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STRENGTH WEAKNESS Strength is an inherent Weakness is an inherent capacity which an limitation or constraint organisation can use to which creates strategic gain strategic advantage. disadvantages. Egs: good reputation Egs: gaps in among capabilities, financial customers, resources, asse deadlines, low morale and ts, people, experience, kno overdependence on a wledge, data and single product line. capabilities.
OPPORTUNITY THREAT Opportunity is a favourable Threat is an unfavourable condition in the condition in the organisation’s environment organisation’s environment which enables it to which creates a risk for, or consolidate and strengthen causes damage to, the its position. organisation. Egs: economic Egs: economic boom, favourable downturn, demographic demographic shifts, arrival of shifts, new new technologies, loosening competitors, unexpected of regulations, favourable shifts in consumer global influences and tastes, demanding new unfulfilled customer needs. regulations, unfavourable political or legislation, new technology and loss of key staff.
1960 at Stanford Research institute, a popular strategic planning technique.(WOTS –UP, TOWS ANALYSIS) The strength and weakness existing with in organisation can be matched with the opportunities and threats in the external environment, so that an effective strategy can be formulated. An effective strategy is one that capitalizes the opportunities through the use of strengths and neutralize threats by minimizing the impact of weakness to achieve predetermined objectives.
1. Setting the objective of organisation or its SBU’s2. Identify its strength, weakness, opportunities, and threats3. Asking four Questions: How do we maximise our strengths? How do we minimise our weakness? How do we capitalise on the opportunities in our environment? How do you protect ourselves from the threats in our external environment? 4. Recommending strategies that will optimise the answer from the four questions.
STRENGTHS• Favourable Location•Excellent distribution network•ISO 9000 quality certification•Establishing R&D Centre•Good Management ReputationOPPORTUNITIES THREATS•Favourable industry trends • Unfavorable political environment•Low cost technology options available •Obstacles in licensing new business•Possibility of niche target market •Uncertain competitors’ intentions•Availability of reliable business partners •Lack of sustainable financial backing
1. Simple to use2. Low cost3. Flexible and can be adapted to varying situations4. Leads to clarification of issues5. Development of goal oriented alternatives6. Useful as a starting point for strategic analysis PITFALL OF USING SWOT1. May not reflect the reality2. Some time strength is confused with opportunity
External environment consist of all the factors which provides opportunities or pose threats to an organisation. In wider sense, the external environment encompasses a variety of sectors like international, national and local economy, social changes, demographic variables, political systems, technology, attitude toward business, energy resources, raw material and other resources and many other macro level factors. This wider environment is known as General environment. All organisations, in some way or other, connected with General environment. But the immediate concerns of any organisation are confined to just part of general environment, which has high strategic relevance to the orgn, this could be termed as Relevant environment.
Aguilar evolved a categorisation scheme for grouping different kinds of information related to the environment into sectors such as customers, competitors,suppliers, technology; social, political, economic, conditions, etc. “Keegan suggests that the sector categorisation should be such that these sectors must be exhaustive, i.e., each item of information should find a place in one of the sectors; the sectors must be mutually exclusive so that any given item of information must belong to one of the category; and the classification must be functional and relate to actual scanning practices”.
Three research studies (1987-1996) in the Indian context that attempt to identify the environmental factors on the basis of a relative ranking of the different environmental sectors. M.R. Dixit -1987 ;S.Subramaniam-1989; A.M.Shah-1996 Identified the objectives of finding out the environmental sectors in the Indian context, that have relevance for strategy formulation by Indian organisations.