SWOT Analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities, and threats involved a business venture
1. SWOT Analysis Explained
ALBERT Humphrey is credited with inventing the SWOT analysis technique.
SWOT analysis is a strategic planning tool used to evaluate the strengths (S), weaknesses (W), opportunities (O), and threats (T) involved a business venture. It involves specifying the objective of the business venture and identifying the internal and external environmental factors that are expected to help or hinder the achievement of that objective.
After a business clearly identifies an objective that it wants to achieve, SWOT analysis involves:
- examining the strengths and weaknesses of the business (internal factors); and
- considering the opportunities presented and threats posed by business conditions, for example, the strength of the competition (external factors).
By identifying its strengths, a company will be better able to think of strategies to take advantage of new opportunities. By identifying current weaknesses and threats, a company will be able to identify changes that need to be made to improve and protect the value of its current operations.
SWOT analysis has two clear weaknesses. Firstly, using SWOT may tend to persuade companies to write lists of Pros and Cons, rather than think about what needs to be done to achieve objectives. Secondly, there is the risk that the resulting lists will be used uncritically and without clear prioritisation. For example, weak opportunities may appear to balance strong threats.
3. Case example: drinks manufacturer
Let’s use SWOT analysis to consider the strategy of a hypothetical prominent soft drinks manufacturer called Coca-Cola. Coke is currently the market leader in the manufacture and sale of sugary carbonated drinks and has a strong brand image. Sugary carbonated drinks are currently an extremely profitable line of business. The company’s goal is to develop strategies to achieve sustained profit growth into the future.
A firm’s strengths are its resources and capabilities that provide the firm with a competitive advantage in the market place, and help the firm achieve its strategic objective. Coke’s strengths might include:
- strong product brand names,
- large number of successful drink brands,
- good reputation among customers,
- low cost manufacturing, and
- a large and efficient distribution network.
Weaknesses include the attributes of a business that may prevent the business from achieving its strategic objective. Coke’s weaknesses might include:
- lack of a large number of healthy beverage options, and
- large manufacturing capacity makes it difficult to change production lines in order to respond to changes in the market.
Changing business conditions may reveal certain new opportunities for profit and growth. Coke’s opportunities might include:
- new countries and markets that Coke might expand into, and
- a lack of any strong global fruit juice or other healthy beverage manufacturer leaves a gap in the market.
Changing business conditions may present certain threats. Coke’s threats might include:
- shifting consumer preferences away from Coke’s core products, and
- new government competition regulations that prevent the acquisition of large competing soft drink companies.
3.5 Proposed strategy
The main opportunity for Coca-Cola is the rising popularity of healthy beverage alternatives, such as water and fruit juice. The dominance of Coca-Cola and the increasing number of competition regulations that prevent Coke’s acquisition of competing drink manufacturers presents a threat to Coke’s objective to obtain profit and growth. A proposed strategy may therefore be to find small healthy beverage manufacturers with quality products. Purchasing these small companies will not raise competition concerns. Coke might use its strong brand name, manufacturing capacity and distribution networks to obtain strong market penetration for its newly acquired healthy beverages.
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