The value of SWOT analysis

56.1 Introduction

SWOT analysis investigates a company's current strengths and weaknesses and uses them to help forsee future opportunities and threats. 

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56.2 Conducting a SWOT analysis

There are two main ways to undertake a SWAT. The first is a top-down process, controlled by the boss and probably carried out by management consultants, answerable only to the boss. This has the advantage of being dispassionate. Unfortunately, long-established staff will know the threat posed by the outside consultants, and therefore try to hide weaknesses that might lead to job losses. So there is a risk that a top-down process will lack the insight rquired for a really helpful SWOT analysis. 

The ideal SWOT would be conducted in a consultative manner, with the boss spending time in every key department, talking to staff in an informal manner. There might also be elements of democratic delegation, in which middle managers are invited to conduct their own SWOTs - and then discuss the findings with the boss. This scenario highlights the benefit of appointing an outsider to the top job. A SWOT conducted by a long-established leader would be a very different beast.

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56.3 Theory behind SWOT analysis

Strengths and weaknesses represent the current situation. Opportunities and threats are external to management's control. 

Naturally the current business situation has to be considered in relation to competitors, so it's useful to analyse strengths and weaknesses with the help of a benchmarking exercise. This shows how the business performs on key variables compared with the best in the industry.

Among the external factors that can give rise to opportunities or threats are:

  • Economic changes such as the sharp fall in the price of oil at the beginning of 2012; threatening the future of alternative energy provision such as wind power.
  • Technological change such as the development of graphene, a form of carbon that's one atome thick yet it is 100x stronger than steel. 
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56.4 Strengths and weaknesses

A key starting point in analysing strengths and weaknesses is to distinguish between those that are and those that matter. Inditex publishes a huge amount of environmental and HR data that is presented as a strength, but perhaps doesn't matter much in relation to overall business performance. 80% of staff are permanent and 20% tempoary. In an era of outsourcing and contract labour, this is admirable. 

To adress this issue companies use the concept of KPIs: key performance indicators. These are the numbers that a business acknowledges to be proper measures of strenth or weakness. Typically these might include sales per employee, absenteeism, image ranking within the market sector and so on. These are measures that matter. 

Among the most common KPIs are:

  • Like-for-like sales, which show revenues this year compared with the last, but eliminating any differences in shop floor space. 
  • Market share
  • Capacity utilisation 
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56.5 Opportunities and threats

These relate to the external context of the business. They are therefore outside the direct control of managers - though in some cases companies will do everything they can do to influence the decisions made by others.

  • Demography 
  • New laws and legislation  - car seats and sugar tax
  • Technological factors - ITV competing against hundreds of Sky channels & online services.
  • Commodity price - oil price rising and other raw materials.
  • Economic factors
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56.6 Influencing opportunities and threats

Organisations seem to spend an increasing amount of time & senior manpower on attempting to influence - even control - their environment. So businesses lobby their MPs. Lobbyign usually meant local businesses coming to london to put thei case to their MP, who would then ask questions in parliment. Today lobbying is an industry which allows unelected, professional lobbyists access to Ministers or even the PM. 

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