Anda di halaman 1dari 9

SWOT Analysis (Strength, Weakness, Opportunities and Threats Profile) As the firm operates under dynamic environment and

strategic fit of internal strengths and weaknesses with external opportunities and threats is a must and a matter of constant and regular exercise of the firm. Without this a firm can not be able to create a perfect match of its capabilities with external demands. The approach to match internal capabilities with environmental opportunities and threats are known as SWOT analysis. The basic aim of SWOT is to provide an insight to the managers the abilities of the firm (Strength and Weakness) in terms of handling opportunities and threats. The SWOT provides a framework within which a firm can develop and alter its strategies and shape the actions of functional and other levels of firms. Internal analysis reveals the strength and weaknesses of the organization in term of its internal capabilities, competencies, efficiencies, financial position, track record, experience. Strengths: are resources, skills or other advantages relative to competitors. Strength is a DC that gives a firm comparative advantage in the market and competition. For Exp. Financial Resources, image, market leadership etc. Weaknesses: limitations or deficiencies in resources, skills and capabilities of the firm that seriously affect the firms performance under competition i.e. Disadvantages. Opportunities: Major favorable situations in the firms environments. Opportunities may occur due to poor performance of competitors, consumer demand shift, government policies, unique raw materials, technological changes, better buyer-supplier relationships etc. Threats: major unfavorable situations in the firms environment which may affect firms current and potentials performance. A particular threat may be an opportunity for competitor and vice versa. Strategic Management Process: Analysis of Internal Environment for Strength and Weakness External Environment for Opportunities and Threats Formulation and Vision, Mission The ultimate goals Statement of Objective Market to Compete Strategies & Competencies to develop Policies and major Actions Implementation of best fit organization structure, resources, culture and operation control. Evaluation & Developing counter strategies if necessary. Control Effectiveness of HR, level of commitments, loyalties (all quantitative and qualitative) to compete with the rival firms within industry are counted as Strength. Firms weaknesses are internal deficiencies in term of above. The deficiencies are regarded as organizational constraints and disadvantages to compete and fight with rival firms. When a firm analyzes its internal capabilities as stated above the process is known as SAP (Strategic Advantage Profile).

On the other hand , analysis of external environment to find out opportunities and threats are known as ETOP Analysis (Environmental Threats and Opportunities Profile ). Thus we can say SWOT is a function of SAP & ETOP. Implications of SWOT Analysis: 1. SWOT provides the basis for exploiting the opportunities out of its internal strengths and capabilities. These Strategies are called as Exploitative or Developmental Strategies. 2. Environmental Threats and their impacts can be minimize through minimum exposures of weaknesses these strategies are called Blocking strategies. 3. If firm is able to recover and repair its weaknesses these strategies are called as Remedial Strategies. STRENGTHS - Clear vision & Mission - Better Financial Position - Better Track Record - State of Art Technology -Better Network for Marketing OPPORTUNITIES - Increasing Income - Better Education - Developed Society - Govt. Support - Absence of Strong Competitors - Un-served Market Segmentation

WEAKNESSES - Poor Selling & Marketing Team - Poor Strategies - Weak Customer Services - Poor Understanding with channel members

THREATS - Potential Rivalry - High Rate of Tech. in Future - MNCs Threats due to Policies of Govt.

Fig:SWOT Model 4. Cost Efficiencies Strength of a firm can be used to increase market share through appropriate pricing strategy. 5. Firms internal and external situations and its strategic match can put the firm in a unique position in market. 6. As stated above SWOT provides a strategic framework to firm within which it can plan to compete in market. As shown in the figure below, there are 4 cells representing respective strategies.

Various Opportunities CELL 3 Turnaround Strategy Comparative Internal Weakness CELL 4 Defensive Strategies CELL 2 Diversification & Defensive Strategies CELL 1 Aggressive Growth Oriented Strategy i.e. Offensive Strategies Substantial Strength

Major Environmental Threats CELL 1: Represent most favorable situation with various opportunities and firms internal Strengths. Under these situations a firm can choose aggressive growth oriented strategies. CELL 2: Shows the mixed situation with substantial internal strengths to face major environmental threats. Firms strength can be used to exploit long term opportunities and to cop with threats. CELL 3: Various opportunities are there but the firm is unable to cash due to its internal weaknesses. CELL 4: is just opposite to the cell -1 i.e. most unfavorable situation under these condition withdrawal or reduced operations is suggested in product market. ETOP Analysis: A profile of environmental threats and opportunities is considered to be a very useful device and is a summarized depiction of environmental factors and their impact on future functions of firm under competitive environment. The environment is a significant source of change and is highly dynamic in nature. Some organizations become victim of the change and dynamism of environment. Basic Characteristics of Environment: 1. 2. 3. 4. Uniqueness Dynamic in Nature Variability of Control Environment Carries Risk, Uncertainties and Opportunities

