30 SWOT Analysis

Vinti Davar

Introduction

SWOT is a strategic decision making tool for any business organisation including foodservice establishment. So at first, it becomes necessary to understand what is strategy, process of strategy selection and its various tools.

The ancient Greeks were first to use the word strategos, from which the term ‘Strategy’ is derived. They used it to designate a chief magistrate or a military commander-in-chief; with main focus on its military aspects. In the first half of nineteenth century, Carl von Clausewitz’s wrote “tactics … (involve) the use of armed forces in the engagement, strategy is the use of engagements for the object of the war.”

Objectives

The main objectives of this chapter are as follows:

•  Defining Strategy
• Process of Strategy Selection
• Various tools and Techniques of Strategic Analysis
•  SWOT Analysis
•  Factors affecting SWOT
•  Planning for Contingency
• Features of good SWOT Plan

Strategy – Evolution

However, it was inducted into business terminology only during the Second Industrial Revolution, which began in the second half of the nineteenth century but really took off only in the twentieth century. The First Industrial Revolution (which spanned the mid-1700s to the mid-1800s) failed to induce much in the way of strategic thinking or behaviour. As most businesses remained small and employed as little fixed capital as possible. Such firms required little or no strategy in any sense. The Second Industrial Revolution, which began in the last half of the nineteenth century in the United States, saw the emergence of strategy as a way to shape market forces and affect the competitive environment.

The Second Industrial Revolution had witnessed the founding of many elite business schools in the United States, beginning with the Wharton School in 1881, the Harvard Business School in 1908. It was one of the first to promote the idea that managers should be trained to think strategically rather than just act as functional administrators, although strategy itself was not explicitly invoked until the 1960s. In 1912, Harvard introduced a required second-year course in “Business Policy” that was designed to integrate the knowledge gained in functional areas like accounting, operations, and finance. The goal was to give students a broader perspective on the strategic problems faced by corporate executives. A course description from 1917 claimed that “an analysis of any business problem shows not only its relation to other problems in the same group, but also the intimate connection of groups. Few problems in business are purely intradepartmental.” Also, the policies of each department were supposed to maintain a “balance in accord with the underlying policies of the business as a whole.

In the early 1950s, George Albert Smith,Jr. and C. Roland Christensen, two professors of business policy at Harvard, encouraged students to question whether a firm’s strategy matched its competitive environment.

In the 1960s, business schools began to focus on matching a company’s “strengths” and “weaknesses” -its distinctive competence-with the “opportunities” and “threats” (or risks) that it faced in the marketplace.

SWOT is believed to be evolved during the 1960s at Stanford Research Institute; and discussed at Harvard in a conference in 1963.

Process of Strategy Selection

Organisations continually face the challenge of exercising choice among alternatives. Choice is an inalienable part of the decision-making process. An organisation has to look inwards, outward, and sideways before taking a leap into the unknown. An organisation has to be prepared with contingency strategies for the anonymous possibilities.

The process of strategic choosing is essentially a decision-making process. Choosing a strategy can be said as ‘selecting and deciding the best suited strategy from the many possible strategies which can help us in achieving organisational objectives. However it is not possible to evaluate all the available strategies but to select a few of them and comparing them to make a feasible choice.

These four steps in the process of strategic choice are described further.

Focussing on Strategic Alternatives

The aim of focussing on a few strategic alternatives is to narrow down the choice to a manageable number of feasible strategies. This situation frequently poses a dilemma before the decision maker: considering too many alternatives would make the process unwieldy and unproductive; but if only a few alternatives are considered, the decision maker may ignore others which should have been considered. For resolving this dilemma, a decision maker has to focus on a reasonable number of alternatives. It is still difficult to tell what that ‘reasonable’ number would be. Focussing on alternatives could be done by visualising the future state and working backwards.

Analysing the Strategic Alternatives

Once we have narrowed down on to a few feasible alternatives, these alternatives have to be tested on certain factors. The factors can be broadly divided into two groups:

1.  the objective and

2.  the subjective factors.

Objectives factors are based on analytical techniques and are hard facts or data used to facilitate a strategic choice. They could also be termed as rational, normative or prescriptive factors.

