Swot analysis of measuring strategic management

Almost every successful CEO understands the importance of offering quality service to gain a distinctive advantage over the competition. Given SWOTs straight forward appeal, it has become a popular tool to use for strategic planning. Dubrin (2008). The objective is to describe the method of SWOT analysis as a comprehensive, internal analysis tool to help process company internal and external information, able to deliver significant added value to an organizations strategic management. Modern textbooks on strategy still feel obliged to include SWOT, even if they have reservations about its application.

Introduction

Positioning the firm for a sustainable competitive advantage by utilizing the firm’s strengths

to exploit opportunities and neutralize threats while avoiding or fixing weaknesses has long served as the core framework for formulating the firm’s strategy (Learned et a!., 1965). This ‘SWOT’ analysis benefited greatly from the insights of industrial organizational economics, especially the work of Porter (1980; 1985). SWOT analysis was first introduced by Stanford University’s Albert Humphrey in the 1960’s (GRIN Verlag, 2007, p. 2). As a starting point for the development of strategic options, Professor Kenneth Andrews first identified the importance of connecting the organisation’s purpose – its mission and objectives – with its strategic options and subsequent activities. ‘The interdependence of purposes, policies, and organised action is crucial to the particularity of an individual strategy and its opportunity to identify competitive advantage.’ Lynch (2006).

The intended purpose of this critique is to define, understand the usefulness, value, the creation of actionable intelligence and to identify those internal strengths and external opportunities that an organization can leverage to accomplish its objectives. Additionally, how the marketing strategy can be developed using corporate strengths as well as avoiding corporate weaknesses to enable a company to benefit from future opportunities with regards to future risks (Bohm 2008, p2). An example of a SWOT analysis is provided which been developed by GARTNER on behalf of BMC to help identify issues relating to BMC’s core IT operations management (ITOM) software offerings.

A SWOT analysis summarises the key issues from the business environment and the strategic capability of an organisation that are most likely to impact on strategy development. (Exploring Corporate Strategy)

A SWOT analysis is a tool strategists use to evaluate Strengths, Weaknesses, Opportunities, and Threats.

Strengths are company resources and capabilities that can lead to a competitive advantage.

Weaknesses are resources and capabilities that a company does not possess, to the extent that their absence places the firm at a competitive disadvantage.

Opportunities are conditions in the broad and operating environments that allow a firm to take advantage of organizational strengths, overcome organizational weaknesses, and/or neutralize environmental threats.

Threats are conditions in the broad and operating environments that may impede organizational competitiveness or the achievement of stakeholder satisfaction.

The central purpose of the SWOT analysis is to identify strategies that align, fit or match a company’s resources and capabilities to the demands of the environment in which the company operates. (Strategic Mgmt book). The starting point in formulating strategy is usually a SWOT analysis. As a framework, SWOT analysis is highly commended for its simplicity and value in focusing attention on key issues which affect business development and growth. (Journal:Strategic Change).

A SWOT analysis must first start with defining a desired end state or objective that is agreed by management. A SWOT analysis may be incorporated into the strategic planning model. It is therefore important to align the SWOT analysis with the organisation’s vision, mission, goals and objectives. (OGC,ITIL v3 CSI)

Fig 3 Source Bohm, (2008)

SWOT analysis can include:

1) Internal Analysis:

The internal analysis is a comprehensive evaluation of internal environment’s potential strengths and weaknesses.

Strengths:

A strength is a strong point of the company i.e. something a company is good at doing or characteristics that gives it an important capability. Strength can be a skill, a competence, a valuable organizational resource or competitive capability or achievement that gives the company an advantage. Important or crucial strengths are to be identified. These factors count more in determining performance, in competing efficiently and in formulating powerful strategy. Strengths are like strategic assets and they are the basis for building competitive advantages

2) External Analysis:

The external analysis is a comprehensive evaluation of external environment’s potential opportunities and threats.

Opportunities:

An opportunity is a favourable condition in the organization’s environment which enables it to strengthen its position.

Some examples of opportunities are:

An unfulfilled customer needs arrival of new technology, removal of international trade barriers etc.

Threats:

A threat is an unfavourable condition in the organization’s environment which causes a risk or damage to the organisation’s position.

Some examples of threats are:

Emergence of substitute products, new regulations, increased trade barriers etc.

When in implementing a SWOT analysis to devise a set of strategies the following guidelines can be followed.

Strengths (Weihrich, 1982)

Determine your organization’s strong points. This should be from both your internal and external customers. Do not be humble; be as pragmatic as possible.

Are there any unique or distinct advantages that make your organization stand out in the crowd?

What makes the customers choose your organization over the competitions?

Are there any products or services in which your competition cannot imitate (now and in the future)?

Weaknesses (Weihrich, 1982)

Determine your organization’s weaknesses, not only from your point of view, but also more importantly, from your customers. Although it may be difficult for an organization to acknowledge its weaknesses, it is best to handle the bitter reality without procrastination.

Are there any operations or procedures that can be streamlined?

What and why do your competition operate better than your organization?

Is there any avoidance that your organization should be aware of?

