In the present age, businesses have to intensive analysis themselves to improve shortcomings and get higher profit; SWOT analysis is a good way to choose. This essay will introduce the definition of SWOT analysis and the background of why people use it frequently. After that, there will be few examples to proof the opinions of SWOT analysis will help enterprises a lot on proving of their management and strategic planning. The merits and shortcoming when using this process will also explained later.
In this fast-speed changing and highly diversified world, organization and business are struggled to survive in strong domestic and global competition. Companies must face and deal many questions such as expanding industry boundaries, political and economic turmoil, competition among each industries, co-operative and varied philosophies, these questions impose massive constraints to the companies. Increasing customer demands and expectations, deregulation, and constantly changing technologies will add pressure and put companies under ceaseless uncertainty and risk when they are formulating strategies.
Effective application, complicated organization internal issues, co-ordination and complementarity of resource requirements, create tension by pairing with the need to achieve levels of excellence and internal politics. Understanding the environment is fundamental of making decision, planning strategic and formulating strategy. As a result, there is an appropriate planning method to fulfill managers to conceive completive strategies, which is based on the needs of the business environment. SWOT is one of the useful analysis methods for making decisions that includes strengths, weaknesses, opportunities and threats (Panagiotou, 2003).
Components of SWOT Analysis
There are many useful analytical methods that can be used in strategic analysis; SWOT analysis is a comprehensive tool to fulfill all the requirements in strategic planning. It is a strong tool to assist making decision and analyzing the internal and external environment of an organization or business systematically (Shakoor Shahabi et al., 2014). Strengths and weaknesses are defined as internal factors, and opportunities and threats are classified into external factors. The organization can take full advantage of using their strengths and opportunities, use these to make more profit and minimum the threats and weaknesses at the same time. (Kangas et al. 2003). The measurement and evaluation cannot complete by SWOT analysis because it is not completed, so that each factor cannot show obviously in the proposed strategy (Dyson, 2004).
PEST analysis, Porter’s five forces and value chain analysis closely related to SWOT analysis. In some respects, they are the important component parts of SWOT analysis; they make the process simple and well.
PEST analysis shows the general situation of external environment in an organization, managers often use it to understand the political, economic, social and technological environment in the organization and get evaluation of increasing or falling in the market. Commonly, the development of PEST analysis is before the SWOT analysis, this will help the organization easier to find opportunities or threats (Jim, 2007).
Porter’s Five Forces
Porter’s five forces resolve the fierce competition and attraction of the market. It is a helpful tool for defining the power lines in business and defining the strength of organization in the current competitive. Managers often use this theory to analysis if there is any potential profit in their new products or services. Moreover, they can find their own strengths in organization and use their strengths to cancel weaknesses and avoid errors by acquaintances of their power lines (Jim, 2007).
Value Chain Analysis
Value chain is an essential way to comprehend how actives within the organization or business make value for customers before making a strategic decision. It based on the principle of an organization exists to create value for their customers; the activities in an organization are classified into independent sets that add value. By identifying and examining these activities, the evaluation in an organization will more effectively (Jim, 2007).
Effect & Merits on SWOT Analysis
There can be no manner of doubt about the value of SWOT analysis in the business filed. It helps managers to consider essential aspects of environment in their organization and help them to organize their ideas. During the process of making decision, managers should consider about the alternatives that based on SWOT in the organization (Panagiotou, 2003). Coman and Ronen (2009) point out that the excellent point of SWOT is the internal scrutiny of the capabilities in an organization, as a leading tool, the scrutiny of internal weaknesses is followed by external threats and opportunities; it makes the management of company possible to seek markets or business opportunities that create value and identify potential matters which may threaten is position or value. Despite there exist many problems when using it, SWOT analysis still remain a major strategic tool for listing the strengths and weaknesses of an organization, and then translate the strengths into value:
Botanical Bounty is a family-owned farm that grows many kinds of botanical and medicinal plants. They operating the company for two years and selling products for people who have training in plant biology. After a SWOT analysis, Botanical Bounty needs to build a reputation for them; the most valid and cheapest way to achieve this could be earn customer loyalty. They also should have a strong relation link to the supplement manufactures – this would open a well sales channel for the farm; and they may become a reliable vendor by investing plenty of energy into establishing these relationships (Article, year unknown).
SWOT will gather the analysis of strength, weakness, opportunity and threats these four aspects, seek out what they need, then find management and business strategies that fulfill the realities in one business or organization. As noted by Gerry, Richard and Kevan (2012), SWOT analysis is helpful to summaries the key issues from an analysis of the environment and the capabilities in a business to gain an overall perspective of its strategic position, it also seen as initial against to form the strategic options and achieve the proceeding action in the future.
Sedibeng Breweries is a brewery that located in Botswana. They produce beer and mainly for working class and white collars. Sedibeng Breweries’ primary market has superiorities on their company culture: traditional brew recipes, commitment to rural distribution and well qualified branding. By doing a SWOT analysis, the company should develop an efficient staff onboarding process and training program and establishing and learning how to manage an information website are the two essential things for the company in the next year. Ignoring the weakness of using the internet would have disastrous consequences. The government-subsidized expert operation is a potential business opportunities for the company – Sedibeng Breweries may remain consistent because of the promising markets in neighboring courtiers are very likely to them. Sedibeng is a small in the local place; this is a major merit for the company, however, more information about the government export initiatives and international market research are indispensable (Article, year unknown).
