What is SWOT Analysis?SWOT analysis is a strategic planning method used to evaluatethe Strengths, Weaknesses, Opportunities, and Threatsinvolved in a project or in a business venture. It involvesspecifying the objective of the business venture or project andidentifying the internal and external factors that are favorableand unfavorable to achieve that objective.The technique is credited to Albert Humphrey, who led aconvention at Stanford University in the 1960s and 1970s usingdata from Fortune 500 companies.
S.W.O.T is an Acronym for: S – Strengths Internal W – Weaknesses O – Opportunities External T – Threats
What does S.W.O.T comprise of? Strengths – Internal Characteristics of the business or team that give it an advantage over others in the industry Weaknesses - Internal Characteristics that place the firm at a disadvantage relative to others Opportunities - external chances to make greater sales or profits in the environment Threats - external elements in the environment that could cause trouble for the business.
Why should you use S.W.O.T? It guides you to identify the positives and negatives inside your institution (S-W) and outside of it, in the external environment (O- T). It helps develop a full awareness of your situation and can help with both strategic planning and decision making. It helps to explore possibilities for new efforts or solutions to problems. It helps make decisions about the best path for your initiative. Identifying your opportunities for success in context of threats to success can clarify directions and choices.
It helps determine where change is possible. If you are at a point of making a decision, an inventory of your strengths and weaknesses can reveal priorities as well as possibilities. It helps to adjust and refine plans mid-course. A new opportunity might open wider avenues, while a new threat could close a path that once existed. SWOT also offers a simple way of communicating and is an excellent way to organize information you have gathered from studies and surveys.
SWOT Layout SWOT findings are often arranged in a 4-by-4 cell table. Strengths are placed in the upper left cell. Weaknesses are placed in the upper right cell. Opportunities and threats make up the lower row. Opportunities go on the left, threats on the right. This layout makes SWOT easier to understand because you can reference factors by type. Positive factors are displayed on in the first column. Negative factors are displayed in the second column. Both internal types of factors are in the first rows and external factors are placed in the second row.
How to do the SWOT?Step 1: Identify S.W.O.TStrengths1. Consider from both the view of the firm as well as from customers and competitors2. Questions to ask: What are the firm’s or the product’s advantages over others? What does it do well? What makes it stand out from your competitors?
Weaknesses1. Be truthful so that weaknesses may be overcome as quickly as possible2. Questions to be asked: What is done poorly? What can be improved? What should be avoided?
Opportunities and Threats1. External in nature2. Includes forces and facts that the organization cannot control. It might include factors such as future trends, the economy, funding sources, demographics, the physical environment and legislation.3. Questions to be asked on Opportunities: Is there a product/service area that others have not yet covered? Are there emerging trends that fit with your company’s strengths?
4. Questions to be asked on threats: Are your competitors becoming stronger? Are there emerging trends that amplify one of your weaknesses?Step 2: Formulate strategies from theSWOTThis can be done by pairing the SWOT factors: SO Strategy (Strengths and Opportunities Strategy) - Use strengths to take advantage of opportunities WO strategy (Weaknesses and Opportunities Strategy) - Overcome weaknesses by taking advantage of opportunities
WT strategy (Weaknesses and Threats Strategy) - Minimize weaknesses and avoid threats ST strategy ( Strengths and Threats Strategy) – Use strengths to avoid threats
How do you develop a SWOT analysis? Designate a facilitator who has good listening and group process skills and who can keep things moving and on track. Designate a recorder to back up the leader if your group is large. Use newsprint on a flipchart or large board to record the analysis and discussion points. Introduce the SWOT method and its purpose in your institution. This can be simple as asking Where are we? Where can we go? Be realistic; no need to inflate strengths or be in denial about shortcomings. Be specific. Avoid grey areas Always analyze in the context of your competitive environment.