Subjective factors, on the other hand, are based on one’s personal judgement, collective or descriptive factors.

Evaluating the Strategic Alternatives

Every alternative i.e. strategies is evaluated on the same parameters i.e. objective and subjective to select a best possible alternative. Successive steps of analysing the different alternatives on the basis of selection factors, lie at the heart of such an evaluation. There is no set procedure and strategists may use any approach which suits the circumstances. What is important to observe is that if we consider only the objective or subjective factors, it does not help in evaluation. So the evaluation is done on both objective and subjective factors.

Choosing from among the Strategic Alternatives

It is desirable that the appraisal of various alternatives should lead to a clear assessment of which alternative is the most suitable under the existing conditions. The final step is,therefore, of making the strategic choice. One or more strategies have to be chosen for implementation. A blueprint has to be made that will describe the strategies and the conditions under which they would operate.

VARIOUS TOOLS & TECHNIQUES FOR STRATEGIC ANALYSIS

The strategic analysis can be done at two levels as shown in Figure 2 below:

Corporate-level strategic analysis focuses on techniques for analysing businesses under the same corporate umbrella. This analysis focuses on individual businesses under the corporate umbrella from the perspective of the industry to which each of those businesses belong and on the unique competitive situations they face in their respective industries. Whereas, the central theme in business-level strategic analysis is competition. The arena for analysis is therefore, the markets and industries where the organisations compete. Various Tools &Techniques for the Strategic Analysis are as follows:

Corporate Portfolio Analysis

a.      GE Nine Cell Matrix

b.      Corporate Parenting Analysis B. Experience Curve Analysis

C.    Life Cycle Analysis

D.    Industry Analysis

a.      Threat of New Entrants

b.      Rivalry among Competitors

c.      Bargaining Power of Buyers

d.      Bargaining Power Suppliers

e.      Threats of Substitute Products

E.     SWOT Analysis

Corporate Portfolio Analysis

This type of analysis is used by multi-product and multi business firms for competitive analysis and strategic planning. The main advantage is that it leads to identifying the resources at the macro level for creating competitive advantage. Major corporate portfolio analysis techniques are:

GE Nine-cell Matrix This Technique is based on the pioneering efforts of the General Electric (GE) Company, USA and McKinsey & company, a consulting firm.

Corporate Parenting Analysis Campbell, Goold and Alexander suggested the concept of corporate parenting to consider the role of the corporate headquarters in managing a set of businesses in a portfolio. A diversified corporation or a multi-business company is often viewed as consisting of a corporate headquarter or centre with SBUs acting as satellites. The manner in which the centre manages and nurtures the individual businesses is termed as corporate parenting.

This analysis is very helpful for firms which are managing varied trades, in building up possible strategic alternatives and to allot funds to these. The benefits include a more perceptive understanding of the businesses, improved tactical choices and enhanced communication.

Experience Curve Analysis

The concept explains that efficiency increases as learning is gained by workers through repetitive productive work. The experience curve is based on the commonly observed phenomenon that unit cost declines as a firm accumulates experience in terms of the cumulative volume of production.

Life Cycle Analysis

Life cycle analysis suggests that products, markets, businesses and industries evolve through sequential stages of introduction. growth, maturity and decline. The main advantage of the life cycle concept is that it can be used to diagnose a portfolio of products (or markets, businesses or industries) in order to establish the stage at which each of them exists.

Industry Analysis

A structural analysis of industries should be made so that a firm is in a better position to identify its strengths and weaknesses. A model has been proposed consisting of following five competitive forces:

Figure 3: Competitive Forces Model

SWOT Analysis

All firms are a part of an industry. Competition, direct or indirect, is described as environment. Thus, the industry and competition are vital considerations in making a strategic choice. The industry provides the context in which an organisation operates, while competitors vie for the same set of customers by offering more or less identical products. For these reasons, an organisation cannot make a strategic ‘choice without analysing its respective industry and competition.