No matter organizations or business, they all need a latest plan to provide them fresh blood – SWOT analysis plays an important role in strategic business planning and inspires the organization or business to create their initial plan, the annual SWOT is essential to update the plan that ensure the employees in organization can follow a living, breathing document (Sarah and Chris, 2011).
UPer Crust Pies is a café that focus on building a model, which can help it to rapidly expand and find a way to open their franchising. By doing SWOT analysis, one important thing for UPer Crust Pies is to obtain capital; it is better to start the process after funding a new business. The firm should make a marketing plan that could help it to achieve the marketing strategy of emphasizing target working families’’ dinner option – healthy and convenient. The essential strategies for UPer are to get its objective market and the grand of store; they will help the store to build their reputation. If the firm is not prepare enough for the potential large customers, they can choose to have an invite-only trial opening that offers free meals and exchange feedbacks from customers (Article, year unknown).
As for SWOT analysis, it has a function of accessibility that not only listed internal and external factors of the organization, but also put the internal factors into vital part. Alex and Boaz (2008) thought the SWOT methodology leads the strengths and weaknesses into core abilities and issues; after that they related to action planning in order to conserving and proving the organization’s kernel abilities, while guarding against expositing kernel issues.
Haley’s Vintage Hats is an on-line store that sells expensive hats only. After doing a SWOT analysis, the company should put into full play of the opportunities available to it as Etsy seller; after paying for Etsy, there will be more sales chance for them. The main weakness of the company is that the owner Haley has no marketing background, she need someone to guide her, by cooperating with other supplier, she will have some business partners that may help her a lot. Haley can also teach herself by searching market resources on Etsy or Bplans. The expertise of Haley could help her to develop an apprenticeship program that may assist the firm expand cheaply. The capital that the firm gets from raising sales may border the marketing effectively for the company (Article, year unknown).
The basic point of SWOT analysis is to find an appropriate strategy of the business that can make the internal ability adapt the external environment, therefore make more profit. Panagiotou said that SWOT analysis focus on the analysis of an organization’s internal ability and eternal environment, and then it could identify the internal strengths in order to utilize its external opportunities and avoid external threats, while solving its weakness.
Replay Plastics use environmentally friendly methods to recycle plastic waste into commercially viable production. The company wants to capitalize polyethylene terephthalate (“PET”) by building the first PET recycling plant in US. After recycling material from the PET plant, it will recess into a new brand Replay Plastics Packaging Division, which will produce other kinds of plastic to sell to manufacturers. By doing a SWOT analysis, the company need to gain capital because funding a new venture may take a long time and it is the first step for the company.
Before Replay Plastics begin construction, they must ensure the funding and finish the construction before they can begin recycling options and packaging material production. Fortunately, they have already down their business plan that often required by their investors and presumptive leaders. Replay Plastics wants to investigate new productions and keep the company’s operation prepared well for any changes in federal environmental regulations or state by adding a Research & Development team (Article, year unknown).
The analysis of strength and weakness should focus on the self-ability of enterprise and the comparison with competitors. On the contrary, the enterprise should pay more attention to the change of external environment and the influence it bring to the enterprise. When the analysis continuing, all the strengths and weaknesses should gathered and use the threats and opportunities to evaluate them. According to John and Frank (2005), SWOT analysis is a very important tool to evaluate the opportunities in environment, the strengths and weaknesses of resources, they all related to the culture of organization; rather, the evaluation should consider the influences on change of strengths that may relate to competition and needs of the environment.
All in all, SWOT analysis is a fundamental planning tool in strategic analysis that could help enterprises to push themselves and prove the management better.
Shortcomings by using SWOT Analysis
No model is ever strictly true, and there is not exists a simple method that can directly identify the strengths and weakness so far. Even though SWOT analysis is widely used in the world, but there still exists numerous limitations:
The model of SWOT analysis is raised by Andrews Christiansen, Guth and Learned for a very long time, by itself, it has era limitation. As the most simple and clearly analysis method, SWOT only provides the primary impression to create a picture of macrograph, but nearly no specific step or guideline to tell the organization what to do next. Panagiotou (2003) recognized that SWOT left users no indication; they even do not know how to find alternating quality, or the next step after searching them on the basis of the perfect way to incorporate them in strategy proposition.
SWOT analysis has not considerate the initiative in an enterprise could change the current condition – the enterprise could find new resources to create their own superiorities, thus achieves the strategy target they never reached before.
When enterprises or organizations are having their SWOT analysis, most people would pay more attention on the quantity of strengths and weaknesses, instead of quality. They consider the key to success is number, but ignore to solve two or three significant problems one by one. Alex and Boaz (2009) noted that most SWOT analyses focus on an excessive number of the organization’s strengths and weaknesses rather than on the main ones, which makes it difficult to translate the findings into actions.
It seems existing SWOT analyses often suffer from serious drawbacks; the structured methodologies should be more rigorous and actionable.
All in all, the process of SWOT analysis is defined into internal and external factors: strengths and weaknesses are internal factors, while opportunities and threats are external factors (Kangas et al. 2003). Porter’s five forces, PEST and value chain are the essential parts to develop a SWOT analysis – they will make it easier and clearly. There is no doubt that SWOT will help organization in the development of its strategy. As a major strategic tool for listing the strengths and weaknesses of an organization, it translates the strengths into value. However, the model of SWOT analysis is too abstract to find, and it exists for long time, which has era limitations. Although there has some weak point, SWOT analysis is still a comprehensive using tool (Ghazinoory et al., 2011) that can help organizations and business to develop an excellent strategic planning.
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