Business method

University Degree Business and Administrative studies

Business method

This is another method of helping management to reduce the risk involved in making decision in a dynamic industry. It involves analysing the current position of a product, a department or even the whole organisation, and trying to identify its possible future course of action, by looking at its Strengths, Weaknesses, Opportunities and Threats.

A strength is a factor which a business currently possesses and which it performs effectively, such as having a strong management team, a profitable portfolio of products, or a loyal customer base.

A weakness is an area in which the business currently performs poorly, such as having a high level of industrial disputes falling profitability, or falling productivity levels.

An opportunity is a potentially successful or profitable activity that the business could take advantage of in the future, such as the take-over of a competitor, the development of new products, or breaking into new markets.

A threat represents a potential future problem which the business may face in the future, such as new competitors entering the industry, new legislation restricting the use of certain raw materials, or the possibility of being taken-over by another company.

Remember, the strengths and weaknesses are internal factors which the company currently faces. The opportunities and threats are external factors, which the company may face in the future.

The S.W.O.T analysis is represented in a simple four-box diagram, as illustrated below:

Example of a S.W.O.T analysis for a Chocolate manufacturer.

STRENGTHS

The continued growth of supermarket and superstore chains has seen them become ‘one-stop shops’, offering more diverse services, either in-store or through partnerships. The vast majority of the UK population conducts its principal food shopping at one of the major retailers, and can now purchase financial products at the same place as it shops for food, clothing and electrical goods.

As the multiples grow and develop, they are in a position to offer complementary store formats — smaller stores in city centers to cater for ‘grab-and-go’ purchases and ‘top-up’ solutions, which complement shopping at larger-format stores. The major chains have a distribution and support network with which the smaller retailers cannot compete, and so are well placed to gain a share of the lucrative convenience-store market.

Given their size, both in terms of product lines stocked per store and number of stores nationwide, the major multiples are in a position to offer diverse ranges of products, such as ...

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As the multiples grow and develop, they are in a position to offer complementary store formats — smaller stores in city centers to cater for ‘grab-and-go’ purchases and ‘top-up’ solutions, which complement shopping at larger-format stores. The major chains have a distribution and support network with which the smaller retailers cannot compete, and so are well placed to gain a share of the lucrative convenience-store market.

Given their size, both in terms of product lines stocked per store and number of stores nationwide, the major multiples are in a position to offer diverse ranges of products, such as organic foods and products free from genetically modified (GM) ingredients. Their dominant position in the market allows them to cater for the needs of specific customers, and to offer all customers the opportunity to discover a wide variety of products.

Expansion into non-food lines will see supermarket’s use their buying power to reduce prices. The major chains played an important role in the defeat of retail price maintenance (RPM) for books and over-the-counter pharmaceuticals. It is likely that the supermarkets will be able to offer a wider variety of non-food goods at lower prices than other high-street outlets.

WEAKNESSES

Supermarkets need to develop other means of competition, rather than relying primarily on price. Prices can only be reduced so far, and the smaller companies will be unable to match the reductions offered by the larger chains. Further to this, possible future EU legislation to prevent the sale of goods below cost price will set a lower limit on price reductions, and will prevent some of the tactics already in use in the market.

Diversification of store formats is occurring in parallel with more centralized supply networks: as the number and variety of store brands a chain offers increase, so do the particular supply needs. City-center and urban stores are likely to have little warehouse space, and so require small but regular deliveries. By contrast, large, out-of-town hypermarkets are likely to have larger warehouse facilities and so only require regular deliveries of fresh produce.

For the major companies to be changing both their store formats and their distribution networks at the same time increases the possibility of problems in the supply chain.

Consolidation continues to be an issue within the market, following Wal-Mart’s acquisition of ASDA Group Ltd. During 2002, there was a great deal of speculation about bids for Safeway PLC, both by rival supermarket chains and financial institutions. Further consolidation, if creating a quasi-monopolistic situation, could have an important impact on the UK supermarket and superstore market.

OPPORTUNITIES

The supermarket multiples are ideally placed to offer an even greater range of non-food goods than at present. This is a key growth area for the major companies. Research suggests that the UK consumer would not be hostile to the development of the hypermarket format found elsewhere in Europe.

The growth of the major multiples as ‘one-stop’ shops, places them in a position to offer a variety of services to their customers. ASDA has started to make use of this position by providing influenza inoculations in many of its stores in winter, at a vastly reduced rate compared with private clinics. There is the opportunity for similar services to be offered through supermarkets stores, with legal advice and postal counter services as just two such examples.

In late 2002, the Government was considering allowing convenience stores to operate at motorway service stations in the UK, as a means of introducing competition into this market. Such a move would provide an opportunity for supermarket chains to operate smaller-format stores in a potentially lucrative market. Brands such as Marks & Spencer’s Simply Food or Tesco’s Extra would be able to offer convenience foods in addition to a small number of other lines. Such stores could be especially successful on stretches of motorway used by a high number of commuters, who could use the stores for ‘top-up’ solutions to their major food shopping.

THREATS

While grocery spending tends to be one of the last areas affected by recession, the recent slow-down in consumer spending has put price in the focus of many customers’ minds. A new price war could be potentially dangerous for some of the smaller and less successful companies operating in the UK supermarket and superstore market. Only the larger UK chains have the reserves to support a round of price cuts and loss leaders.

Supermarkets continue to grow and thrive in the UK. However, a number of small yet significant pressure groups, which oppose the dominance of the supermarket multiples, such as farmers and countryside groups, blame the predominant position of the supermarket chains as buyers for driving down the price paid for their produce.

Government legislation aimed at limiting out-of-town developments will make it difficult for supermarkets to obtain planning permission for new out-of-town stores.

This diagram is simple and easy to follow, and it can provide the basis for discussion of business strategy at meetings. The results of a S.W.O.T. analysis may often identify possible courses of action that had not been considered, as well as categorising and prioritising the problems that the business faces. In most large businesses, the marketing department will carry out a S.W.O.T. analysis as part of its annual marking audit – this highlights the products which are performing effectively, those which are reaching the end of their lifecycle, potential new markets to break into and the overall effectiveness of its personnel.