On the basis of impact on a business house we can divide the environment into 4 categories:

1. The Mega Environment or Broader Environment: a) Demographic Factors b) Political Factors c) Legal & Regularity d) Socio-Cultural e) Economic 2. The Micro or Immediate Environment or Industry Environment: This environment and its components are very close to the firm; in fact the firm operates within this environment. Therefore, the intensity of negative or positive effects are directly hit the firm and its strategies/decision making. Porter Model of 5 Forces is the best tool to evaluate this environment. Porters 5 Forces Effects on Industry Profitability and Functioning

High Rivalry

Low Profitability

High Power of Suppliers

Low Profitability

Low Power of Buyers Threats of Potential Rival- High

High Profitability Low Profitability in Future and Unattractive Industry Low Profitability

Threats of Substitutes 3. The Technological Environment: 4. Global Environment

Organizational Life-cycle & Decline An organization undergoes changes in its conceptual and structural dimensions over a period of time, analogous to biological organisms, it is born, and it attains growth, gets matured and eventually dies. Most research on life-cycle suggest three major growth stages and a decline stage, each has its own conceptual variations and they result in observable change in structure and vision. Entrepreneurial stage It is the conceptual stage where the new product is defined, its market is identified and development plan is executed. Leadership Focus is on successful development of prototype or marketable product, while able to manage the necessary finance. Organization size is small, its reporting structure is flat and non-bureaucratic, and founder bears the responsibility of managing all aspects of the organization. The culture is informal, promotes innovation and risk-taking, the decision making is centralized and mostly lies with the founder, long working hours are expected. The specialization and growth are limited to the core functionalities like R&D, manufacturing or service. The staff is usually highly skilled with relevant experience in the core functions and the supporting staff is minimal. Individual effectiveness is most important at this stage.

Expansion The organization emerges from entrepreneurial stage if it succeeds in its initial goal of product creation and had secured finance and perhaps few customers. It then enters the commercialization stage where it has to build the product in larger quantities, reach wider customers and become a profitable venture. Leadership focus is on making the product work well and to increase the sales and revenue. The organization size needs to grow since it needs more resources for larger production and sales. While a consistent growth in core functionality continues, additional growth occurs in sales and marketing. The culture gets inclined towards market culture since external environment is for the time being stable, the entrepreneurial success provides some buffer time before competition emerges on the horizon. Organization structure starts its initial shift towards being more hierarchical; the founder is incapable for managing everything and starts delegating tasks to his subordinates creating management hierarchies. Since the expansion is particularly in R&D and sales, the supporting staff is still minimal; the organization adopts a functional structure. The organizational growth brings in more specialist and subordinates through hiring, it inadvertently creates a leadership crisis at the top level since the changed organization demands delegation of responsibility. All the initial founders and the individual technical leads need to part with their autonomous powers that they enjoyed during the

entrepreneurial phase and learn to delegate decision making and perform the new task of coordination and team building. Middle management evolves and is responsible for operations while the top management focuses on business strategies. The management processes began to emerge in the activities related to production and control, though they are still not very well defined and are still flexible. Leadership challenge is to constantly scan the external environment for competition and hostility while it is so much focused on the growth.

Consolidation The expansion phase results in an expanded operation related to production like purchasing, inventory control, etc and also diversely deployed sales staff. The organization was geared towards maximizing its production and sales capacity. In consolidation stage, the focus shifts towards cost control, productivity and profit. The leadership focus is on achieving the organizational effectiveness. The organization size is almost stable, the expansion stage might have lead to some redundancies in core functions, but consolidation stage might include additional manpower in supporting functions. The growth can occur in additional staff related to quality control, customer support, administrative functions and marketing. Unlike growth stage when the size increases linearly, the consolidation stage involves both downsizing and hiring. There is an increase in number of products, even though they might be still related to the core competencies; as a consequence, the organizational structure becomes divisional with more departments. The organizations culture becomes bureaucratic due to high degree of formalization and processes that are deemed necessary as a way to better control the operations. The leadership challenge is to establish seamless communication protocol between different departments, look for signs of external environmental changes and make necessary corrective actions. Decline An organization enters the decline phase when it experiences continuous reduction in resources and revenue over a substantial period of time. Ironically, the decline can be recognized with certainty only when it is too late to recover from it, early signs are often mistaken to be temporary. The decline can occur after any growth stage, not necessarily after consolidation stage; also growth does not always lead to decline, there is also possibility of long period of stagnation. Stagnation can be defined as a state with no growth, fewer but dedicated customers, few competitors, a niche market or availability of abundant resources. Stagnation does not usually result in loss of revenues or downsizing. Reasons for decline There are several causes of decline, some are quantitative and are easier to detect while other are qualitative and are hard to comprehend. The decline can be due to adverse changes in the external environment or inefficiencies pertaining to internal operations of the organization. Quantitative reasons of decline The quantitative analysis can be found in the organizations financial statements, its internal operation reports and by using other mathematically measurable parameters.

