Look at the advantages and disadvantages of using SWOT as a tool for analysing the business environment and strategic capabilities in a competitive market.

University Degree Business and Administrative studies

Introduction

This essay attempts to look at the advantages and disadvantages of using SWOT as a tool for analysing the business environment and strategic capabilities in a competitive market. To demonstrate the concept of SWOT, I will use a case study example of the UK home shopping industry to highlight its strengths, weaknesses, opportunities and threats. The main aim of this essay is to explain the merits of SWOT and its strategic capabilities, so that organisations can clearly identify its position in the market place, and possible future strategic options. This essay was produced by using secondary sources such as Internet content, textual and journals references. Furthermore, I will also conclude with a recommendation on the best way to utilise this tool in a competitive environment.

To decide on the best strategic capabilities in a competitive market, firms usually undertake a SWOT analysis. This means, that a firm examines it Strengths, Weaknesses, Opportunities and Threats (Surridge, M. & Gillespie A., 2000).

The SWOT analysis also examines the organisation’s external environment and internal environment (Lynch, R 1997). This requires listing and analysing strengths of the business, its weakness and likely threats and opportunities facing in the future (Doyle, P 1998).

In other words SWOT is key element of strategic option formulation, which allows the matching of organisational strengths and weaknesses with opportunities and threats, which exist in the market place. SWOT analysis is widely recognized in the marketing and strategic management literature as a systematic way of achieving this end (Ruocco, P. & Proctor. T., 1994).

Once the analysis has been completed, then, using creative thinking and brainstorming sessions, the organisations searches for way in which it can use its strengths to exploit opportunities, while addressing its weaknesses and defending against the threats (Ward, J. and Griffiths, P., 1996).

A firm’s strengths and weaknesses factors are internal factors. Strengths work in its favour and weaknesses leave it to vulnerable to competitors. For example, in the case of home shopping industry strengths may be as follows:

Home shopping reaches consumer groups which cannot get to or do not go the High Street, such as the housebound, the disabled, the very young and many males who express a disinterest in shopping.
Home shopping has the ability to reach remote communities which do not have many shops and where choice is limited.
Home shopping offers unparalleled convenience with 24 hour opening and home delivery available.
The growth of the Internet will offer increasing access to consumers.
Home shopping does not require access by foot, car or public transport. It can be done from the comforts of one’s home.

For many businesses their strengths are balanced by their weaknesses. Some common weaknesses of home shopping industry may be as follows:

Prices can be higher than on the High Street. Catalogues companies have to fix their prices in advance and these do not always prove competitive.
Postage and packaging adds additional cost.
Covering the cost of returns cuts the profits margins of retailers.
Home shopping is less immediate than shopping in the High Street, since there is a delay between ordering and receiving the goods.

Opportunities and threats are external factors. Opportunities create areas where the ...

This is a preview of the whole essay

For many businesses their strengths are balanced by their weaknesses. Some common weaknesses of home shopping industry may be as follows:

Prices can be higher than on the High Street. Catalogues companies have to fix their prices in advance and these do not always prove competitive.
Postage and packaging adds additional cost.
Covering the cost of returns cuts the profits margins of retailers.
Home shopping is less immediate than shopping in the High Street, since there is a delay between ordering and receiving the goods.

Opportunities and threats are external factors. Opportunities create areas where the firm can develop and threats are factors that may weaken a firm’s position. For example, in the case of home shopping industry opportunities may include.

The potential reach for home shopping is global.
Digital TV will provide an additional opportunity for direct marketing as more channels and advertising space are introduced in to people’s homes.
Database marketing enables direct marketers to target customers with increasing accuracy.

Firms may face variety of threats. In the case of home shopping industry threats may be as follows:

The traditional catalogue companies are threatened by new entrants, both domestic and foreign. In particular, European companies and US are providing competition to UK retailers.
Mail order and direct marketing companies still suffer from bad image. Poor quality goods, the difficulty of sending goods back and poor distribution have all affected people’s view of home shopping.

So far the home shopping industry case study demonstrated how SWOT could be utilised. But what is the main purpose of SWOT? The purpose of SWOT analysis is to identify the existing position of the firm and to flag up possible external changes in its environment. This is an important part of the planning process. A firm will seek to build on its strengths and protect itself against weaknesses. It will also exploit market opportunities while trying to reduce the impact of any threats. It can be argued that by undertaking a SWOT analysis, a firm can examine its strategic capabilities in depth. This is very useful valuable exercise because it forces managers to think about the present situation of the firm and what might happen in the future. By thinking about this positively, an organisation can respond quickly in the environment it operates.

What are the advantages of SWOT? The major benefit of SWOT is simplicity, lower costs, flexibility, integration, and collaboration. The ability to tailor SWOT to the firm is the greatest strength of this technique. Another advantage of this technique according to Adrian Haberberg, a Senior lecturer in Strategic Management at the Westminster Business School is that, “SWOT analysis is widely used as a tool for the evaluation of a firm’s position. Managers believe it is useful - research in both the UK and USA has found that they also thinks of it as having a strong foundation in theory and empirical research”.