Does your competition have a certain market segment conquered?

Opportunities (Weihrich, 1982)

Another major factor is to determine how your organization can continue to grow within the marketplace. After all, opportunities are everywhere, such as changes in technology, government policy, social patterns, and so on.

Where and what are the attractive opportunities within your marketplace?

Are there any new emerging trends within the market?

What does your organization predict in the future that may depict new opportunities?

Threats (Weihrich, 1982)

No one likes to think about threats, but we still have to face them, despite the fact that they are external factors that are out of our control. For example, the recent major economic slump in Asia. It is vital to be prepared and face threats even during turbulent situations.

What is your competition doing that is suppressing your organizational development?

Are there any changes in consumer demand, which call for new requirements of your products or services?

Is the changing technology hurting your organization’s position within the marketplace?

Overall a SWOT analysis should help focus discussion on future choices and the extent to which an organisation is capable of supporting these strategies. As a planning tool, SWOT analysis has many benefits

Simplicity

SWOT analysis requires no extensive training or technical skills to be used successfully. The analyst needs only a comprehensive understanding of the nature of the company and the industry in which it competes.

Lower Costs

Because specialized training and skills are not necessary, the use of SWOT can actually reduce the costs associated with strategic planning. As firms begin to recognize this benefit of SWOT analysis, many opt to downsize or eliminate their strategic planning departments.

Flexibility

SWOT can enhance the quality of an organisation’s strategic planning even without extensive marketing information systems. However, when comprehensive systems are present, they can be structured to feed information directly into the SWOT framework. The presence of a comprehensive information system can make repeated SWOT analyses run more smoothly and efficiently.

Integration and Synthesis

SWOT analysis gives the analyst the ability to integrate and synthesize diverse information, both of a quantitative and qualitative nature. It organizes information that is widely known, as well as information that has only recently been acquired or discovered. SWOT analysis can also deal with a wide diversity of information sources. In fact, SWOT helps transform information diversity from a weakness of the planning process into one of its major strengths.

Collaboration

SWOT analysis fosters collaboration and open information exchange between functional areas. By learning what their counterparts do, what they know, what they think, and how they feel, the analyst can solve problems, fill voids in the analysis and eliminate potential disagreements before the finalization of the plan

There are, however, some dangers in undertaking a SWOT analysis. The other fundamental concerns about the intrinsic nature of SWOT analysis: (Journal: Product Recall)

The length of the lists.

No requirement to prioritize or weight the factors identified.

Unclear and ambiguous words and phrases.

No resolution of conflicts (as with the example given in the preceding paragraph).

No obligation to verify statements and opinions with data or analyses.

Single level of analysis is all that is required.

No logical link with an implementation phase.

There is therefore a lack of rigor in SWOT because there is no inherent requirement to overcome any of these weaknesses.

BMC SWOT Analysis

The analysis identifies issues relating to BMC’s core IT operations management (ITOM) software offerings. SWOT analysis only those characteristics that have the greatest potential impact on BMC’s market position and strategy in the worldwide ITOM software marketplace. This document does not cover political, economic, social and technological characteristics, which are seen as universal factors affecting all players in the industry. Gartner elected to review BMC for this SWOT analysis based on several factors, such as the following:

BMC is among the top four largest companies globally ranked in Gartner’s ITOM market share analysis.

BMC holds a global leadership position in the IT service desk software market.

In the database management system (DBMS) management and asset management software markets, BMC is the largest vendor globally.

In the job scheduling and run book automation market, a sub-segment of the ITOM market, BMC is among the largest players. BMC is rated a Leader in “Magic Quadrant for the IT Service Desk,” “Magic Quadrant for Job Scheduling” and “Magic Quadrant for IT Event Correlation and Analysis,” The competitive attributes discussed in this SWOT analysis pertain to BMC globally. We are listing only those characteristics that have the greatest potential impact on BMC’s market position and strategy in the worldwide ITOM market. There are additional Gartner reports (for example, Magic Quadrants, MarketScopes and Competitive Landscapes) that provide analysis in other key areas or service competencies, which are addressed only broadly in this document. Gartner (2010).

The author makes note that a task of analysing an organisation’s external and internal environment by which using a SWOT analysis technique can assist in the appropriate strategy to be selected and as a result is a basis for action. Two important components that assist in the strategic management process that are highlighted by the author, external analysis and internal analysis combined constitute was has come to be called the SWOT analysis. Arguably, the text provides very limited information based on SWOT analysis, its inner workings, benefits and purpose. The author is considerably generous to outline the external and internal analysis in detail and how it interacts with Porters five forces model.

Conclusion

A SWOT (strengths, weaknesses, opportunities and threats) analysis (Johnson and Scholes, 2002) summarises the key issues from the business environment and the strategic capability of an organisation that are most likely to impact on strategy development. The aim is to identify the extent to which the current weaknesses are relevant to, and capable of, dealing with the changes taking place in the business environment. It can also be used to assess whether there are opportunities to exploit further the unique resources or core competences of the organisation. The major advantage is that the formulation of strategies is directly connected to the SWOT analysis, providing a rational reproducible result.