SWOT Analysis

A SWOT analysis is a framework that is used to analyze a company’s competitive positioning in its business environment. This can be used by , and will involve the identification of its internal Strengths (S) and Weaknesses (W) followed by the identification of the Opportunities (O) and Threats (T) it faces in its extensivelyrnal business environment.

is among the leading firms within its industry, and it needs to retain this position. is carefully reviewing its SWOT analysis and using it to make strategic decisions. For a SWOT analysis to be conducted of the firm, an interactive process needs to be undertaken by coordinating among all the departments of the firm such as finance, marketing, operations, human resource, logistics, strategic planning, management information systems etc.

A SWOT matrix is a 2x2 matrix that has the internal strategic factors listed in the first row; Strengths and Weaknesses. It has the external strategic factors listed in the second row; Opportunities and Threats. This SWOT strategic framework allows company managers to easily view all of the company’s strengths, weaknesses, opportunities and threats in one matrix.

Internal Strengths Weaknesses
External Opportunities Threats

The SWOT analysis matrix helps in the development of 4 types of strategies by managers. These are:

  • Strengths-Opportunities Strategies (SO): This involves using internal strengths to take advantage of opportunities.
  • Weaknesses-Opportunities Strategies (WO): This involves improving on the company’s weaknesses by making use of the opportunities.
  • Strengths-Threats Strategies (ST): This involves the using of strengths to minimize the weaknesses.
  • Weaknesses-Threats Strategies (WT): This involves the elimination of weaknesses to combat the threats.

The main objective of the SWOT analysis is to help in identifying the strategies that can be used by the company to build on its strengths, eliminate its weaknesses while making the most of opportunities and countering threats.

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SWOT Analysis

Strengths

  • Distribution and Reach: has a large number of outlets in almost every state, supported by a strong distribution network that makes sure that its products are available easily to a large number of customers in a timely manner.
  • Cost Structure: ’s low cost structure helps it produce at a low cost and sell its products at a low price, making it affordable for its customers.
  • Dealer Community: has a strong relationship with its dealers that not only provide them with supplies but also focus on promoting the company's products and training.
  • Financial Position: has a strong financial position with consecutive profits in the past 5 years, along with accumulated profit reserves that can be used to finance future capital expenditures.
  • Return on Capital Expenditure: has been successfully able to generate positive returns on the capital expenditure it has incurred on various projects in the past.
  • Automation: of various stages of production has allowed the more efficient use of resources and reducing costs. It also allows for consistency in quality of its products and provides the ability to scale up and scale down production as per the demand in the market.
  • Skilled Labor force: has invested extensively in the training of its employees that has resulted in it employing a large number of skilled and motivated employees.
  • Entering new markets: ’s innovative teams have allowed it to come up with new products and enter new markets. It has been successful in past, in most of the initiatives it has taken in new markets.
  • Social Media: has a strong presence on social media with more than millions of followers on the three most famous social media platforms: Facebook, Twitter and Instagram. It has high levels of customer engagement on these platforms with low customer response time.
  • Website: has a well-functioning and interactive website that draws a large number of internet traffic and sales.
  • Product Portfolio: has a large product portfolio where it provides products in a large range of categories. It has a number of unique product offerings that are not provided by competitors.

Weaknesses

  • Research and Development: Even though is spending more than the average research and development expenditure within the industry, it is spending way less than a few players within the industry that have had a significant advantage as a result of their innovative products.
  • High Day Sales Inventory: The time it takes for products to be purchased and sold are higher than the industry average, meaning that builds up on inventory adding unnecessary costs to the business.
  • Rented Property: A significant proportion of the property that owns is rented rather than purchased. It has to pay large amounts of rent on these adding to its costs.
  • Low current ratio: The current ratio that shows the company’s ability to meet its short term financial obligations, is lower than the industry average. This could mean that the company could have liquidity problems in the future.
  • Cash flow problems: There is a lack of proper financial planning at regarding cash flows, leading to certain circumstances where there isn’t enough cash flow as required leading to unnecessary unplanned borrowing.
  • Integration: 's current structure and culture have resulted in the failure of various mergers aimed at vertical integration.
  • Diversification in the workforce: The workforce at is concentrated with mostly local workers, and low amounts of workers from other racial backgrounds. Lack of diversification makes it difficult for employees from different racial background to adjust at the workplace, leading to loss of talent.
  • Market Research: has not conducted market research within the market that is serves since the past 2 years. As a result, it is making decisions based on 2 years old data, while customer needs may have evolved over time.
  • High employee turnover rates: has a higher employee turnover rate compared to competitors. This means that it has more people leaving the job, and as a result, it is spending more on training and development as employees keep leaving and joining.
  • Quality Control: has a lower budget for its quality control department than competitors. This leads to lack of consistency and the possibility of damage to quality across its various outlets.