Although techniques like SWOT analysis can help a firm in its planning to achieve their ultimate strategic aim. It does not guarantee that the right plan is actually chosen. All SWOT analysis can do is highlight the present situation of a firm and future possibilities within its market. It is up to management to interpret this information correctly and decide exactly what the firm has to do.

What are its disadvantages? A problem with SWOT analysis is that managers are often reluctant to identify the firm’s weaknesses or possible threats (or not capable of doing this). There is a tendency within any organisation to overemphasise its strengths without realising the true significance of threats, which exist and sometimes without fully appreciating the opportunities, which exist (Surridge, M. & Gillespie A., 2000).

Adrian Haberberg argues that, “Some of the objections to it are practical: the technique’s seductive simplicity seems to lead people to use it sloppily, so that the results are not really helpful. There are also theoretical objections – in the light of what we have learnt about the nature of competitive advantage over last thirty years, the four SWOT factors are no longer enough for an assessment of an organisation’s position”. This statement is true to some extent, because business organisations and its environment have changed considerably this is primarily due to advent of new technology, consumer tastes and the economy it operates.

According to Adrian Haberberg, “SWOT analysis has other drawbacks, based on the way that our understanding of the world of competition has changed since it was developed. We now appreciate that strategy is a matter of trade-offs- firms choosing deliberately to disappoint some potential customers so that they are better able to satisfy others. SWOT analysis, with its black-and-white distinction between strengths and weaknesses, does not handle this kind of situation all well”.

Another disadvantage is that critics have claimed that the output from a SWOT analysis is often either trivial or so broad as to be relatively meaningless in the context of making actual marketing decisions (Ruocco, P. & Proctor. T., 1994). Stevension (1976), for example describes evaluations made by managers of their strengths and weaknesses and the reasons underlying their evaluations. The overall impression left by this study was that the detached assessment of strengths and weaknesses might be unreliable, being bound up with aspirations, biases and hopes. The findings suggested that strengths and weaknesses have to be defined in the context of a situation.

Conclusion

This essay has considered SWOT and its strategic capabilities. It successfully met the aim of this essay, which was to explain SWOT using case study, its merits and strategic capabilities. It has shown that SWOT is a useful technique to analyse the business environment in a competitive market. Also SWOT is a very popular tool for analysing organisations because it is quick and easy to learn. This tool can be used in any organisation whether it is public or private sector. SWOT analysis can also be used in conjunction with other tools for strategic analysis, such as PEST analysis and Porter’s Five-Forces analysis.

Although there are advantages of SWOT discussed earlier. There are also problems inherent with this technique. SWOT analysis is fine for an initial classification of the issues when we are getting to know a company, a situation or a case study. For a true appreciation of a strategic situation, as a basis for concrete strategic proposals, I believe we need a finer assessment of the organisation’s resources and their value in a changing world.

The strategic capabilities of SWOT is immense. It provides focus to strategic analysis. It is dependent on brainstorming, creative thinking, understanding of the industry in depth, and the size of the organisations. This is because the larger the organisation, the more likely it is that formal strategic analysis will be required in order to establish and maintain competitive advantage.

To conclude the whole notion of SWOT is the matching specific internal and external factors, which create a strategic matrix that makes sense. It is essential to note that the internal factors are within the control of the organisations, such as operations, finance, and marketing, etc. On the other hand, the external factors are out of organisation’s control, such as political and economic factors, new technologies, and its competition (Weihrich, 1982).

Recommendations

The best way to utilise SWOT in a competitive environment is as follows:

Understand the actual situation.
Use brainstorming and creative thinking to identify the strengths, weaknesses, opportunities and threats.
Identify relationships between strengths, weaknesses, opportunities and threats and also bases of formulating strategies on these relationships. The objective is not to identify one best strategy but simply to generate different strategies for consideration, any number of which can subsequently be implemented (this technique is also known as TOWS Matrix Analysis).
Develop best strategy options with regards to resources available.
Implement the strategy derived from analysis.

References

Journals

(1) Ruocco. P. and Proctor. T (1994), “Strategic Planning in Practice: A Creative Approach”, Marketing Intelligence & Planning, Vol. 12 No. 9. pp. 24-29

(2) Stevension, H. (1976), “Defining Corporate Strengths and Weaknesses”, Sloan Management review, Vol. 17 No. 3. pp. 51-68.

(3) Weihrich, H. (1982), “The TOWS Matrix: Tool for Situational analysis”, Long Range Planning, Vol. 15 No. 2, pp. 54-66.

Books

(4) Lynch, R (1997), Corporate Strategy, Financial Times Management, London
(5) Doyle, P (1998), Marketing Management and Strategy, 2nd edition, Financial Times Prentice Hall, Harlow

(6) Ward, J. and Griffiths P. (1996), Strategic planning for Information systems, 2nd edition, Wiley.

(7) Surridge, M. and Gillespie A. (2000), AS Business Studies, 1st edition, Hodder & Stoughton.