21-Dec-10

ABOUT SWOT ANALYSIS

Engineering Management
Tools for Strategic Planning
SWOT ANALYSIS PORTER FIVE FORCES

a methodology born from marketing research, used to analyze competitive context and in particular product strategies
Strengths Weaknesses Opportunities Threats

The purpose of SWOT Analysis

It is an easy-to-use tool for developing an overview of a companys strategic situation
It forms a basis for matching your companys strategy to its situation It provides the raw material to do more extensive internal and external analysis

SWOT: EXTERNAL CONTEST

OPPORTUNITIES: area of the external environment that can allow the organization to obtain positive performances THREATS: area of the external environment that affect in a negative way the possibilities of the organization to obtain positive performances

21-Dec-10

Opportunities
An OPPORTUNITY is a chance for firm growth or progress due to a favorable juncture of circumstances in the business environment. Possible Opportunities:
Emerging customer needs Quality Improvements Expanding global markets Vertical Integration

Threats
A THREAT is a factor in your companys external environment that poses a danger to its well-being. Possible Threats:
New entry by competitors Changing demographics/shifting demand Emergence of cheaper technologies Regulatory requirements

SWOT: INTERNAL CONTEST

STRENGTHS: resources, competences or productive factors that let an organization realize the strategies that support its mission WEAKNESSES: elements that interfere with the realization of the strategy (lack of resources, competencies or productive factors)

WHY THE SWOT ANALYSIS

To change mental attitudes towards problems To work in team on different kinds of problems To analyze problems from 4 different points of view To understand strength and weakness and to turn threats into opportunities

21-Dec-10

SWOT ALLOWS TO:

Capitalize strengths Minimize weaknesses Seize opportunities Answer back threats

Summary
Strengths: areas of excellence Weaknesses: areas of improvement Opportunities and threats: from the external environment

SWOT Analysis Worksheet

Strengths:
What do you do well? What unique resources can you draw on? What do others see as your strengths?

Weaknesses:
What could you improve? Where do you have fewer resources than others? What are others likely to see as weaknesses?

SWOT Matrix- Four Types of Strategies

Strengths-Opportunities (SO) Weaknesses-Opportunities (WO) Strengths-Threats (ST) Weaknesses-Threats (WT)

Opportunities:
What good opportunities are open to you? What trends could you take advantage of? How can you turn your strengths into opportunities?

Threats:
What trends could harm you? What is your competition doing? What threats do your weaknesses expose you to?

21-Dec-10

Developing the SWOT

List firms key internal List firms key internal List firms key external List firms key external Strengths Weaknesses Opportunities Threats

SWOT Matrix
Internal environment External environment

Strengths S
List Strengths

Weaknesses W
List Weaknesses

Opportunities O
List Opportunities

SO Strategies
Use strengths to take advantage of opportunities

WO Strategies
Overcoming weaknesses by taking advantage of opportunities

Threats T
List Threats

ST Strategies
Use strengths to avoid threats

WT Strategies
Minimize weaknesses and avoid threats

Matching Key Factors to Formulate Alternative Strategies Key Internal Factor Key External Factor Resultant Strategy

Limitations with SWOT Matrix

Does not show how to achieve a competitive advantage Provides a static assessment in time May lead the firm to overemphasize a single internal or external factor in formulating strategies

Excess working capacity (strength)

20% annual growth in the cell phone + = industry (opportunity) Exit of two major foreign competitors = from the industry (opportunity) Decreasing numbers of young adults (threat) Strong union activity (threat)
=

Acquire Cellfone, Inc.

Insufficient capacity (weakness)

Pursue horizontal integration by buying competitor's facilities Develop new products for older adults Develop a new employee benefits package
15

Strong R&D (strength) Poor employee morale (weakness)

21-Dec-10

Strategy Review, Evaluation, & Control

Monitor Strengths & Weaknesses; Opportunities & Threats

Strategy Review, Evaluation, & Control

Monitor Strengths & Weaknesses; Opportunities & Threats

Are strengths still strengths? Have we added additional strengths? Are weaknesses still weaknesses? Have we developed other weaknesses?

Are opportunities still opportunities? Other opportunities develop? Are threats still threats Other threats emerged? Are we vulnerable to hostile takeover?

The purpose of Five-Forces Analysis

Porter Five Forces
The five forces are environmental forces that impact on a companys ability to compete in a given market. The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.

21-Dec-10

Porter Five Forces

1. 2. 3. 4. 5. Threat of new entrants Bargaining powers of suppliers Bargaining powers of buyers Threat of substitute products Rivalry among competing firms

Threat of New Entrants

Economies of Scale Barriers to Entry Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy Expected Retaliation

Bargaining Power of Suppliers

Suppliers are likely to be powerful if:
Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Bargaining Power of Buyers

Buyer groups are likely to be powerful if: Buyers are concentrated or purchases are large relative to sellers sales Purchase accounts for a significant fraction of suppliers sales Products are undifferentiated Buyers face few switching costs Buyers industry earns low profits Buyer presents a credible threat of backward integration Product unimportant to quality Buyer has full information Buyers compete with the supplying industry by:
* Bargaining down prices * Forcing higher quality * Playing firms off of each other

Supplier industry is dominated by a few firms Suppliers products have few substitutes Buyer is not an important customer to supplier Suppliers product is an important input to buyers product Suppliers products are differentiated Suppliers products have high switching costs Supplier poses credible threat of forward integration

21-Dec-10

Threat of Substitute Products

Keys to evaluate substitute products: Products with similar function limit the prices firms can charge Products with improving price/performance tradeoffs relative to present industry products Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery

Porters Five Forces- Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms in Ind./Business

Bargaining Power of Buyers

Threat of Substitute Products

Rivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:
Jockeying for strategic position Using price competition Staging advertising battles Increasing consumer warranties or service Making new product introductions

Rivalry Among Existing Competitors

Cutthroat competition is more likely to occur when: Numerous or equally balanced competitors Slow growth industry High fixed costs High storage costs Lack of differentiation or switching costs Capacity added in large increments Diverse competitors High strategic stakes High exit barriers

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors

21-Dec-10

The Five Forces are Unique to Your Industry/ Business

Five-Forces Analysis is a framework for analyzing a particular industry or business.
Yet, the five forces affect all the other businesses in that industry/business.

The end