Figure 4: SWOT Analysis Model

SWOT ANALYSIS

SWOT or TOWS, where S stands for Strengths, W for Weaknesses, O for Opportunities and T for Threats. Strengths and Weaknesses for an organisation exist in the internal environment, whereas, the external environment is responsible for opportunities and threats.

Internal Environment: The internal environment refers to all factors within an organisation that impact strengths or cause weaknesses of a strategic nature. The external environment is composed of the elements which are outside the organisation and offer opportunities or pose threats.

Strength exists in an organisation which it can utilise to achieve tactical gains. These can be organisational image; available resources; and employees, their experience, knowledge and capabilities.

Whereas, weaknesses are the strategic disadvantages which an organisation has due to its internal environment; for example lack of potential, financial constraints, lower confidence and heavy reliance on a single product line.

External Environment: This contributes to the opportunities available to a business organisation. These opportunities help in building and reinforcing the market position of an organisation. Opportunities such as local or global economic conditions, positive demographic shifts, new technologies, supportive regulations, and availability of customer demands can be favourable.

On the other hand, threats, the undesirable circumstances for an organisation in its external environment, pose risks to the organisation. Few examples are: economic slowdown, unfavourable demographic shifts, entry of new competitors, shift demand, adverse new regulations, hostile political conditions etc.

A systematic approach to understanding the environment is the SWOT analysis. Whereas, task of managers is to develop strategies which:

• Use the organisation’s strengths to capitalise on external opportunities or counter threats.
• Seek to alleviate the organisation’s weaknesses.

Application of SWOT Analysis

A simple application of the SWOT analysis technique involves these steps:

1.     Designing organisational objectives

2.     Recognizing strengths, weaknesses, opportunities and threats for an organisation.

3.     Find answers to following four questions

a.      How to maximise strengths?

b.     How to minimise weaknesses?

c.      How to capitalise on the opportunities?

d.     How to defend ourselves from available threats?

4.  Suggesting practices or strategies to answer the above said four questions.

For conducting a SWOT analysis, a four-cell matrix is drawn. The matrices are titled as strengths, weaknesses, opportunities and threats as shown in Figure 4. It should be conducted by a group of managers in a workshop session using the brainstorming technique for generating ideas.

An example of what can a SWOT matrix include is given below:

1.     STRENGTHS

a.      Favourable location

b.     Excellent distribution network

c.      ISO 9000 quality certification system

d.     Established R&D Centre

e.      Good management reputation product lines

2.     WEAKNESSES

a.      Doubtful cash inflow

b.     Frail Management Information System

c.      Lack of major USP for products

d.     Lower Employee Commitment

3.     OPPORTUNITIES

a.      Favourable industry trends

b.     Low technology options available

c.      Possibility of niche target market

d.     Availability of reliable business

4.     THREATS

a.      Unfavourable political environment

b.     Obstacles in licensing new business

c.      Uncertain competitors’ intentions

d.     Lack of sustainable financial partners backing

SWOT analysis has several benefits, among the major being:

• Simple to use
• Low cost
• Highly Flexible to suit different conditions
• Simplify various issues
• Finding of possible alternatives
• Helpful in formulation of strategies

However, if SWOT analysis is not done properly; it can lead to following disadvantages:

• It may not portray true picture of the organisation or the situation may be more severe than symbolized in the analysis.
• The analysis may turn to be another unfruitful experiment without achieving the desired results.
• There may be misinterpretation of facts or the facts may be one person’s view about the situation which may or may not be true.
• It is quite possible that there may be misplacement of various factors in different matrices of the analysis.
• Based on the miscalculation, the organisation may or may not initiate action against the highly sensitive issues which require immediate action. This can harm the organisation in great deal.
• It is heavily dependent on the evaluation of environments for a particular organisation which never remains stable.
• However, this assessment of strengths and weaknesses cannot stand still. It is a continuous process. Strategic capability needs to be assessed, not just for now but also for the future. As time passes, the current strategy will have developed and been modified and also the external business environment is likely to have changed. This in turn will lead to need for modifying strategies in the light of these changes.
• There is then a continuous interplay between formulation, implementation and assessment of SWOTs now and in the future. The process of assessing current strengths and weaknesses should be part of this process. They should be assessed in terms of their appropriateness not only now but also for the future. It works in many ways:

a. What possible external changes might make a current strength into a weakness or vice versa?

b. How can a current strength be used to explore a future opportunity?

c.How can strength be developed further to be of greater benefit in the future?

d The other issue that needs to be faced is where changes are required and where the resource capabilities of the operation are unable to meet them.

