The SWOT analysis is used to describe the Strength, Weaknesses, Opportunities and Threats that face a corporation. The rationale of this analysis is to discover the particular competencies that the corporation has as well as to identify the opportunities that they are facing, but unable to exploit due to the lack of the essential resources. According to Hunger and Wheelen (2002), managers use this analysis to make critical decisions of whether to invest their resources to strengthen their strengths or to make their weaknesses more competitive by directing their resources to improving their resources.
There are two main advantages of SWOT analysis. One is that the analysis recognizes the effect of external environment on a firm, and secondly SWOT analysis is simpler compared to other models such as VRIO model. Among the disadvantages of SWOT analysis is that it does not specify the procedure that firms should follow in identifying their specific strengths and weaknesses, and also their specific opportunities and threats (Wheelen & Hunger, 2008). Secondly, SWOT analysis is not accurate and precise, and usually it does not emphasize on the best priorities, and uses unclear words and phrases.
Another disadvantage is that some factors in this analysis can be placed in two categories at the same time and it also requires single level analysis since the analysis presents no obligations, for the opinions to be seconded by any statistics or analysis. Also, it is said that this approach of analysis lacks rational link to strategy execution (Pike, 2008). The VRIO model is an assessment of the resources that a company possesses. A resource can be defined as an “asset, competency, process, skill, or knowledge controlled by the SWOT ANALYSIS AND VRIO MODEL corporation” (Hunger & Wheelen, 2002, p. 1). This determines the value of a resource, its rareness, its inimitability and how the organization can effectively exploit it. A valuable resource is must contribute to customers satisfaction both in needs and price that the customer is willing to pay. This is determined by customers’ preferences, the available alternatives and supply of related goods. This indicates that in part, value is function of external environment such as product market and demand forces (Pike, 2008). Dynamics in consumer tastes, structure of industry, and technology can result in change of value.
Secondly resources should be rare among competitors and therefore resources should be analyzed in comparison to the competitive set of destination. Thirdly resource should be costly for competitors to imitate and finally the firm must be well organized in a way that it is able to take advantage of the market. The VRIO model determines which strengths should be included in the SWOT matrix (Pike, 2008). According to Pike (2008), resources can be a source of competitive advantage, competitive parity and competitive disadvantage depending on whether it follows the VRIO criteria.
Unlike SWOT analysis, which is carried out on the firm as a whole, VRIO analysis is done on each individual resource. A core competency in a firm is simply a resource that is VRIO (Wheelen et al. , 2008). The SWORT analysis is broader than the VRIO analysis. VRIO analysis is more precise and gives a clear picture of the firms’ real challenges. Among the similarities between the two types of analysis, is that they are both aimed at establishing the laxity of a firm, in expanding its market and therefore help the policy makers in those firms to arrive at reasonable conclusions based on this analysis (Pike, 2008).
Recommendations that are arrived at during this analysis help the firm to improve the delivery of services or goods that it offers. Both of them are also carried out on the firm’s assets so that a SWOT ANALYSIS AND VRIO MODEL link between poor performance and the firms’ resources can be established and corrective measures undertaken. To constantly know the firms’ position in any market structure, the firm should carry out the various analyses among them the SWORT analysis and make a confirmation of the findings using the VRIO analysis (Pike, 2008). This is of importance in ensuring the success of any company or business.