CASE STUDY OF IKEA - SWOTANALYSIS AND SUSTAINABILEBUSINESS PLANNING
BACKGROUND IKEAs goals of sustainability and environmental design are central to its business strategy. It has launched a new sustainability plan to take the company through to 2015. This will combine social, environmental and economic issues. IKEA uses SWOT analysis to help it reach its objectives
IKEA’S STRENGTHS: A strong global brand which attracts key consumer groups. It promises the same quality and range worldwide Its vision – ‘to create a better everyday life for many people’ A strong concept – based on offering a wide range of well designed, functional products at low prices A ‘democratic design’ – reaching an ideal balance between function, quality, design and price. IKEA’s ‘Cost Consciousness’ means that low prices are taken into account when each product is designed from the outset. Volume commitments – IKEA believes in creating long-term partnerships with its suppliers in order to achieve this. By committing to buying large volumes over a number of years IKEA can negotiate lower prices. This also benefits the suppliers because they enjoy the greater security of having guaranteed orders. Economies of scale – for instance, bulk buying at cheaper unit costs. Sourcing materials close to the supply chain to reduce transport costs. Delivering products directly from the supplier to IKEA stores. This slashes handling costs, reduces road miles and lowers the carbon footprint. Using new technologies – for example, IKEA’s OGLA chair has been in its range since 1980. The chair has changed through the years to reduce the amount of raw materials needed.
IKEA’S OPPORTUNITIESA business uses its strengths to take advantage of theopportunities that arise. IKEA believes that its environmentallyfocused business conduct will result in good returns even in aprice sensitive market. Some of the opportunities that IKEAtakes advantage of through its sustainability agenda are: A growing demand for greener products A growing demand for low priced products. Trends in the current financial climate may result in consumers trading down from more expensive stores Demand for reduced water usage and lower carbon footprints.
IKEA’S WEAKNESSESIKEA has to acknowledge its weaknesses in order to improve and manage them. This canplay a key role in helping it to set objectives and develop new strategies. IKEA’s weaknessesmay include: The size and scale of its global business. This could make it hard to control standards and quality. Some countries where IKEA products are made do not implement the legislation to control working conditions. This could represent a weak link in IKEA’s supply chain, affecting consumer views of IKEA’s products. The IWAY code is backed up by training and inspectors visiting factories to make sure that suppliers meet its requirements. The need for low cost products. This needs to be balanced against producing good quality. IKEA also needs to differentiate itself and its products from competitors. IKEA believes there is no compromise between being able to offer good quality products and low prices. IKEA needs to keep good communication with its consumers and other stakeholders about its environmental activities. The scale of the business makes this a difficult task. IKEA produces publications in print and online (for example ‘People and the Environment’) and carries out major TV and radio campaigns to enable the business to communicate with different target audiences.
IKEA’S THREATSIf a company is aware of possible external threats, it can plan tocounteract them. By generating new ideas, IKEA can use aparticular strength to defend against threats in the market.Threats to IKEA may stem from: Social trends – such as the slowdown in first time buyers enteringthe housing market. This is a core market segment for IKEA products Market forces – more competitors entering the low price householdand furnishings markets. IKEA needs to reinforce its unique qualitiesto compete with these. Economic factors –the recession slows down consumer spendingand disposable income reduces.
COMBATING THESE THREATS: Social trends: IKEA is building online help to guide customers to a more sustainablelife. Here it can focus on home improvement in the slowing housing market. It supportscustomers with tips and ideas on its website to reduce their impact on the environment.This will also save them money. Staff are trained on sustainability, both on what IKEA isdoing and how they can take responsibility to become sustainable for themselves. Market forces: IKEA is large enough to enjoy economies of scale. This lowers averagecosts in the long run through, for example, better use of technology or employingspecialized managers. Economies of scale also give a business a competitive edge if costsavings are then passed on to customers in the form of lower prices. This puts up highbarriers to entry for smaller companies entering the market. Economic factors: IKEA’s low prices create appeal amongst its customers in toughfinancial times. It is vital to keep prices as low as possible when the retail sector isdepressed. IKEA’s pricing strategy targets consumers with limited financial resources. Itsproducts will also appeal to those with higher budgets through good quality and design.The company must ensure that it is always recognized as having the lowest prices on themarket in the future. Communication plays an important role here.
CONCLUSIONIKEA is a well-known global brand with hundreds of stores across theworld. In order to improve performance, it must assess its external andcompetitive environment. This will reveal the key opportunities it cantake advantage of and the threats it must deal with. IKEA responds toboth internal and external issues in a proactive and dynamic mannerby using its strengths and reducing its weaknesses. Through this,IKEA is able to generate the strong growth it needs to retain a strongidentity in the market.