Opportunities

  • Internet: there has been an increase in the number of internet users all over the world. This means that there is an opportunity for to expand their presence online; by using the internet to interact with its customers.
  • E-commerce: There has been a new trend and a growth in sales of the e-commerce industry. This means that a lot of people are now making purchases online. can earn revenue by opening online stores and making sales through these.
  • Social Media: there has been an increase in the number of social media users worldwide. The three social media platforms; Facebook, Twitter and Instagram, have shown the greatest number of increase in monthly active users. can use social media to promote its products, interact with customers and collect feedback from them.
  • Technological developments: technology comes with numerous benefits among many departments. Operations can be automated to reduce costs. Technology enables better data to be collected on customers and improves on marketing efforts.
  • There has been an increase in average household income along with an increase in consumer spending following the recession. This will result in growth in ’s target market with new customers that can be attracted towards the business.
  • Population: the population has been growing and is expected to grow at a positive rate for the upcoming years. This is beneficial for as there will be an increase in the number of potential customers that it can target.
  • Inflation: The inflation rate has been low and is expected to remain low in the next two years. This is an opportunity for as its cost of inputs would remain low for the next two years.
  • Interest rate: Lower interest rates than compared to previous years provides an opportunity for to undergo expansion projects that are financed with loans at a cheaper interest rate.
  • Green government drive: this provides an opportunity for for the sale of 's products to federal and state government contractors.
  • Transport Industry: the transport industry has been flourishing in the past few years, and shows growth potential in the future. This has reduced the costs of transportation, which is beneficial for as it will lower its overall costs.
  • Tax policy: the governments’ reduction in tax rate is beneficial for as a lower amount would be expensed out as a tax.
  • Tourism: growth in tourism is beneficial for as it will provide new potential customers that it can target in order to gain market share.
  • Skilled workers: increase in education and training by numerous institutes has increased the amount of skilled labor available within the country. This means that if is able to hire skilled labor, it would have to spend less on training and development, therefore, saving costs.

Threats

  • Technological developments by competitors; New technological developments by a few competitors within the industry pose a threat to as customer attracted to this new technology can be lost to competitors, decreasing ’s overall market share.
  • Suppliers: The bargaining power of suppliers has increased over the years with the decrease in the number of suppliers. This means that the costs of inputs could increase for .
  • New entrants: there have been numerous players that have entered the market and are gaining market share by gaining existing companies’ market share. This is a threat to as it can lose its customers to these new entrants.
  • Increasing competition: there has been an increase in competition within the industry putting downward pressure on prices. This could lead to reduced revenue for if it adjusts to the price changes, or loss of market share if it doesn’t.
  • Exchange Rate: the exchange rate keeps fluctuating and this affects a company like that has sales internationally, while its suppliers are local.

Limitations of the SWOT Analysis

Even though the SWOT analysis is an effective tool, it has certain limitations as well.

  • Its major limitation is the fact that there can be an overlap of strengths and weakness, with a single factor being both a strength and a weakness. For example, a large number of outlets can be a strength in a growing economy or a weakness if the economy is going through a recession.
  • The matrix is not an end as it does not show how to achieve the objectives. It should be used as a starting point to make strategic decisions.
  • The assessment done through a SWOT analysis is a static one and does not take into consideration the changes that take place in the competitive environment.
  • The factors listed down in a SWOT analysis may be overemphasized by the company.
  • There are certain interrelationships between the internal and external factors that the SWOT Matrix overlooks.

Weighted SWOT analysis

In response to the above mentioned limitations, a weighted SWOT analysis can be conducted for that involves assigning weightage to each of the strengths and weaknesses mentioned in the SWOT analysis for . It also involves estimating the probability of an event occurring in the external environment. This allows managers to focus on the important factors, and give less consideration to the less important ones.

The limitation of the weighted SWOT analysis is that it does not look at how holistically different factors affect the business when combined.

Example of weighted SWOT analysis

For , the strength for strong distribution can be given a higher weight than the strength for the skilled labor force.

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