As the market, competition and the business environment change over time, so there will be need to changes in the core competences of the organisation. A current core competence that gives a foodservice operation an edge over competitors may become commonplace amongst competitors in a few years. Thus any organisation needs to be continually developing its core competences so as to be better prepared to face the future.

a.      Considerations for governmental policies

b.     Perception of critical success factors and distinctive competencies

c.      Commitment to past strategic actions

d.     Strategist’s decision styles and attitude to risk

e.      Internal political considerations

f.      Timing and competitor considerations.

Considerations for Governmental Policies

Strategic alternatives considered by companies have to be seen in the context of governmental policies. It is seen that considerations to governmental policies and priorities is one of the most important subjective factors that strategists take into account while exercising a strategic choice.

Perception of critical success factors and distinctive competencies

Critical success factors and distinctive competencies are important issues in environmental and organisational appraisal. While considering several strategic alternatives, strategists could be guided by the distinctive competencies that the organisation possesses and the critical success factors that ensure success in the industry.

Commitment to Past Strategic Actions

Strategic actions involve not only the formulation of particular strategies, but also, commitment in terms of resources and personnel.

Strategist’s Decision Style and Attitude to Risk

The decision style and attitude to risk are contingent upon the requirements of a particular business and the environment in which it operates. In this way, they act as significant subjective factors in strategic choice.

Internal Political Considerations

By ‘internal political considerations’ is meant the strategists’ interrelationship and power structure and balance. When strategy formulation is viewed as a political process, strategists are viewed as a coalition interest.

Timing and Competitor Considerations

The time element and competitor consideration is another set of important subjective factors that influence strategic choice.

Planning for Contingency

Strategic choice is made on the basis of certain conditions, assumptions and premises. When there is a change of conditions, shift in assumptions and the premises do not turn out to be wholly valid, then the strategy chosen becomes partly irrelevant. The strategies would need to be modified. If such changes are drastic, the chosen strategies may have to be shelved. Contingency strategies are formulated in advance to deal with uncertainties that are a natural part of any business.

There are a few approaches to help companies develop and implement contingency strategies.

The approach to develop model of contingency planning process involves three steps:

1. identifying the contingent events;
2. establishing the trigger points; and
3. developing strategies and tactics.

Features of a good SWOT Plan

A comprehensive SWOT plan document could contain the following information:

1. A clear statement of strategic intent covering the vision, mission, business definition, goals and objectives. .
2. Results of environmental appraisal, major opportunities and threats and critical success factors.
3. Results of organisational appraisal, major strengths and weaknesses and core competencies.
4. Strategies chosen and the assumptions under which those strategies would be relevant.
5. Contingent strategies to be used under different conditions.
6. Strategic budget for the purpose of resource allocation for implementing strategies and the schedule for implementation.
7. Proposed organisational structure and the major organisational systems for strategy implementation including the top functionaries and their role and responsibility
8. Functional strategies and the mode of their implementation
9. Measures to be used to evaluate performance and assess the success of strategy implementation.

Conclusion

In the fast moving world of cut throat competition, globalisation, liberalisation and privatisation, every food service organisation needs to adept as per the given market conditions as soon as possible. SWOT, a strategic decision making tool, like techniques can definitely help these establishments in becoming market leaders and achieve maximum guests’ satisfaction and generate heavy profits; provided used very judicially and timely.

Web links

•  www.mindtools.com/pages/article/newTMC_05.htm
• http://ctb.ku.edu/en/table-of-contents/assessment/assessing-community-needs-and-resources/swot-analysis/main
•  http://www.businessnewsdaily.com/4245-swot-analysis.html
•  http://www.isu.edu/acadaff/swot/
• http://balancedscorecard.org/Resources/Strategic-Planning-Basics