1. Reduced workforce: A cutback in size of the organization reflects a reduced total Market, reduced need of products; lack of capability to deliver the product, hence the underlying reasons implies a decline. However, there are times when cutback is a temporary measure to realign and revitalize the organization for another phase of growth. 2. Reduced market share: The reduction in the market share of the company implies several issues, growing competition if the total market is indeed growing or is stable, or contraction of overall market due to obsolete products or technologies. 3. Reduced profit or share price : It provides the investors assessment of the companies operating margin and its prospects of growth in future. Qualitative reasons of decline Fierce competition: During the entrepreneurial stage, the big players might try all tools in their arsenal to counter the threat of a newcomer. It includes practices of aggressive pricing, luring their established client base with bonus deals, acquisition of competitive technologies and developing parallel products etc. Many times, the hostile takeover by large and established company is for the purpose of quick termination of a competitor. Lack of Customers: It happens due to unexpected decline in the niche market, a change in consumers choice for a different product or simply because the organization fails to find proper market for the product. It can happen at any stage of life-cycle, the quarterly sales and revenue over a period of time are good indicators of change in customer base. Obsolete technology: Older organizations are very much vulnerable to newer technologies that can adversely impact its core business and competencies. Economic downfall: Harsh economic environment reduces the customer spending; multiple vendors compete for the reduced market share. It also gets hard to obtain fresh credit and finances for new ventures or existing operations. Organizational atrophy: It usually occurs in older organizations that have experienced healthy growth & long period of stability; the hierarchical structure & the bureaucratic culture of such large organization cause its slow degeneration. The organization size is large with excessive personnel, middle management is incumbent that tolerates incompetence, management processes are excessive and counterproductive; finally there is a leadership crisis. Employees loose trust in the leadership and its vision; the employee satisfaction level starts to dip consistently and so does its operational efficiency. A Model of decline stages Decline of an organization occurs in a series of observable and distinct stages, each exhibiting a reduced capability to counteract. The most acknowledged model of decline proposes that the organization goes through five stages of decline, before its final termination. Blinded Stage In this stage, the organization fails to recognize any of the internal or external changes that may threaten its survival. Usually, causes for the decline are present but are not evident; the leadership tends be insensitive and simply fails to make a connection between the observed changes and a possible decline. Most organizations lack a unit that performs the task of scanning both internal & external boundaries, partly due to additional cost and uncertain advantage. The mere concept of a stable environment is a myth and exists only as a theoretical concept; environment is stable only for short duration. Similarly the need for internal surveillance cannot

be ignored; it includes regular performance reviews, employee satisfaction surveys, training and skill development, and most importantly an open communication mechanism to aid in vertical flow of information. The initial signs of decline are usually very much visible and known to the bottom of the organizational pyramid, but the information fails to propagate upwards to its leaders. Inaction Stage Unlike in blinded stage, the signs of deteriorating performance are clearly evident in this stage, but the leadership still fails to take any action. Leaders often view them as temporary changes and instead of interpreting them as a threat, they choose to take `wait and see approach, perhaps because this approach has worked in the past. The past successful approaches fail when the current situations are very different, however the leaders always have tendency to follow the planned course and suppress any dissident opinions. Finally, the aging leadership might simply lack the knowledge and insight to comprehend the influence of the changing conditions. Faulty Action Stage In this stage, the organization is clearly on its downfall and pressure to take corrective action is very high. The vertical and horizontal information from within the organization and the external environment increases manifolds along with its complexity. The overload of conflicting information & suggestive actions, combined with time pressure, compels the leadership to centralized decision making and they tend to create a biased task force. However, due to high pressure, the decision makers tends to make quick, risky and often fault decisions, that further accelerates the decline. This further reduces the confidence in leadership and many talented employees might end up leaving the organization in anticipation of its fall. Some of the prescribed cure include introduction of new leadership, diversification of core business either though self development or acquisitions and disinvestment in failing product lines. Crisis Stage The organization reaches a crisis stage when all prior actions have failed and it becomes obvious that without any major change, its survival is questionable. All the stakeholders, including customers, investors, suppliers and employees begin to distance themselves from the organization and have lost faith in it. At this stage, the organization requires a massive structural change, a new strategy to deal with the external environment and a new ideology to revitalize the ailing organization. Dissolution Stage This is the last stage of its demise and is irreversible; it is marked by depletion of its finance, diminished market for its products and exodus of its talented employees. The new leadership and the strategy had failed to revive the business and now their responsibility lies in proper dissolution of the organization and its resources.