land and financing of projects.

2) There is an increase in the tourist inflow in India, India is expecting to receive 2.4 million tourists, i.e., there will be lot of business.

Its threats are

1) Its competitors are also located nearby the hotel.

2) It has to face the threats of various resorts, which people are looking for now-a-days.

3) It also has threats from smaller hotels, which tourists prefer, because of cheaper rates and almost the same kind of hospitality.

Therefore, this hotel has to overcome its threats and weaknesses and concentrate more on its strengths and opportunities available.

Last modified: Thursday, 1 August 2013, 4:28 AM